GM Workers and Retirees Face $16 Billion in Pension Losses While Wall Street Bonuses Exceed $18 Billion

Bloomberg reports that GM workers and retirees face the prospect of more than $16 billion in pension losses if bankruptcy is the eventual result of GM's financial distress.

The Federal Government in the form of the Pension Benefit Guaranty Corp. (PBGC) would stand behind a portion of GM's pension promises.  However, the current deficit of GM's defined benefit pension plan exceeds $20 billion.  By law, the PBGC would cover only $4 billion of this deficit.  This would leave more than 300,000 of GM's 670,000 pension plan participants exposed to reductions in benefits.

As indicated in the Bloomberg article, these benefit reductions could prove catastrophic to the retirement plans of many current and past employees:

Black, the former engineering executive, says he worked at GM for 34 years and for two years at Delphi Corp., the bankrupt auto-parts supplier formerly owned by the automaker.

“If GM loses the pensions, it would mean 25 percent of my source of income would evaporate,” said Black, who declined to say what his retirement pay is. “I would have to go back to work.”

Returning to work may not be an option for other GM retirees, Black said. “I’ve talked to lots of folks who would be devastated,” he said.

Meanwhile, over $18 billion in cash bonuses were paid to Wall Street employees in 2008.  The bonuses were paid to approximately 170,000 employees.  Many of these employees work at companies that have received bailout funds through the TARP program. 

The irony and injustice is excruciating.  On the one hand, decades worth of work and accrued pension promises are set to go up in smoke, while on the other hand cash bonuses that exceed those impaired pension promises were not only paid-out for a year's worth of punting activities but were explicitly backed by taxpayer funds provided via the Federal government's TARP program.