Autoworkers union opposes at-risk pension rule

By Susan Cornwell

WASHINGTON (Reuters) – The United Auto Workers would oppose
a bill to overhaul the traditional U.S. pension system if it
kept a current proposal for identifying pension plans at risk
of default, a union official said on Wednesday.

The UAW, which represents employees at General Motors Corp.
, Ford Motor Co., DaimlerChrysler AG and other automakers, has
played a pivotal role with pension legislation before.

Last December, the union’s endorsement of a different
version of the pension bill broke a logjam within the House of
Representatives, which then passed it by a sizable margin.

Lawmakers are now trying to draft a compromise merging
House- and Senate-passed versions of the pension legislation,
which affects 44 million Americans with traditional pensions in
older industries such as automobiles, airlines and steel.

Republican negotiators recently proposed a framework to
define which pension plans are so poorly funded that they are
at risk of default and must add cash.

But UAW legislative director Alan Reuther said that “at
risk” provision would penalize companies that put more than the
minimum required into pension plans in the past. The union
backs changes proposed by Senate Democrats, he added.

“If it stays as proposed by Republican conferees, we would
oppose it and urge people to oppose it,” Reuther said. “We
would oppose the bill.”

Negotiators have been working behind closed doors to
finalize the bill aimed at putting the traditional pension
system on a sounder footing. Defined benefit plans, which pay a
fixed amount to retirees, are underfunded by $450 billion.

The formula lawmakers are considering would define a
company’s pension plan as at risk of default it if were less
than 80 percent funded. The funding threshold could be lowered
to 70 percent if the calculation used a stricter formula.

However, in determining how well funded their plans are,
companies would not be allowed to count something called
“credit balances,” which are created when a company puts more
money into a plan than is required in a given year to meet
obligations to retirees.

These balances have been allowed to grow at an assumed
interest rate, which can be higher than the actual return. Some
analysts say they are a loophole that should be stopped.

Reuther said pension plans that would be 100 percent funded
when counting their credit balances should not have to subtract
them. Senate Democrats Max Baucus of Montana and Edward Kennedy
of Massachusetts have proposed giving such companies a “safe
harbor,” he said.

“It is real money that has been contributed to the plan,”
Reuther said. “This is not only an auto industry issue; there
are other companies that have credit balances.”

One company with a credit balance is GM. The automaker has
declined to say how large the balance is, but some analysts
estimate it at some $50 billion. Greg Kelly of Susquehanna
Financial Group said 36 companies, including GM, have credit
balances greater than 100 percent of the net charges due to
their pension accounts.

Counting the credit balance, GM has a well-funded plan, but
without it the funded percentage would fall. “Their assets
cover over 90 percent of liabilities; but if you subtract their
credit balance, they are probably below 60 percent funded,”
said Ron Gebhardtsbauer of the American Academy of Actuaries.

A GM spokesman was not immediately available for comment.