Today's Washington Post posted a story stating that Neil M. Barofsky, the special inspector general for bailout funds has pledged to investigate "whether political considerations played a role in favoring hourly over salaried retirees." The investigation is being done at the request of the Republicans in Congress.
At question is the role of the Pension Benefit Guaranty Corp. (PBGC) and Delphi, formerly a division of General Motors. General Motors spun off Delphi in 1999, and Delphi subsequently went bankrupt. The Pension Benefit Guaranty Corp. eventually took over Delphi's underfunded pension funds, paying its beneficiaries pennies on the dollar. However, according to the article:
"But the UAW, unlike the salaried employees, had negotiated a prior agreement under which GM agreed to "top off" members' pensions if an independent Delphi ever went bust. Honoring this commitment added $2.1 billion to the GM pension plan's deficit in the fall of 2008, a time when GM, too, was rapidly going down the tubes."
Thus, the Obama Administration honored the UAW pensions, but refused to pay the white-collar workers any more than they were legally supposed to get.
The article further states:
"We're talking a massive cost burden worth tens of billions of dollars. In theory, the PBGC could have taken it over, putting all UAW pensioners in the same position as Delphi's salaried retirees. To be sure, given the PBGC's precarious finances, this could have imposed a hit on taxpayers as well. But the administration might at least have pressed the UAW to reform its pensions, which are far more generous than those enjoyed by most workers."
According to Steven Rattner, one of the members of the auto task force, in his book "Overhaul," General Motors did suggest that the UAW accept a pension freeze, but UAW officials refused even to discuss the idea. In order not to jeopardize the negotiations, the Obama Administration agreed to fund the pensions. Mr. Rattner says the decision was one of 'crisis management.' It will be interesting to see what the investigation turns up.
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