Pension funding change backed

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Pension funding change backed

UAW supports linking income, mortality rate

By Jeffrey McCracken

Detroit Free Press, May 7, 2003

The United Auto Workers union supports a bill that would let automakers and others with large numbers of blue-collar retirees cut contributions to pension funds by billions of dollars because mortality statistics show those workers often don't live as long.

The UAW wrote a letter backing the bill, which also allows workers to set aside more money in their IRA and 401(k) retirement plans, said spokespersons for two congressmen proposing the bill.

"Unions, like the UAW, requested that provision and the companies backed it as well, as I understand it," said Jim Morrell, spokesman for U.S. Rep. Bill Portman, R-Ohio, who cosponsored the bill with U.S. Rep. Benjamin Cardin, D-Md.

The measure would let employers use a separate mortality table for blue-collar workers to determine their pension liability. The UAW's concern, according to an official familiar with the bill, was that too much money was set aside for pensions that otherwise could go to higher worker wages or health care.

In essence, companies like General Motors Corp. would not be required to pay as much into their pension plan because they could assume blue-collar workers will die sooner. The provision was first reported by the New York Times on Tuesday.

The UAW legislative office in Washington, D.C., referred calls back to UAW headquarters in Detroit. A UAW spokesman said he was unaware of the letter supporting the bill.

The provision, on Page 111 of the 207-page bill, could be a big savings for Detroit's three automakers. All three have substantially more hourly, blue-collar workers receiving pensions than salaried, white-collar workers.

GM, which has the largest U.S. corporate pension plan, covers 338,500 hourly retirees and 116,500 salaried. GM's U.S. pension plan entered 2003 underfunded by $19.25 billion.

The pension plan of Ford Motor Co. covers 106,000 hourly retirees and 56,000 salaried. It's underfunded by $7.27 billion.

The Chrysler Group'splan is underfunded by $5 billion. It provides a pension to 106,000 hourly and salaried retirees.

"Anything that requires companies put less into those funds in the short term would be seen as beneficial by them," said Chris McCormick, research director for Seizert Hershey, a Bloomfield Hills investment management firm. "If the mortality rates they are currently using are off, then they probably should be changed.

More than half of the 32,000 pension plans provided by private employers are underfunded, according to the government's Pension Benefit Guaranty Corp.

The alarming financial state of those plans is prompting the Bush administration and Congress to look at ways to provide relief to employers while also encouraging them to continue to offer pensions to employees.

The New York Times article noted the study upon which the provision is based also found that workers with higher incomes are likely to live longer -- meaning that higher-paid blue-collar workers in fact live as long as or longer than white-collar workers.

The author of the study, Edwin Hustead of the Society of Actuaries, told the New York Times he felt by focusing on just blue-collar workers versus white-collar workers and not income levels, the proposed bill was using his study in a curious and arbitrary way.

Hustead did not return calls to his office.