LANSING — When Gerald McKouen accepted an offer to retire early, at age 60, from General Motors Corp. in 1980, he figured he was set. After 40 years as a salaried tool foreman at GM’s Oldsmobile plant in Lansing, he was eager to punch out and collect the company pension and cost-free health care insurance.
Like many other retirees, he counted on GM’s generous retirement coverage. It was written in black and white in the automaker’s retiree benefits book. But in 1985, the automaker announced it reserved the right to amend, change or terminate the retirement plans and programs.
Since then, moving to lower its enormous post-retirement benefit obligations, GM has forced salaried retirees to begin paying monthly premiums for health insurance and co-payments for medical treatment. But at the same time, union contracts have guaranteed certain benefit levels for hourly retirees.
“While we were working they treated us great,” said McKouen, “but once we walked out the door, it was ‘the heck with you.’ ”
Once again, salaried workers fear the automaker will chip even further at their benefits to lower operating costs and boost lackluster profits. They now openly commiserate at numerous clubs scattered around the country and have taken to Internet chat rooms established to give them a voice.
Squeezed by dismal earnings in its core automotive operations and slipping market share, GM is in the same tenuous situation as many other major corporations that offer retiree pension plans and retiree health care.
RETIREES
As retiree rolls grow and pensioners live longer, the cost of supporting them has become staggering.
The average male worker now spends 18.1 years in retirement compared to 11.5 years in 1950, according to the Pension Benefit Guaranty Corp., the agency that insures pension programs. That means companies must foot the bill to support former workers — currently 44 million in the United States — an additional seven years.
This year, GM’s bill for retiree health care and pensions, and related interest, will reach $6.7 billion, almost $2 billion more than the $4.9 billion the automaker spent in 2002.
“These are costs we have to live with, and we have to get them down,” GM Chief Financial Officer John DeVine recently told analysts and investors. “They’re No. 1 on our hit parade.”
More worrisome for GM, its 461,500 retirees and their surviving spouses now outrank active workers by nearly 3 to 1.
Liability hits $102 billion
GM’s total pension liability is a staggering $102.4 billion — the biggest among all private pension plans, according to Fitch Ratings. About $87.3 billion of that covers GM’s U.S. retirees, although at the end of last year, the company’s U.S. pension fund was fully funded.
Over the years, salaried workers have, in many cases, borne the brunt of GM’s cost reduction efforts. With no protection from union contracts, they are often the first to be laid off, and have salaries and benefits reduced.
“Why are they taking it all out of salaried employees?” asked John Fox, 70, who took early retirement in 1987 at age 53. “They ought to take it out of all employees.”
McKouen says he has not received a cost of living increase in his monthly pension check for almost a decade.
For more about a dozen years, McKouen and 13 other Oldsmobile retirees with 461 years of combined service to GM have gathered every Thursday for breakfast, first at a now-closed restaurant at a Lansing mall, and for several years at a nearby Denny’s.
They sip coffee, chew on English muffins and let off steam about the situation.
GM may be financially strapped, they acknowledge, but the company has still renegged on a pledge.
“I want what I was promised,” said McKouen, 83.
GM has managed to shift more responsibility to hourly workers.
UAW-represented hourly workers now dig deeper for prescription drugs and medical treatment. As part of a new contract signed last fall, office visits are no longer covered for those under one plan, and co-payments for brand name prescription drugs doubled to $10, but remain the same for retirees. Co-pays for mail order drugs for UAW members under two different health care plans increased to $5 from $3.
3 basic plans exist
There are three basic pension plans at GM. Hourly workers participate in a “flat benefit plan” and receive a fixed monthly payment based on how many years they worked. Salaried employees hired before 2001 fall under a similar program that provides pension benefits based on their age and salary at the time of retirement.
Workers hired after 2001 participate in a “cash-balance” plan. It’s a cross between a normal pension plan and an account similar to a 401(k). The biggest difference, however, is that eligible retirees stop receiving payments when their accounts run dry — GM’s hedge against increased life expectancy.
GM also offers hourly and salaried employees traditional 401(k) retirement plans, but the company provides matching funds only for salaried workers.
What really sticks in the craw of those gathered around the table at the Thursday “breakfast club” is the fact that UAW members pay no premiums for health care, while retirees now cough up premiums as much as $180. The coverage includes low annual deductibles, vision and dental care, although there is a base plan that requires no premium but higher co-payments.
“You have to pay $150 (a month) to even get close to what you had when you retired,” said Dick Linn, 71, who retired in 1986 at age 53 after 32 years as a security guard at Oldsmobile. “If it wasn’t for Medicare, we’d really be screwed.”
While other companies have reduced or eliminated retiree benefits, GM’s plan remains one of the most generous in the nation. A typical retiree — hourly or salaried — receives average annual pension payments of $14,000, more than double the median income provided by other private U.S. pension plans.
Spokesman Jerry Dubrowski says GM retirees should never fear they will lose benefits, but given cost pressures and the automaker’s spiraling bill for health care, they should expect to make sacrifices along with active employees.
“We have asked our employees and retirees to share a very small portion of the costs,” said Dubrowski. “A majority of the costs are still borne by General Motors for both hourly and salaried (workers.)”
Recourse hard to find
Keith Taylor says salaried workers are being forced to contribute more than their fair share to help prop up the company’s stock.
“My monthly benefit right now is a little over $1,000 and has not changed since day one. No increase whatsoever,” said Taylor, a 69-year-old Dewitt resident who retired in 1995 and now supplements his income by teaching at Lansing Community College.
The dissatisfaction among GM retirees is neither universal nor unanimous, and the debate extends far beyond the Lansing kaffeklatsch.
In recent weeks and months, as GM’s automotive operations have swung into the red and company executives have warned of more belt-tightening moves, the Internet has become a popular new sounding board for anxious retirees.
“GM’s management’s word is worthless,” wrote one poster on the Web site
www.overthehillcarpeople.com, based in Hoover, Ala.
Other retirees express gratitude for the coverage, with one poster (Bill Gay) writing “after working for GM for over 41 years, I feel very grateful to enjoy the complete GM package of benefits. “Yes, they are costly, but where would we be without them?” wrote another.
Victory was short-lived
U.S. courts have not been receptive to moves aimed at forcing GM to reinstate the level of benefits promised before it added the disclaimer to its retiree benefits book.
While lead plaintiff Robert Sprague of Lansing won the first two rounds of a 1988 class-action suit, the victory was overturned by the U.S. 6th Circuit Court of Appeals.
That decision set the legal parameters that now allow companies the right to change post-retirement programs.
“Virtually every employer now has the right to terminate its documents, and that’s going to trump most oral or written commitments according to the Sprague case,” said Orin Brustad, a labor expert at Detroit law firm Miller, Canfield, Paddock and Stone.
Efforts to promote federal legislation to prevent companies from altering benefits after they were granted have been stalled.
As Gerald McKouen looked around the table at his breakfast buddies who feel the golden ring for their golden years has been unfairly wrested from them, the blunt-spoken, gravel-voiced leader of the group defiantly assessed the chances of winning their long struggle.
“I kinda doubt it,” he barked, “but I ain’t gonna give up.”
You can reach Ed Garsten at (313) 223-3217 or egarsten@detnews.com.
As retiree rolls grow and pensioners live longer, the cost of supporting them has become staggering.
The average male worker now spends 18.1 years in retirement compared to 11.5 years in 1950, according to the Pension Benefit Guaranty Corp., the agency that insures pension programs. That means companies must foot the bill to support former workers — currently 44 million in the United States — an additional seven years.
This year, GM’s bill for retiree health care and pensions, and related interest, will reach $6.7 billion, almost $2 billion more than the $4.9 billion the automaker spent in 2002.
“These are costs we have to live with, and we have to get them down,” GM Chief Financial Officer John DeVine recently told analysts and investors. “They’re No. 1 on our hit parade.”
More worrisome for GM, its 461,500 retirees and their surviving spouses now outrank active workers by nearly 3 to 1.
Liability hits $102 billion
GM’s total pension liability is a staggering $102.4 billion — the biggest among all private pension plans, according to Fitch Ratings. About $87.3 billion of that covers GM’s U.S. retirees, although at the end of last year, the company’s U.S. pension fund was fully funded.
Over the years, salaried workers have, in many cases, borne the brunt of GM’s cost reduction efforts. With no protection from union contracts, they are often the first to be laid off, and have salaries and benefits reduced.
“Why are they taking it all out of salaried employees?” asked John Fox, 70, who took early retirement in 1987 at age 53. “They ought to take it out of all employees.”
McKouen says he has not received a cost of living increase in his monthly pension check for almost a decade.
For about a dozen years, McKouen and 13 other Oldsmobile retirees with 461 years of combined service to GM have gathered every Thursday for breakfast, first at a now-closed restaurant at a Lansing mall, and for several years at a nearby Denny’s.
They sip coffee, chew on English muffins and let off steam about the situation.
GM may be financially strapped, they acknowledge, but the company has still reneged on a pledge.
“I want what I was promised,” said McKouen, 83.
GM has managed to shift more responsibility to hourly workers.
UAW-represented hourly workers now dig deeper for prescription drugs and medical treatment. As part of a new contract signed last fall, office visits are no longer covered for those under one plan, and co-payments for brand-name prescription drugs doubled to $10, but remain the same for retirees. Co-pays for mail-order drugs for UAW members under two different health care plans increased to $5 from $3.
Three basic plans exist
There are three basic pension plans at GM. Hourly workers participate in a “flat benefit plan” and receive a fixed monthly payment based on how many years they worked. Salaried employees hired before 2001 fall under a similar program that provides pension benefits based on their age and salary at the time of retirement.
Workers hired after 2001 participate in a “cash-balance” plan. It’s a cross between a normal pension plan and an account similar to a 401(k). The biggest difference, however, is that eligible retirees stop receiving payments when their accounts run dry — GM’s hedge against increased life expectancy.
GM also offers hourly and salaried employees traditional 401(k) retirement plans, but the company provides matching funds only for salaried workers.
What really sticks in the craw of those gathered around the table at the Thursday “breakfast club” is the fact that UAW members pay no premiums for health care, while retirees now cough up premiums as much as $180. The coverage includes low annual deductibles, vision and dental care, although there is a base plan that requires no premium but higher co-payments.
“You have to pay $150 (a month) to even get close to what you had when you retired,” said Dick Linn, 71, who retired in 1986 at age 53 after 32 years as a security guard at Oldsmobile. “If it wasn’t for Medicare, we’d really be screwed.”
While other companies have reduced or eliminated retiree benefits, GM’s plan remains one of the most generous in the nation. A typical retiree — hourly or salaried — receives average annual pension payments of $14,000, more than double the median income provided by other private U.S. pension plans.
Spokesman Jerry Dubrowski says GM retirees should never fear they will lose benefits, but given cost pressures and the automaker’s spiraling bill for health care, they should expect to make sacrifices along with active employees.
“We have asked our employees and retirees to share a very small portion of the costs,” said Dubrowski. “A majority of the costs are still borne by General Motors for both hourly and salaried (workers.)”
Recourse hard to find
Keith Taylor says salaried workers are being forced to contribute more than their fair share to help prop up the company’s stock.
“My monthly benefit right now is a little over $1,000 and has not changed since day one. No increase whatsoever,” said Taylor, a 69-year-old Dewitt resident who retired in 1995 and now supplements his income by teaching at Lansing Community College.
The dissatisfaction among GM retirees is neither universal nor unanimous, and the debate extends far beyond the Lansing kaffeeklatsch.
In recent weeks and months, as GM’s automotive operations have swung into the red and company executives have warned of more belt-tightening moves, the Internet has become a popular new sounding board for anxious retirees.
“GM’s management’s word is worthless,” wrote one poster on the Web site
www.overthehillcarpeople.com, based in Hoover, Ala.
Other retirees express gratitude for the coverage, with one poster(
Bill Gay ) writing “after working for GM for over 41 years, I feel very grateful to enjoy the complete GM package of benefits.” “Yes, they are costly, but where would we be without them?” wrote another.
Victory was short-lived
U.S. courts have not been receptive to moves aimed at forcing GM to reinstate the level of benefits promised before it added the disclaimer to its retiree benefits book.
While lead plaintiff Robert Sprague of Lansing won the first two rounds of a 1988 class-action suit, the victory was overturned by the U.S. 6th Circuit Court of Appeals.
That decision set the legal parameters that now allow companies the right to change post-retirement programs.
“Virtually every employer now has the right to terminate its documents, and that’s going to trump most oral or written commitments according to the Sprague case,” said Orin Brustad, a labor expert at Detroit law firm Miller, Canfield, Paddock and Stone.
Efforts have been stalled to promote federal legislation to prevent companies from altering benefits after they were granted.
As McKouen looked around the table at his breakfast buddies who feel the golden ring for their golden years has been unfairly wrested from them, the blunt-spoken, gravel-voiced leader of the group defiantly assessed the chances of winning their long struggle.
“I kinda doubt it,” he barked, “but I ain’t gonna give up.”
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