He says that all stakeholders at Chrysler and General Motors, including active and retired UAW members, were required to make sacrifices. “We did the best job we possibly could under the circumstances,” he says. “Pensions are protected, and core retiree health care benefits remain intact. We did this to secure government funding for the automakers to keep them from liquidation, in which case our pensions would have been reduced and retiree medical coverage would have been terminated,” he says.
Health care costs for older Americans have been rising faster than inflation for years, pushing many to the brink of financial ruin, says Richard Johnson, a senior fellow at the nonprofit Urban Institute. Even those in the best of circumstances—retirees with company-sponsored benefits—face out-of-pocket health care costs that grew from an average of $2,200 in 2001 to $3,000 in 2006.
“What we’ve seen is that there’s a big increase in [health care] premium payments that older people have to pay for their benefits, and that’s been driving increases in out-of-pocket payments of people at older ages,” he says. “The loss of retiree health benefits, or even cutbacks, could have serious repercussions for older people.”
The health care reductions to GM workers, slated to take effect in July, were similar to those facing 144,000 Chrysler retirees after it declared bankruptcy in April. After a revised contract between Chrysler and the UAW, retirees saw cuts in dental, vision and drug coverage.
GM’s Pension Safe for Now
On the bright side, GM retirees won’t have to worry about their pension plan, one of the largest in the nation, at least for now. It will remain ongoing for more than 670,000 current and retired workers, says Jeffrey Speicher, a spokesman for the federal Pension Benefit Guaranty Corp. (PBGC), which insures such plans. But like its retiree health care plan, GM’s pension plan, with $80 billion in assets, is underfunded by $20 billion as of last November, he adds.
If GM had liquidated its assets or terminated the pension plan, the PBGC would have taken on that obligation but tens of thousands of people would have seen a reduction in benefits, Speicher says. Retirees at age 65 could collect the maximum benefit of $54,000 a year, but younger retirees wouldn’t make out nearly as well. The maximum annual benefit for a 50-year-old is $18,900.
“For 33 years, I worked for GM and they promised me a pension and health care benefits, and every day they asked me for a full day’s work in return,” GM retiree Gethin Jones says. “This isn’t something we were given. This is something we’ve earned over 33 years, and we have every right to assume we’ll be receiving them.”
Retirees worried about the future of their benefits have flooded the telephone lines at some of the nine UAW retiree chapters in Florida, including the office headed by Fred Fabi in St. Petersburg. He says an estimated 40,000 GM retirees live in the state.
Fabi, 82, who worked as an inspector and test driver for GM, says some retirees struggling to make ends meet will likely move in with their adult children as a result of the cutbacks. Others will face decisions about whether to buy food, fill prescriptions or see a dentist.
“We’ve been getting so many calls from our retirees. They just don’t know what they’re going to do,” he says. “Our retirees have worked hard all their lives, and here you see everything you ever worked for just going down the drain.
“People will just go without,” Fabi says. “They won’t have a choice. They won’t be able to get dentures. They won’t have enough money to buy prescriptions and food. They’ll have to make an honest decision on where those few dollars they’re getting are going to go. It’s demoralizing. We deserve better.”
Carole Fleck is a senior editor for AARP Bulletin.