Senate committee calls Delphi's salaried pensions 'devastating'

David Shepardson / Detroit News Washington Bureau

Washington -- A Senate committee criticized the disparate treatment of the pensions of Delphi Automotive LLP's hourly and salaried retirees and demanded more information on how the decisions were made by the Obama administration.

Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee, noted at a hearing Thursday that the Troy-based auto supplier had terminated its pension plans covering 70,000 workers -- the fourth-largest ever takeover in terms of people covered.

In July, Delphi terminated its pension plans, saddling the Pension Benefit Guaranty Corp. with responsibility for the pension plans of Delphi workers and retirees. That move was initially estimated to cost the government's insurer of pensions about $6.25 billion.

In a report from the Government Accountability Office released Thursday, PBGC increased its estimate of costs to $6.7 billion from the Delphi pension takeover.

The government-owned corporation's takeover of Delphi's plans is the second largest in history by amount of money PBGC will pay out behind the termination of United Airlines pensions.

But under agreements with its former parent company General Motors Co., it is topping off the pensions of United Auto Workers retirees while the 15,000 salaried pension recipients stand to lose a chunk of their pensions.

"General Motors did the right thing by many tens of thousands of workers under union contracts, and 'topped up' their pensions," Harkin said, meaning the hourly retirees will not lose any of their pensions. "But there some other union workers -- electrical workers, operating engineers and machinists -- who labored right along side their brothers and sisters, but are not being made whole on their pensions." In fact, GM agreed to "top up" most of the pensions of the smaller unions last month.

He also noted that "there are 15,000 salaried (retirees) who also stand to lose some of their pension benefits."

Harkin said he planned to raise the issue with GM directly.

Separately, Delphi confirmed Thursday it had settled a long-running lawsuit with a group of investors by Appaloosa Management LP over its April 2008 decision to withdraw from an agreement to invest up to $2.55 billion in the company's reorganization.

Sen. Sherrod Brown, D-Ohio, said many Delphi retirees are facing "drastic reductions." He noted that Delphi earlier this year cut off health insurance and life insurance to salaried retirees.

"They simply are not being treated fairly," Brown said.

Sen. Mike Enzi, R-Wyoming, the ranking member of the committee, said the Obama administration's auto task force must answer questions about the deal that left salaried retirees with significant losses.

"This type of deal negotiated behind closed doors out of the public view is exactly the type of deal-making that we have long criticized the PBGC for undertaking in years past," Enzi said. "Everyone needs to know and understand what promises were made, who negotiated this deal and how this administration also pre-packaged the GM bankruptcy arrangement."

Enzi said he was going to send a letter to Treasury Secretary Tim Geithner Thursday seeking all records relating to Delphi's pensions. That echoes requests from House Republicans.

Harkin said the government must work to "ease the toll that pension failures take on working families."

Under current estimates, retirees and workers will lose at least $800 million in what they were owed over the maximum that PBGC will pay. Some younger retirees could lose one-third or more of their pensions. The Delphi salaried retirees said the average retiree will lose $300,000 in pension payments over his or her lifetime.

Rep. Tim Ryan, D-Ohio, said Delphi forced many younger salaried employees to retiree early, only to then terminate their pensions and cancel their health care benefits. His district in northeast Ohio has 5,000 Delphi retirees and the loss of income to his district is "devastating."

Delphi had previously announced it would cancel its salaried pension plan as it struggled to emerge from bankruptcy. Delphi ultimately exited with more than $2.5 billion in financial support from GM -- which was funded through government loans.

Bruce Gump, a Delphi salaried retiree, told the committee that some retirees would lose up to 70 percent of their pensions. "This will result in many being at or even below the edge of poverty. No other group in the auto industry faces this threat," Gump said.

He accused the PBGC of violating federal pension laws -- a claim PBGC denied.

He noted that the PBGC agreed to waive its $3.4 billion in liens against Delphi's foreign assets in exchange for just $70 million. "They took this action knowing that they would have to assume billions of dollars in unfunded pension liabilities and drastically reduce the pensions of Delphi retirees."

GM and Chrysler's salaried recipients also lost nothing in pensions, Gump noted. But even if PBGC had collected more, the payments to retirees from a seized pension are governed by limits in federal law

PBGC has a $33.5 billion deficit. In May, the PBGC said it was closely monitoring companies in the auto manufacturing and auto supply industries. According to PBGC estimates, auto sector pensions are underfunded by about $77 billion, of which $42 billion would be guaranteed by PBGC.

dshepardson@detnews.com (202) 662-8735