Who knew? Finally the General Motors Retiree Association (GMRA) came out swinging on behalf of the 118,000 salaried retirees of General Motors Corporation (NYSE: GM) in a major way for its decision to trash the retirement plan.
Now before you go boo-hoo on me, be apprised of the reasons. First, the end of the retirement program does more than just shift risk from GM onto an insurance company; mainly Prudential for those who do not take the lump sum. It is still a form of double jeopardy.
For example, the present retirement program is protected by the U.S government. However, the moment it is shifted to Prudential or to some other option, that guaranteed protection dies.
Is GM compensating retirees for that level of loss? No. According to GMRA, “By eliminating this large class of salaried retirees from the pension plan, you are abandoning the hard-earned benefit of an ERISA-protected pension promised to thousands upon thousands of GM retirees in return for their commitment and loyalty. This surpasses basic unfairness; indeed, it is sheer irresponsibility and greed.”
For the record, salaried retirees are being offered two choices: a lump sum or a movement to Prudential which is a group annuity. According to GMRA, “in either case GM wins and retirees lose. Taking a lump sum places the retirees plan assets at risk in the financial marketplace while reducing GM's liabilities and temporarily props up the company balance sheet.”
Those not eligible for the lump sum offer and all others not offered the choice must accept a third-party annuity and suffer the loss of both the protection of ERISA and the PBGC, as well as GM's commitment to fund the plan, not to mention any hope for a cost-of-living adjustment. Frankly, I never trusted a COLA adjustment.
Yes, the boo-hoo comments will surely come at this one. However, there is a logical reason for the outrage. Fact is, GM has benefitted greatly from the pension plan, as the income statements have shown a positive cash flow. And while GM's action is legal, the GMRA Board maintains it is not morally and ethically right to break the promise to salaried retirees.
And to make matters worse, GM used $2.9 billion in pension assets to make lump sum restructuring severance payments during 2008 - and ended the year with a $12.4 billion deficit ($20 billion by PBGC calculations). That action put plan participants at great risk. Moreover, GM's raid on the pension fund resulted in such a dangerous degree of under-funding that in early 2009 the Executive Director of the PBGC wrote GM management, asking them to desist from reverting plan assets for fear that such action could trigger a plan termination.
GMRA says that GM for many, many decades, was able to attract and retain the best talent pool of engineers and management staff with the ever-present promise and smiling assurance of deferred compensation by way of a federally-insured pension benefit, payable each year upon retirement. With that promise alone, GM benefitted greatly by the hard work from the most loyal employees any corporation could ever expect to have anywhere in the world.
GMRA's letter from Jim Shepherd, President of GMRA, further stated, “Never, even in our wildest imagination, could we ever have foreseen that GM would then turn around and treat its retirees with such little regard and with such disdain as GM is doing now. Once again, salaried retirees, those of us not protected by a labor agreement, are being singled out for disparate treatment.”
Frankly, I always thought GM was merely placating GMRA all these years; throwing a bone here, a word about the future there, etc. My assumption was, behind the scenes GM had been planning on dumping the retirement fund ever since it went to Washington for a bailout.
The final lines in the letter, though, were particularly challenging. “It is not a matter of depriving them of a gift; it is a matter of depriving them of the financial security they earned. Please prove that GM management is not morally or ethically bankrupt.”
I agree with that one. Yes, we did earn that benefit; it was why we went there in the first place. We didn't create it; it was offered. and we worked our tails off for that right. It was part of the employer-employee agreement. Besides, this isn't healthcare with runaway costs.
Still, this is GM, a corporation. It has no need to be moral when money is involved. Reputation? It probably tried to dump it on the government, and they said, no. As if GM cares! Which is why I predict GM will lose thousands of repeatable car sales from those retirees in the years to come; and perhaps then it will understand the meaning of loyalty.
For the record, I am one of those salaried retirees. And while the loss of government protection is a major hit, I say there is also an opportunity. For example, the present pension allows me to leave a percentage to my spouse. However, upon her death, the annuity ends; and my children get nothing, even if we both die in a plane crash next week.
The lump sum option avails the opportunity to right this wrong. Whether someone chooses a variable annuity or a fixed index annuity, there are better options which leave something to the children. After all, this is a tough world; they need it. What parent would pass that up, of course at a loss to my monthly income?
With all respect, I have to ask where was the GMRA when the original retirement plans were laid out? Never heard them complaining except when it was underfunded. No mention of indexing for growth.
Nonetheless, I have to respect the organization for at least speaking out. It only proves, though, that they were blind sided just like the rest of us. I’m sure Ackerson and other executives won’t suffer with their retirement amounts. And I sincerely doubt Ackerson will do anything about compensating for the loss of protection.
By the way, this is the same organization that stated Saturn was a 100 year car company.