[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE DELPHI BANKRUPTCY'S
IMPACT ON WORKERS AND RETIREES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR AND PENSIONS
COMMITTEE ON
EDUCATION AND LABOR
U.S. House of Representatives
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, DECEMBER 2, 2009
__________
Serial No. 111-42
__________
Printed for the use of the Committee on Education and Labor
Available on the Internet:
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COMMITTEE ON EDUCATION AND LABOR
GEORGE MILLER, California, Chairman
Dale E. Kildee, Michigan, Vice John Kline, Minnesota,
Chairman Senior Republican Member
Donald M. Payne, New Jersey Thomas E. Petri, Wisconsin
Robert E. Andrews, New Jersey Howard P. ``Buck'' McKeon,
Robert C. ``Bobby'' Scott, Virginia California
Lynn C. Woolsey, California Peter Hoekstra, Michigan
Ruben Hinojosa, Texas Michael N. Castle, Delaware
Carolyn McCarthy, New York Mark E. Souder, Indiana
John F. Tierney, Massachusetts Vernon J. Ehlers, Michigan
Dennis J. Kucinich, Ohio Judy Biggert, Illinois
David Wu, Oregon Todd Russell Platts, Pennsylvania
Rush D. Holt, New Jersey Joe Wilson, South Carolina
Susan A. Davis, California Cathy McMorris Rodgers, Washington
Raul M. Grijalva, Arizona Tom Price, Georgia
Timothy H. Bishop, New York Rob Bishop, Utah
Joe Sestak, Pennsylvania Brett Guthrie, Kentucky
David Loebsack, Iowa Bill Cassidy, Louisiana
Mazie Hirono, Hawaii Tom McClintock, California
Jason Altmire, Pennsylvania Duncan Hunter, California
Phil Hare, Illinois David P. Roe, Tennessee
Yvette D. Clarke, New York Glenn Thompson, Pennsylvania
Joe Courtney, Connecticut
Carol Shea-Porter, New Hampshire
Marcia L. Fudge, Ohio
Jared Polis, Colorado
Paul Tonko, New York
Pedro R. Pierluisi, Puerto Rico
Gregorio Kilili Camacho Sablan,
Northern Mariana Islands
Dina Titus, Nevada
Judy Chu, California
Mark Zuckerman, Staff Director
Barrett Karr, Republican Staff Director
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS
ROBERT E. ANDREWS, New Jersey, Chairman
David Wu, Oregon Tom Price, Geogia,
Phil Hare, Illinois Ranking Minority Member
John F. Tierney, Massachusetts John Kline, Minnesota
Dennis J. Kucinich, Ohio Howard P. ``Buck'' McKeon,
Marcia L. Fudge, Ohio California
Dale E. Kildee, Michigan Joe Wilson, South Carolina
Carolyn McCarthy, New York Brett Guthrie, Kentucky
Rush D. Holt, New Jersey Tom McClintock, California
Joe Sestak, Pennsylvania Duncan Hunter, California
David Loebsack, Iowa David P. Roe, Tennessee
Yvette D. Clarke, New York
Joe Courtney, Connecticut
C O N T E N T S
----------
Page
Hearing held on December 2, 2009................................. 1
Statement of Members:
Andrews, Hon. Robert E., Chairman, Subcommittee on Health,
Employment, Labor and Pensions............................. 1
Prepared statement of.................................... 3
Kildee, Hon. Dale E., a Representative in Congress from the
State of Michigan, prepared statement of................... 53
Letter, dated November 4, 2005, to the White House....... 7
Letter, dated July 10, 2009, to the chairmen and ranking
members of congressional committees.................... 10
Letter, dated June 24, 2009, to the Secretary of the
Treasury............................................... 9
Price, Hon. Tom, Ranking Minority Member, Subcommittee on
Health, Employment, Labor and Pensions..................... 4
Prepared statement of.................................... 5
Statement of Witnesses:
Boehner, Hon. John, a Representative in Congress from the
State of Ohio; Minority Leader, U.S. House of
Representatives, prepared statement of..................... 53
Brown, Hon. Sherrod, a U.S. Senator from the State of Ohio... 11
Prepared statement of.................................... 13
Cunningham, Charles, Delphi Salaried Retirees Association.... 30
Prepared statement of.................................... 32
Gump, Bruce, Delphi Salaried Retirees Association............ 27
Prepared statement of.................................... 29
Additional submissions:
Letter from Joseph P. Rugola, dated November 25,
2009, to the Ohio General Assembly................. 46
Resolution 2009-53, dated November 2, 2009, from the
Champion Township Trustees......................... 47
Chart: ``Delphi Salaried Retiree's Benefit Cuts
Compared to GM & Delphi Hourly Retirees''.......... 48
Lee, Hon. Christopher, a Representative in Congress from the
State of New York.......................................... 14
Prepared statement of.................................... 18
Letters submitted for the record......................... 15
Ryan, Hon. Tim, a Representative in Congress from the State
of Ohio.................................................... 22
Prepared statement of.................................... 24
Stein, Norman P., senior consultant, Pension Rights Center,
and Douglas Arant professor of law, University of Alabama
Law School................................................. 33
Prepared statement of.................................... 35
Turner, Hon. Michael R., a Representative in Congress from
the State of Ohio.......................................... 20
Prepared statement of.................................... 21
EXAMINING THE DELPHI BANKRUPTCY'S IMPACT ON WORKERS AND RETIREES
----------
Wednesday, December 2, 2009
U.S. House of Representatives
Subcommittee on Health, Employment, Labor and Pensions
Committee on Education and Labor
Washington, DC
----------
The subcommittee met, pursuant to call, at 10:35 a.m., in
room 2175, Rayburn House Office Building, Hon. Robert Andrews
[chairman of the subcommittee] presiding.
Present: Representatives Andrews, Wu, Hare, Tierney,
Kucinich, Fudge, Kildee, Courtney, Price, Kline, Guthrie, and
Hunter.
Also Present: Representative Ehlers.
Staff present: Aaron Albright, Press Secretary; Tylease
Alli, Hearing Clerk; Jody Calemine, General Counsel; Carlos
Fenwick, Policy Advisor, Subcommittee on Health Employment,
Labor and Pensions; David Hartzler, Systems Administrator; Ryan
Holden, Senior Investigator; Liz Hollis, Special Assistant to
Staff, Director/Deputy Staff Director; Broderick Johnson, Staff
Assistant; Therese Leung, Labor Policy Advisor; Richard Miller,
Senior Labor Policy Advisor; Alex Nock, Deputy Staff Director;
Joe Novotny, Chief Clerk; Meredith Regine, Junior Legislative
Associate, Labor; James Schroll, Junior Legislative Associate,
Labor; Michele Varnhagen, Labor Policy Director; Mark
Zuckerman, Staff Director; Kirk Boyle, Minority General
Counsel; Casey Buboltz, Minority Coalitions and Member Services
Coordinator; Ed Gilroy, Minority Director of Workforce Policy;
Rob Gregg, Minority Senior Legislative Assistant; Barrett Karr,
Minority Staff Director; Alexa Marrero, Minority Communications
Director; Ryan Murphy, Minority Press Secretary; Jim Paretti,
Minority Workforce Policy Counsel; and Linda Stevens, Minority
Chief Clerk/Assistant to the General Counsel.
Chairman Andrews. Good morning, ladies and gentlemen.
Welcome to the subcommittee. We are very pleased to have four
of our distinguished colleagues with us this morning, and
especially pleased that so many people traveled a long distance
to be here for this very crucial issue that has, I think, been
such a tragedy for so many people. I also want to take a moment
at the outset to formally welcome my friend and colleague, Dr.
Price, from Georgia. This is our first subcommittee hearing
since he ascended to this lofty position as the senior
Republican member of the subcommittee. He and I have worked
together on many issues over--since he has taken that position.
But this is the first time that we sat together at the dais.
And I welcome you. I am very, very glad to be with you.
I especially want to commend Senator Brown and Congressman
Lee, Congressman Turner, Congressman Ryan and Congressman
Kildee for their active effort to make sure that this hearing
took place this morning. Mr. Ryan talked to me about this a
very long time ago. He has been particularly diligent in
insisting that the committee address this issue and we
appreciate his leadership, as well as the other three witnesses
and Mr. Kildee. I frankly knew only what I had read in the
media about this issue until I learned from my colleagues about
this, and I must say to you that I wish we weren't having this
hearing this morning. I wish that what had happened is that the
promises that these families relied on for decades, for
generations had been honored, but they weren't.
And in looking at the record that we are going to hear
about this morning, it occurs to me that this is a case where
the law has undercut reasonable expectations of reasonable
people. If you go back to 2004 and you were a creditor of
Delphi, if you supplied them with some good or service, you
could have protected yourself by insisting on cash on delivery
if you sold them something. If you were a bank lending money to
Delphi, you could have protected yourself by building into the
interest rate or in the guarantee structure of the deal
something to foresee the day when you wouldn't get paid.
If you were a shareholder, you could have protected
yourself by either not buying the stock or selling it or some
other way of protecting your position. The people who could not
protect themselves were the people who went to work day after
day, week after week, month after month, drew that paycheck,
earned it, earned it and anticipated that if God forbid the day
ever came that the company had some trouble, their pension
would still be there. I think the core issue here, if you go
all the way back to the 2005 filing by Delphi and the 2008
filing by GM, that the committee has to at least think about
when we hear from the witnesses this morning is whether the
bankruptcy laws are fair in protecting the reasonable
expectations of reasonable people. As I see it, the people who
could not have protected themselves against this are the ones
sitting in the audience today. What are you going to do, quit
your job after you have been there 15 or 20 years because you
think the company might go under? My understanding is under
this plan, you couldn't have asked for a lump sum distribution
of your pension because the plan didn't permit it.
So if you knew as many Delphi employees and retirees
probably did know in 2004 and early 2005, that there was
trouble ahead for the company, unlike the creditors, unlike the
banks, unlike the shareholders, unlike the vendors, there was
really nothing you could do to protect yourself. So here we
are, with tens of thousands of people in a position where their
reasonable expectations have been thwarted.
I am not going to mislead anybody this morning by saying I
think there is some clear and easy solution to that problem.
But I do, again, want to commend our five colleagues, Mr.
Kildee and the four that are going to testify this morning, for
being absolutely dogged and intense about this issue. For
making sure that the Congress will listen to these stories,
will understand the facts of these cases and will find whatever
resources we have to provide some badly needed justice to the
individuals involved in this situation. I think that a lot of
things are wrong in this country today. Lord knows there are a
lot of things wrong in this country today.
But I think the number one thing that people think is wrong
is that there has been a basic breach of the social contract in
this country between people who work for a living and people
who are supposed to honor their obligations to them. And there
are, in this case, tens of thousands of people who upheld your
end of the bargain, went to work, followed the rules, did your
job, did the things that were expected of you and did them at a
high level of excellence and performance, and to have your
expectations evaporate because of circumstances beyond your
control and unrelated to your performance is shameful.
I do not ascribe the blame to any political party for this
problem or to any sector of the economy. I think it is a
problem that we mutually created and a problem that we have to
mutually solve. So I am very pleased this morning we have the
chance to hear about that solution.
And this time, I want to turn to my friend, the ranking
member of the subcommittee, for his opening statement.
[The statement of Mr. Andrews follows:]
Prepared Statement of Hon. Robert E. Andrews, Chairman, Subcommittee on
Health, Employment, Labor and Pensions
Good morning and welcome to the Health, Employment, Labor and
Pensions Subcommittee hearing on Examining the Delphi Bankruptcy's
Impact on Workers and Retirees.
We appreciate the attendance of today's witnesses in helping
members of the subcommittee better understand the effect the bankruptcy
of General Motors and Delphi Corporation has had on workers' retirement
benefits.
Holding jurisdiction over the Employee Retirement Income Security
Act--which was established by Congress in 1974 to protect employee
welfare benefits--the Health, Employment, Labor and Pensions
Subcommittee's concern is heightened when the retirement benefits of
American workers are subject to significant reduction.
The subcommittee is sympathetic to the plight of the health and
retirement benefits of Delphi workers and retirees. In particular,
those workers and retirees under the Delphi Salaried Pension Plan,
which are expected to see their retirement benefits reduced.
The purpose of today's hearing is to provide members of the
subcommittee with a first-hand account from aggrieved Delphi salaried
retirees. Furthermore, the subcommittee will further educate members
about the General Motors/Delphi Corporations bankruptcy proceedings, as
well as highlight the exposure to risk workers' face; in this
particular instance, their pensions.
The recent bankruptcy proceedings of General Motors and Delphi
Corporations demonstrate the degree to which employee pension benefits
are exposed to either a reduction or diminishment.
Present issues regarding pension obligations of auto parts maker
Delphi go back to 1999 when the company was spun off by General Motors.
At the time, GM promised to takeover pension obligations for hourly
workers if Delphi was ever in financial trouble. In October 2005 Delphi
filed for bankruptcy protection.
Three years later, in September 2008, a deal was struck with
Delphi's unsecured creditors and approved by federal bankruptcy court,
authorizing the transfer of $3.4 billion of Delphi hourly employee
pension obligations to GM. At the time, the move averted putting the
obligations into the hands of the PBGC.
At the beginning of June 2009 GM filed for Chapter 11 bankruptcy
protection. The GM bankruptcy filing interrupted the September 2008
agreement for GM to absorb the Delphi hourly employee pension
obligations. Prior to filing for bankruptcy, GM absorbed $2.5 billion
in pension liabilities per the September 2008 agreement. The
termination of the plans makes the PBGC responsible for the benefits of
70,000 Delphi workers and retirees, including salaried employees and
some hourly employees. The PBGC predicts its total obligation for
Delphi's pension shortfall to be $6.2 billion.
In July 2009, the federal Pension Benefit Guaranty Corporation
announced it was taking over obligations for Delphi Corporation's six
pension plans, which covers over 70,000 workers and retirees. The
corporation had separate plans for hourly employees and salaried
employees, in addition to four smaller plans.
With respect to 47,000 hourly workers and retirees in the Delphi
Hourly Pension Plan, the PBGC expected to assume $4 billion of the $4.4
billion unfunded liability, leaving a $400 million shortfall. The PBGC
expects to cover $2.2 billion of the $2.6 billion in unfunded
liabilities of the 20,000 workers and retirees in retirees in the
Delphi Salaried Pension Plan, leaving a $400 million shortfall.
I look forward to the testimony of all of our witnesses and thank
them again for participating in this important hearing.
______
Mr. Price. Thank you, Mr. Chairman. And I too want to just
express to you my appreciation and look forward to the
opportunity to work with you on the wonderful issues of this
subcommittee. This is a great subcommittee with wonderful
jurisdiction, and I am honored to be the ranking member. I also
want to recognize our colleagues here and thank them for
joining us this morning. It is always great to hear from our
colleagues who have firsthand knowledge of what is going on in
their district and how it affects their constituents, and I
appreciate the second panel as well for taking time to come and
share their experiences and their expertise.
Today's hearing marks the opportunity for us to examine
truly Delphi Corporation's bankruptcy and the effects it had on
its workers and retirees. I do look forward to hearing in
detail how different types of workers and retirees will fair
under Delphi's bankruptcy, and what lessons we, as
policymakers, might take away from this experience as we move
forward.
Before we begin, however, I would like to make two critical
points. First, as our witnesses will explain today, we should
all be deeply troubled to hear that certain specific workers
appear to have been treated differently in connection with the
company's bankruptcy than others. Some employees and retirees
appear to have been given preferential treatment in the
bankruptcy process and they will enjoy full benefits. Many
others, some of whom we will hear from today, are facing
dramatic cuts in their pension and their health benefits. Under
any circumstances, it is shocking to learn that workers who
worked side by side for the same company could find themselves
in completely, completely uneven situations.
Apparently some would suggest for purely political reasons.
Second, and even more important, it is deeply troubling to me
that the role of the Federal Government in dictating this
unfair outcome is entirely unclear. What was that role? Since
February of this year when President Obama announced the
creation of a presidential task force on the auto industry, the
Federal Government has been intimately involved in reshaping
this segment of our economy to an unprecedented level. What the
American people do know has been pieced together through media
reports and court filings, not from the administration itself.
So much for the transparency and accountability that we
heard about. We do know that the Treasury Department and the
President's hand-picked car czar were deeply involved in the
negotiation of the restructuring of General Motors. We do know
that Washington is now a majority shareholder in General Motors
holding some 60 percent of its stock. We do know that the PBGC,
the Pension Benefit Guarantee Corporation, has terminated
Delphi's pension plans. The legality of this action is
presently being challenged in Federal court. And we do know
that General Motors has agreed to ``top up'' the pension of
some workers, notably those in certain politically powerful
unions, while leaving other workers and retirees high and dry.
However there is so much more that the American people and
that we don't know at this point. What is the culpability of
the Federal Government in this situation? What role did the
White House and the auto task force play? How active was it in
determining winners and losers? And what terms did they
dictate? To those questions we have no answers. Here we are
today with an opportunity to receive answers, and it defies
logic, Mr. Chairman, that the administration and its auto task
force are not going to be here before us this morning to
explain their actions and their roles in these decisions. We
had hoped that the senior advisor to the task force, Mr. Ron
Bloom, would answer those questions.
Unfortunately it appears that the majority was not
interested in having Mr. Bloom present today. This is extremely
disappointing. And another example, I believe, of this
administration failing to live up to its promises of
accountability and of transparency. But more to the point, as a
matter of substance, it leaves a huge gaping hole in our
understanding of the true facts surrounding Delphi's
bankruptcy, and does a disservice to those who have so much at
stake in this matter.
So, Mr. Chairman, we look forward to another hearing to
provide an opportunity to gain that true transparency to the
decisions that were made. Political economies, politicians
picking winners and losers are very dangerous. I am hopeful
that this subcommittee will be allowed to completely
investigate what happened in this situation. The chairman
mentioned that are a lot of things wrong in this country. There
are a lot of things right in this country.
But one of the things that I believe that is to the
detriment of this Nation is when politicians get involved in
specific decisions that pick winners and losers in what ought
to be an agreement, as the chairman mentioned, recognized and
adhered to previously made by free individuals and free
situations. So I am honored to be joining you this morning. I
appreciate the panels before us. Thank you.
[The statement of Dr. Price follows:]
Prepared Statement of Hon. Tom Price, Ranking Minority Member,
Subcommittee on Health, Employment, Labor and Pensions
Good morning and thank you, Chairman Andrews. I would like to begin
by thanking our two distinguished panels for appearing today. We
appreciate that they have taken time out of their busy schedules to
share their experiences and expertise with us.
Today's hearing marks an opportunity to examine the impact of
Delphi Corporation's bankruptcy on its workers and retirees. I look
forward to hearing in detail how different classes of workers and
retirees will fare under Delphi's bankruptcy, and what lessons we as
policymakers might take away from this experience moving forward.
I'd also like to make two critical points before we proceed with
testimony.
First, as our witnesses will explain today, I am deeply troubled to
hear that different categories of workers appear to have been treated
very differently in connection with this company's bankruptcy. Some
employees and retirees appear to have been given preferential treatment
in the bankruptcy process and will enjoy full benefits. Many others--
some of whom we will hear from today--are facing dramatic cuts in their
pension and health benefits. Under any circumstances, it is shocking to
learn that workers who worked side-by-side for the same company could
find themselves in such uneven situations.
Second, and even more important, it is deeply troubling that the
role of the federal government in dictating this unfair outcome is
entirely unclear. Since February of this year when President Obama
announced the creation of a presidential Task Force on the auto
industry, the federal government has been intimately involved in
reshaping this segment of our economy to an unprecedented level.
What the American people do know has been pieced together through
media reports and court filings, not from the Administration itself. We
know that the Treasury Department, and the President's hand-picked
``car czar,'' was deeply involved in the negotiation of the
restructuring of General Motors. We know that Washington is now a
majority shareholder in General Motors, holding some 60 percent of its
stock. We know that the Pension Benefit Guaranty Corporation has
terminated Delphi's pension plans--the legality of which is presently
being challenged in federal court. And we know that General Motors has
agreed to ``top up'' the pensions of some workers--notably, those in
certain politically powerful unions--while leaving other workers and
retirees high and dry.
There is so much more that the American people do not know at this
point. What is the culpability of the federal government in this
situation? What role did the White House and Auto Task Force play? How
active was it in determining the ``winners'' and ``losers''? And what
terms did they dictate? To those questions, we have no answers.
Here we are with an opportunity to receive answers, and yet it
defies logic that the Administration and its Auto Task Force are not
here before us this morning to explain their actions and their role in
these decisions. We had hoped the senior advisor to the Task Force, Mr.
Ron Bloom, would answer those questions. Unfortunately, Mr. Bloom's
participation this morning could not be arranged.
This is disappointing and another example of this Administration
failing to live up to its promises of accountability and transparency.
But, more to the point, as a matter of substance, it leaves a gaping
hole in our understanding of the true facts surrounding Delphi's
bankruptcy, and does a disservice to those who have so much at stake in
this matter.
Thank you, Chairman.
______
Chairman Andrews. Without objection, opening statements
from any of the members of the committee will be accepted into
the record. It is my understanding that Mr. Kildee has a
specific unanimous consent request that he wanted to make at
this time.
Mr. Kildee. Yes, Mr. Chairman. Thank you very much. I ask
unanimous consent that three letters, one to the President of
the United States, one to the full chairman of the committees
in the House and Senate who have jurisdiction over this, and
one to the Secretary of Treasury, Mr. Geithner, a letter
circulated by myself and Christopher Lee that they may be made
part of the record.
Chairman Andrews. Without objection.
[The information follows:]
------
U.S. Congress,
Washington, DC, July 10, 2009.
Hon. Barney Frank, Chairman; Hon. Spencer Bachus, Ranking Member,
Committee on Financial Services, U.S. House of Representatives,
Washington, DC.
Hon. Christopher Dodd, Chairman; Hon. Richard Shelby, Ranking Member,
Committee on Banking, Housing and Urban Affairs, U.S. Senate,
Washington, DC.
Dear Chairmen and Ranking Members: We are writing to respectfully
request immediate committee hearings into the treatment of Delphi
Corporation's pension obligations and its impact on thousands of
retirees and their families in our states.
As a result of restructuring negotiations between Delphi
Corporation, General Motors (GM) and the Treasury Department's
Automotive Task Force, Delphi's hourly retiree pension obligations will
be assumed by GM while Delphi's salaried pension obligations will
default to the Pension Benefit Guaranty Corporation. This means
salaried retiree pension benefits could be cut by as much as 70
percent, if not eliminated entirely, for approximately 15,000 retirees
and their families across the country. With their health and life
insurance benefits now discontinued, Delphi retirees are depending on
these promised pension benefits for their financial security.
Delphi's hourly and salaried retirees worked side-by-side for many
years, mostly as GM employees. Yet now, facing the same painful
circumstances, they are being treated so differently and inequitably by
their government. Collectively and separately, we have appealed to GM,
Delphi and the Administration to intervene and provide fair and
equitable treatment for Delphi's hourly and salaried retirees.
Also, given the fact that American taxpayers now hold a 60 percent
stake in the new GM, many Members have requested information from the
Auto Task Force on how this decision was reached, including all
pertinent correspondence and communication between GM, Delphi and the
Task Force. This is an important step to help shed light on the
decision-making in this case and to promote transparent and open
government.
In addition, we believe that Congress also has a responsibility to
exercise its oversight authority in this matter. As the committees of
jurisdiction, we are respectfully requesting immediate congressional
hearings into the disposition of Delphi's retiree pension obligations
and a thorough examination of the decision that resulted in these
inequitable outcomes for hourly and salaried retirees.
We fully understand that the restructuring of America's auto
industry will require shared sacrifice and responsibility, which makes
the need for a congressional examination into the disparate treatment
given to Delphi's hourly and salaried retirees all the more urgent and
necessary.
Since Delphi's reorganization plan is scheduled for court action on
July 23, 2009 we thank you in advance for your immediate consideration
of this request.
Sincerely,
Christopher J. Lee,
Tim Ryan,
John A. Boehner,
Bart Stupak,
Vernon Ehlers,
Dale Kildee,
David Camp,
Carolyn Kilpatrick,
Candice Miller,
Marcy Kaptur,
Thaddeus McCotter,
John Boccieri,
Dan Burton,
Marcia Fudge,
Mike Pence,
Charles Wilson,
Michael Turner,
Parker Griffith,
Pete Hoekstra,
Travis Childers,
Steve Austria,
Bennie Thompson,
Steven LaTourette,
Eric Massa,
Jean Schmidt,
Dan Maffei,
Patrick Tiberi,
Louise Slaughter,
Robert Aderholt,
Silvestre Reyes,
Gregg Harper,
Brian Higgins,
Ginny Brown-Waite,
Jim Marshall,
F. James Sensenbrenner, Jr.,
Gary C. Peters,
Robert Latta,
Mary Jo Kilroy,
J. Randy Forbes,
Steve Driehaus,
Jim Gerlach,
Michael H. Michaud,
Mike Rogers (MI),
John Conyers, Jr.,
Members of Congress.
______
U.S. Congress,
Washington, DC, June 24, 2009.
Hon. Timothy F. Geithner, Secretary,
U.S. Department of Treasury, 1500 Pennsylvania Avenue, NW, Washington,
DC.
Dear Secretary Geithner: We are writing in regards to the recent
involvement by the U.S. Treasury Department's Automotive Task Force
concerning the pension obligations of Delphi Corporation.
We are concerned about the inequitable decision to default the
Delphi Corporation's salaried retiree pension plan to the Pension
Benefit Guarantee Corporation (PBGC), while General Motors agreed to
assume the auto parts supplier's hourly retiree pension obligations.
Through referral to the PBGC, salaried retirees' pension payments are
likely to be cut drastically, as much as 70 percent by some estimates.
It is fundamentally unfair that two groups of retirees from the same
company, who worked side-by-side for so many years, and who are faced
with the same unfortunate situation, are being treated so differently
by the federal government.
At a minimum, in the interest of transparency and accountability,
we believe the 15,000 salaried Delphi retirees nationwide--not to
mention the American taxpayers who now own a 60 percent stake in the
new GM--deserve a full and public explanation of how this inequitable
decision was made.
For this reason, we respectfully request that you direct the Auto
Task Force to make public all documents concerning how this decision
was reached, including all pertinent documents, written communications
and memoranda between the Automotive Task Force, General Motors, Delphi
Corporation and their agents or representatives.
Thank you for your urgent consideration of this important matter.
We look forward to hearing from you.
Sincerely,
Christopher J. Lee,
Brian Higgins,
Robert Latta,
Daniel Maffei,
Vernon Ehlers,
Mary Jo Kilroy,
Gregg Harper,
Steve Driehaus,
Michael Turner,
Parker Griffith,
Mike Rogers (MI),
Silvestre Reyes,
Todd R. Platts,
Eric Massa,
Ginny Brown-Waite,
Jim Gerlach,
David Camp,
Dan Burton,
Peter Hoekstra,
Thaddeus McCotter,
Candice Miller,
Dale Kildee,
Members of Congress.
______
Chairman Andrews. At this time, I am going to introduce our
member panel very briefly since each of these gentlemen is
known to each of us. Senator Sherrod Brown, we welcome back to
his home in the House of Representatives. Sherrod is the Junior
Senator from Ohio. He was elected to the Senate. He was demoted
in 2006. He left the House for the Senate. Everybody picked
that up. He currently sits on the Senate Health, Education,
Labor and Pensions Committee, the Banking, Housing and Urban
Affairs Committee, and is chairman of its Subcommittee on
Economic Policy, the Veterans' Affairs Committee and the Ethics
Committee, the Agriculture and Nutrition Subcommittee, and as
chairman of its subcommittee on Hunger, Nutrition and Family
Farms. Sherrod, welcome back. It is always great to have you
here.
Congressman Chris Lee is in his first term, representing
New York's 26th Congressional District. He currently sits on
the House Committee on Financial Services where I know there is
votes going on this morning. So we will try to accommodate
that. He certainly has made a very positive impression in his
first term and we are glad he is with us here as well.
Congressman Michael Turner is the Representative of the 3rd
District of Ohio after being elected in 2002. I believe he was
mayor of Dayton before that; is that right? He is a Member of
the House Armed Services Committee where he and I traveled
together to Iraq and was named as a ranking member on the
Strategic Forces Subcommittee, and is a member of the Readiness
Subcommittee. He also serves on the House Committee on
Oversight and Government Reform where he serves on the National
Security and Foreign Affairs Subcommittee, as well as the
Domestic Policy Subcommittee.
And we welcome Congressman Tim Ryan back to the committee.
He started here with us when he first joined the House. He was
elected to the Congress in 2002. He is now in his fourth term
representing Ohio's 17th District, which, I guess, Youngstown
is the largest community. He currently serves on the
Subcommittee on Labor, Health and Human Services, Education
Related Agencies Subcommittee on the legislative branch and the
Subcommittee on Energy and Water Development on the
Appropriations Committee. Tim, you have been tireless in making
this hearing take place this morning. We are glad to have you
with us.
At this time we are going to go to our member panel. I
would say to the panelists that it is the custom of this
subcommittee, although not the rule, that we don't engage in
questions and answers too much with the member panel so we can
get to the citizens that have come here. But obviously, if any
members want to ask you a question, we would be happy to have
that and you are welcome to make your statements, Sherrod,
welcome.
STATEMENT OF THE HON. SHERROD BROWN,
A U.S. SENATOR FROM THE STATE OF OHIO
Senator Brown. Thank you very much, Mr. Chairman and
Ranking Member Price. Congratulations on your new position.
And, Mr. Chairman, thank you for your understanding of a
complicated, yet in many ways, very simple set of issues. So
thanks for that. And special thanks to Congressman Kucinich and
Congresswoman Fudge from Ohio who sit on the health panel too,
and their work on this, and especially Tim Ryan and Mike
Turner, who have joined all of us in Ohio in understanding how
important this issue is, not just for the Mahoning Valley and
the Miami Valley, but our whole State.
I appreciate the opportunity to speak out on behalf of
representatives of the Delphi retirees and thousands of Ohioans
who are paying the price of the Delphi bankruptcy and lost
health care and dramatically reduced pensions. For many workers
and retirees in my State and across the Nation there is--as the
chairman pointed out--a crisis of confidence in our social
contract. Pension benefits earned over a long lifetime of
service are dramatically reduced in the wake of bankruptcy.
When PBGC assumes trusteeship of a pension plan and can only
pay benefits up to what is guaranteed in law, final benefits
can sometimes take months or years to calculate with the
retiree responsible for any overpayment.
Earlier this week, I was in Congressman Kucinich's district
and at a steel plant. I talked to one retiree who owes
literally $18,000 back to the PBGC because of a miscalculated
overpayment. Early retirement supplemental benefits, health
benefits are not guaranteed. Retirees are in no position to
make up for these losses when their pension is assigned to the
PBGC. They feel betrayed by the system that gave them certain
expectations as Chairman Andrews pointed out in a system that
is supposed to protect them. The Federal Government stepped in
to bail out the auto industry. It was the right thing to do.
TARP financing has enabled General Motors to quickly move
through bankruptcy. TARP financing enabled GM to address its
pension obligations. TARP saved thousands of jobs in a key
sector of our economy. However, all too many workers, as we
know too well, who spent most of their careers as GM employees
were left out.
Tom Rose, a Delphi retiree, who started his career with GM
in 1969 summarized the sentiment of many Delphi retirees when
he told the Dayton Daily News our defined pension depended on a
trust that was broken. In the case of Delphi hourly employees
under certain collective bargaining agreements, GM agreed to
make up the difference between PBGC benefits and what the
retiree earned. The Delphi salaried employees and some of the
hourly employees represented by the International Union of
Operating Engineers, the International Brotherhood of
Electrical Workers and the machinists unions had no such
agreement and are facing drastic reductions in their pension
benefits.
So it is salaried workers and some union workers also. They
are simply looking for fair treatment. Other Delphi retirees
are facing the loss of their health benefits, which is why
Congressman Ryan and I introduced legislation with
Representatives Fudge and Kucinich and Turner and other members
of the Ohio delegation to fund a voluntary employees
beneficiary association, VEBA, to help them with the cost of
health care. They too are looking for fair treatment. At our
Senate Health Committee hearing last month, we heard testimony
about how Delphi pushed many workers into early retirement with
the assurance that their pension benefits would be safe. That
simply was not true.
Now these retirees face the greatest losses in income. A
54-year-old Delphi salaried retiree named John wrote my office
and said 31 years of effort to secure a pension are being
ruined in the bankruptcy court. Creditors who only have several
years of revenue at risk are given higher priority. I have been
looking for a job for 10 months without success. If my pension
goes to PBGC, my family will likely be living below the poverty
level. The loss of pension and health care benefits will add to
the economic devastation of an area already reeling from job
losses. In the two areas in Ohio that have probably been hit
hardest by this awful recession are the areas represented by
Congressman Ryan in the Mahoning Valley, Youngstown-Warren area
and by Congressman Turner, the Miami Valley, Dayton,
Springfield--Dayton in his case in that area.
A Youngstown State University study estimates an annual
fiscal impact of nearly $58 million resulting in over 1,700
employment losses. Protecting the pensions supports economic
recovery, workers at the steel plant in Cleveland, a different
issue, but who lost significant PBGC money went back to work,
three whom I met with earlier this week have all been there
more than 30 years, they went back to work because they lost so
much of their pension on an issue that Congressman Kucinich
worked so hard on and are in PBGC and they had to go back to
work as a result. If they had been treated fairly and gotten
their full pensions, if the company had funded them, they would
be retired, living relatively comfortably and new workers would
be replacing them at the steel plant.
Protecting retirement security is one of the purposes of
the bailout of our financial system. We can't bail out an
industry while leaving thousands of retirees who have loyally
served out in the cold. We should be able to resolve this.
Thank you, Mr. Chairman.
[The statement of Senator Brown follows:]
Prepared Statement of Hon. Sherrod Brown,
a U.S. Senator From the State of Ohio
Good Morning.
I would like to thank Chairman Andrews, Ranking Member Price, and
all of the Members of the Subcommittee for holding this hearing.
I appreciate the opportunity to join my colleagues in the House and
the representatives of the Delphi retirees to speak out on behalf of
the tens of thousands of Ohioans who are paying the price of the Delphi
bankruptcy in lost health care and reduced pensions.
For many workers and retirees in Ohio and across the nation, there
is a crisis of confidence in our social contract. Pension benefits
earned over a lifetime of service are dramatically reduced in the wake
of bankruptcy.
When PBGC assumes trusteeship of a pension plan, it can only pay
benefits up to what is guaranteed in law. Final benefits can sometimes
take months or years to calculate, with the retiree responsible for any
overpayment.
Early retirement, supplemental benefits, and health benefits are
not guaranteed. Retirees are in no position to make up for these losses
when their pension is assigned to the PBGC. They feel betrayed by the
system that was supposed to protect them.
The federal government stepped in to bail out the auto industry.
TARP financing has enabled General Motors to quickly move through
bankruptcy. TARP financing enabled GM to address its pension
obligations. TARP saved thousands of jobs in a key sector of our
economy. However, some workers, many of whom spent most of their
careers as GM employees, were left out.
Tom Rose, a Delphi retiree who started his career with General
Motors in 1969, summarized the sentiment of many Delphi retirees when
he told the Dayton Daily News: ``Our defined pension depended on a
trust that was broken.''
In the case of Delphi hourly employees under certain collective
bargaining agreements, GM agreed to make up the difference between the
PBGC benefit and what the retiree had earned. The Delphi salaried
employees and some of the hourly employees such as those represented by
the International Union of Operating Engineers, the International
Brotherhood of Electrical Workers (IBEW), and the Machinists unions had
no such agreement and are facing drastic reductions in their pension
benefits. They are looking for fair treatment.
Other Delphi retirees are facing the loss of their health benefits,
which is why Congressman Ryan and I introduced legislation with
Representatives Fudge, Kucinich, Turner, and other members of the Ohio
delegation to fund a Voluntary Employees' Beneficiary Association to
help them with the cost of health care. They, too, are looking for fair
treatment.
At our Senate HELP Committee hearing last month, we heard testimony
about how Delphi pushed many workers into early retirement with the
assurance that their pension benefits would be safe. That was not true.
Now these retirees face the greatest losses in income.
John, a 55-year old Delphi Salaried retiree wrote my office,
``Thirty-one years of effort to secure a pension are being ruined. In
the bankruptcy court, creditors who only have several years of revenue
at risk are being given higher priority. I have been looking for a job
for 10 months without any success. If my pension goes to the PBGC, my
family will probably be living below the poverty level.''
The loss of pension and health care benefits will add to the
economic devastation of an area already reeling from job losses. A
Youngstown State University study estimated an annual fiscal impact of
nearly $58 million, resulting in over 1700 employment losses.
Protecting the pensions supports economic recovery.
Protecting retirement security was one of the purposes of the
bailout of our financial system.
We cannot bail out an industry while leaving thousands of retirees
who have loyally served it out in the cold.
We should be able to resolve this.
Thank you for inviting me to testify.
______
Chairman Andrews. Thank you, Senator. It is great to have
you with us. Congressman Lee, welcome to the subcommittee.
STATEMENT OF THE HON. CHRISTOPHER LEE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. Lee. Thank you. I would like to thank the Chairman,
Ranking Member Price and the rest of the subcommittee members
for giving me an opportunity to speak about an issue that is
very near and dear to me and many of the constituents that I
represent here in western New York. Mr. Chairman, you convened
this hearing to investigate the handling of Delphi
Corporation's pension obligations and I truly do commend you
for doing so and as a result of this restructuring,
negotiations between Delphi, GM and the Treasury Department's
auto task force, many Delphi workers and retirees have seen
changes to their pensions. We all know that is very evident.
However, as you are aware, these changes were not equally
distributed among these current and former Delphi and GM
employees. As a result of the restructured negotiations between
Delphi Corporation, GM and the auto task force, Delphi's
pension obligations will default to the Pension Benefit
Guarantee Corporation. However, certain hourly workers will
experience little or no pension reduction because of the
unprecedented agreement brokered by the auto task force for GM
to top up these pensions. You will hear from members of the
Delphi Salaried Retiree Association discuss this in further
detail.
But what this decision means as to the pension benefits for
salaried Delphi retirees could be cut as much as 70 percent for
approximately 20,000 workers across this country. And that is
just wrong. Just in the last year alone, the last year alone,
their health care benefits gone, life insurance benefits gone,
and now this. Delphi retirees have long depended on these
benefits for their financial security and retirement. I have
with me here today just in the last week hundreds of pieces of
correspondence that I received from Delphi retirees from across
the country in just one week.
Their stories, I have got to tell you, are painful to read.
These letters tell you the stories of men and women who have
worked for 20, 30, even longer that GM and Delphi, doing their
job day in and day outer, building American products, helping
our local economy across the country. And these are places like
western New York, Ohio, Michigan. These men and women have
worked for Delphi with the promise of current and future
compensation funded through the efforts by these workers. They
were depending on these benefits for a safe, secure and healthy
retirement. One such person I want to make note of is a
gentleman, David Chad from Lock Port, New York. Worked for GM
for 25 years, Delphi for another 10. He had anticipated
retirement pension. His anticipated retirement pension had
already been cut by 30 percent from what was originally
promised by him by Delphi back in October of 2008. He was
promised health care benefits once he retired until he reached
the age of 65. And these are gone.
Now the PBGC is expected to dramatically reduce his pension
benefits on top of what was already cut in 2008. And he
described his personal situation like this. Uncertainty of
benefits, no health care and a 401(k) designed over 35 years
ago to be supplemented with a healthy pension. It has shattered
his retirement plans. And after carefully planning his
retirement that he thought would begin in his early 60s, he now
expects to work until the age of at least 70. He is certainly
not alone.
These are countless stories I have read and other stories
like these throughout the country. And I ask unanimous consent
to submit these letters for the record.
Chairman Andrews. Without objection.
[The letters, of which a sampling follows, have been
entered into the permanent record and are archived at the
Committee's office:]
------
Mr. Lee. Delphi's hourly and salaried retirees worked side
by side for many years, mostly as GM employees. Yet they are
now being treated so differently and so inequitably by their
government and with some bearing a small burden while others
take the lion's share. Many of my colleagues, including those
sitting with me on this panel today, have appealed to GM,
Delphi and the administration to intervene and provide fair and
equitable treatment for Delphi's hourly and salaried retirees.
At a minimum, these decisions and how these decisions were
reached ought to be explained sufficiently to these workers. I
want to call your attention to an important congressional
request that demands the attention of this committee. On June
24th, more than 5 months ago, a bipartisan group of 22 Members
wrote to Treasury Secretary Tim Geithner to request that he
direct the auto task force to make public all documents
concerning how the decision to dispose of these pensions were
reached, including relevant documents, written communications
and memoranda between the Auto Task Force, GM, Delphi and their
agents and representatives. And I also ask unanimous consent to
have this put into the----
Chairman Andrews. Without objection.
Mr. Lee. Following the Senate Health, Education, Labor and
Pensions hearing, Pensions in Peril, which examined this issue,
a similar request was made. To date, we have not received a
single response back from Secretary Geithner on this request.
And in light of the administration's commitment to transparency
and open government and given that the American taxpayer is now
a majority shareholder of GM, I believe it is the taxpayers who
deserve answers and a full explanation as to how these
inequitable decisions were made.
On behalf of Delphi's retirees and the American taxpayers
who are financing GM's recovery, I am here to seek the support
of this committee for this request and your assistance in
demanding the immediate release of these documents from the
auto task force and the Treasury Department. I am grateful that
this committee is beginning to investigate what is truly
happening here, but how can proper oversight be performed on
these decisions if the administration will not release the
information it used to make the decisions. Only through the
public release of these documents can Congress effectively
exercise its oversight authority and responsibility. And I
thank the chairman and ranking member to have this opportunity
to speak on my constituents' behalf.
Chairman Andrews. Thank you. We appreciate your
participation.
[The statement of Mr. Lee follows:]
Prepared Statement of Hon. Christopher Lee, a Representative in
Congress From the State of New York
I'd like to begin by thanking Chairman Andrews, Ranking Member
Price, and the other members of the subcommittee for giving me the
opportunity to testify here today.
Mr. Chairman, you have convened this hearing to investigate the
handling of Delphi Corporation's pension obligations, and I commend you
for doing so. As a result of the restructuring negotiations between
Delphi Corporation, General Motors, and the Treasury Department's
Automotive Task Force, many Delphi workers and retirees have seen
changes to their pensions. However, as you are aware, these changes
were not equally distributed among these current and former Delphi and
GM employees.
As a result of restructuring negotiations between Delphi
Corporation, GM and the Auto Task Force, Delphi's pension obligations
will default to the Pension Benefit Guaranty Corporation. However,
certain hourly workers will experience little or no pension reduction
because of the unprecedented agreement brokered by the Auto Task Force
for GM to ``top up'' those pensions. You will hear from members of the
Delphi Salaried Retiree Association to discuss this in further detail,
but what this decision means is that pension benefits for salaried
Delphi retirees could be cut by as much as 70 percent for approximately
20,000 retirees and workers across the country. Just in the last year,
their health and life insurance benefits have been canceled, and now
this. Delphi retirees have long depended on these benefits for their
financial security in retirement.
I have with me here today hundreds of pieces of correspondence I
received just in the last week from salaried Delphi retirees from
across the country. Their stories are painful to read. These letters
tell the stories of men and women who worked for 20 or 30 years or even
longer for Delphi, building good American products and contributing to
their local economy and communities in Western New York, in Ohio, in
Michigan and elsewhere. These men and women worked for Delphi with the
promise of current and future compensation funded through the effort of
each worker. They were depending on these benefits for a safe, secure
and healthy retirement.
One such person is 53yearold David Chatt from Lockport, New York.
David worked for GM for 25 years and Delphi for an additional 10 years.
His anticipated retirement pension had already been cut by 30 percent
from what was originally promised him by action Delphi took in October
of 2008. He was promised health care benefits once he retired until he
reached the age of 65, and these are gone. Now the PBGC is expected to
dramatically reduce his pension benefits, on top of what was already
cut in 2008. He described his personal situation like this:
``uncertainty of benefits, no health care, and a 401(k) designed over
35 years to be supplemented with a healthy pension, has shattered [his]
retirement plans.'' After carefully planning a retirement in good faith
that would begin in his early 60s, he now expects to have to work until
70.
He's certainly not alone. There are countless other stories like
this in these letters, and I ask unanimous consent to submit these
letters for the record. [WAIT for response]
Delphi's hourly and salaried retirees worked sidebyside for many
years, mostly as GM employees. Yet they are now being treated so
differently and inequitably by their government, with some bearing a
small burden while others take the lion's share. Many of my colleagues,
including those sitting with me on the panel today, have appealed to
GM, Delphi and the Administration to intervene and provide fair and
equitable treatment for Delphi's hourly and salaried retirees. At
minimum, these decisions--and how these decisions were reached--ought
to be explained sufficiently to these workers.
I want to call your attention to an important congressional request
that demands the attention of this Committee. On June 24, more than
five months ago, a bipartisan group of 22 Members wrote to Treasury
Secretary Timothy Geithner to request he direct the Auto Task Force to
make public all documents concerning how the decision to dispose of
these pensions was reached, including relevant documents, written
communications and memoranda between the Auto Task Force, GM, Delphi,
and their agents and representatives. I ask unanimous consent to have
this letter submitted for the record. [WAIT for response]
Following the Senate Health, Education, Labor, and Pensions'
hearing ``Pensions in Peril'' which examined this issue, a similar
request was made.
To date, we have not received a response from Secretary Geithner to
this request. In light of this Administration's commitment to
transparent and open government, and given that the American taxpayers
are the majority owners of GM, I believe that taxpayers deserve answers
and a full explanation of how these inequitable decisions were made.
On behalf of Delphi's retirees, and the American taxpayers who are
financing GM's recovery, I am here to seek the support of this
committee for this request and your assistance in demanding the
immediate release of these documents from the Auto Task Force and the
Treasury Department. I am grateful that this committee is beginning to
investigate what happened here, but how can proper oversight be
performed on these decisions if the Administration will not release the
information it used to make its decisions? Only through the public
release of these documents can Congress effectively exercise its
oversight authority and responsibility. I thank the Chairman and
Ranking Member in advance for their consideration of this long overdue
request.
I again thank the committee for the opportunity to testify here
today and look forward to working with you all to continue to pursue
this matter.
______
Chairman Andrews. Congressman Michael Turner, welcome to
the committee.
STATEMENT OF THE HON. MICHAEL R. TURNER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Mr. Turner. Thank you, Mr. Chairman, Ranking Member Price.
Chairman Andrews, I want to thank you for your comments
concerning this being an issue of trust and values. And,
Ranking Member Price, I want to thank you for your comments
concerning questions of the actions of this administration that
facilitated this result. The bankruptcy of Delphi Corporation
has had a major impact on my community of Dayton, Ohio. The
Dayton region is actually the birthplace of Delphi. The company
was founded as the Dayton Engineering Laboratories Company
which evolved through the hard work of Ohioans into Delco, a
division of General Motors.
General Motors subsequently spun off Delphi, which, at one
point, was the largest parts supplier of General Motors. Mr.
Chairman, my father worked in General Motors factories for over
40 years. When Delphi declared bankruptcy in 2005, the company
decided to close or sell several facilities in my congressional
district, including 2 facilities in Dayton, as well as a
facility in Kettering, Moraine and Vandalia.
The job loss at these facilities has been estimated at over
5,000 jobs. The effect of these plant closures have been felt
throughout the Dayton region as many of our family members,
neighbors and friends were Delphi employees. The closure of
these facilities also has an impact beyond individual job loss.
Whole neighborhoods have been affected by Delphi's bankruptcy
through increased foreclosures and community services that have
been affected as a result of an eroded tax base. The job loss
associated with Delphi's bankruptcy was further increased by
the closing of a General Motors's plant in Moraine, Ohio, which
resulted in the loss of 5,000 additional jobs. The job losses
also extended to small manufacturers and suppliers throughout
Ohio who lost Delphi and General Motors as clients.
Since Delphi entered bankruptcy in 2005, many of us in Ohio
have worked on a bipartisan basis to assist those affected in
the State. I have worked with my colleague Senator Brown to
help secure emergency assistance for auto workers and with
Representative Tim Ryan to help provide trade adjustment
assistance to dislocated workers. Today's hearing is in
response to yet another loss to my community at the hands of
Delphi Corporation.
This summer, Delphi when they petitioned for the United
States Supreme Court's approval to turn over pensions for
salaried retirees to the Pension Benefit Guarantee Corporation,
resulted in an additional loss to my constituents. These
actions are resulting in approximately 15,000 salaried Delphi
retirees from across the country taking a severe cut in their
promised pension benefits. I want to go a little further. We
keep talking about promises. Item these are earned pension
benefits. Benefits that as a result of their hard work should
have been there for them upon their retirement. By some
estimate, this means a 70 percent reduction in pensions and for
some retirees the news compounds the prior loss of health care
benefits.
Earlier this year, a bipartisan group of Ohio
representatives petitioned the administration to help retirees
from General Motors' plants in Dayton and Warren to receive
insurance benefits. While these retirees were not entirely made
whole, some were able to receive a baseline of benefit
protections. However, not all groups have had these results.
Delphi salaried retirees, as well as some of the so-called
splinter unions, it says IUOE, IBEW and IAM still face benefit
reductions.
Local leadership for the Delphi salaried retirees in my
district estimate that nearly 1,000 retirees in the Dayton area
will be affected by the bankruptcy court's decision. This
treatment of salaried retirees is particularly troublesome in
comparison to the benefits received by some in organized labor
organizations.
I have worked along with the members of this panel to
advocate on behalf of both union and nonunion labor to ensure
that all retired workers receive whatever benefits they were
promised. Mr. Chairman, all of these retirees, regardless of
labor affiliation or not, worked alongside each other during
their careers. They should not be treated differently in
retirement. Salaried retirees made their careers by supporting
Delphi Corporation. Congress and President Obama's
administration owe it to these hard working men and women to
pursue aggressive oversight in this matter and to work toward a
solution.
Before I conclude, I would like to recognize Tom Rose, who
drove here from Dayton, Ohio to Washington, D.C. For today's
hearing, as well as the other retirees who are present, all of
which, Mr. Chairman, are attending this hearing in hopes of
answers as to how this issue can be addressed. They have my
continued commitment to work with this panel on their behalf.
Mr. Chairman, while Delphi has been permitted to survive, their
retirees continue to struggle. This problem should not have
been allowed to occur and the administration's actions appear
to have encouraged this result. And this outcome only
encourages companies in the future to underfund their pensions
and then to walk away from their obligations. I appreciate your
holding this hearing today, and we look forward to additional
answers. Thank you.
Chairman Andrews. Thank you very much, Congressman.
[The statement of Mr. Turner follows:]
Prepared Statement of Hon. Michael R. Turner, a Representative in
Congress From the State of Ohio
Thank you Chairman Andrews and Ranking Member Price for holding
this hearing today and inviting me to testify.
The bankruptcy of Delphi Corporation has had a major impact on my
community of Dayton, Ohio.
The Dayton region is the birthplace of Delphi Corporation. The
company was founded as the Dayton Engineering Laboratories Company
which evolved, through the hard work of Ohioans, into Delco, a division
of General Motors. General Motors subsequently spun off Delphi
Corporation, which at one point, was the largest parts supplier to
General Motors. Mr. Chairman, my father worked for General Motors for
over 40 years.
When Delphi declared bankruptcy in 2005, the company decided to
close or sell several facilities in my congressional district including
two facilities in Dayton, as well as facilities in Kettering, Moraine,
and Vandalia. The job loss at these facilities has been estimated at
over 5000 jobs.
The effect of these plant closures has been felt throughout the
Dayton region as many of our family members, neighbors, and friends
were Delphi employees.
The closure of these facilities also has an impact beyond
individual job loss. Whole neighborhoods have been affected by Delphi's
bankruptcy through increased foreclosures, and community services have
been affected because of an eroded tax base.
The job loss associated with Delphi's bankruptcy was further
increased by the closing of the General Motors assembly plant in
Moraine, Ohio, which resulted in the loss of five thousand additional
jobs. The job losses also extend to small manufacturers and suppliers
throughout Ohio who lost Delphi and GM as clients.
Since Delphi entered bankruptcy in 2005, many of us in Ohio have
worked on a bi-partisan basis to assist those affected in our state.
Specifically, I have worked with my colleague Senator Brown to help
provide emergency assistance for auto workers and with Representative
Tim Ryan to help provide trade adjustment assistance to dislocated
workers.
Today's hearing is in response to yet another loss to my community
at the hands of Delphi Corporation.
This summer, Delphi petitioned for, and the United States
Bankruptcy Court granted authority to turn over pensions for salaried
retirees to the Pension Benefit Guarantee Corporation (PBGC). These
actions are resulting in approximately 15,000 salaried Delphi retirees
from across the country taking a severe cut in their promised pension
benefits. By some estimates, this means a 70 percent reduction in
pensions, and for some retirees, this news compounds the prior loss of
health care benefits.
Earlier this year a bi-partisan group of Ohio representatives
petitioned the Administration to help retirees from General Motors
plants in Dayton and Warren, Ohio to receive insurance benefits. While
these retirees were not entirely made whole, some were able to achieve
a baseline of benefit protections.
However, not all groups have had these results. Delphi Salaried
Retirees, as well as some so-called ``splinter unions'' such as the
IUOE, IBEW, and IAM still face benefit reductions.
Local leadership for the Delphi Salaried Retirees in my district
estimate that nearly 1000 retirees in the Dayton area will be affected
by the Bankruptcy Court's decision. This treatment of salaried retirees
is particularly troubling in comparison to the benefits received by
some in organized labor organizations.
I have worked along with all the members of this panel to advocate
on behalf of both union and non-union labor to ensure that all retired
workers receive whatever benefits they were promised.
Mr. Chairman, all of these retirees, regardless of labor
affiliation or not, worked alongside each other during their careers.
They should not be treated differently in their retirement.
Salaried retirees made their careers by supporting Delphi
Corporation. Congress and President Obama's Administration owe it to
these hard working men and women to pursue aggressive oversight in this
matter, and to work toward a solution.
Before I conclude, I would like to recognize Tom Rose for driving
from Dayton, Ohio to Washington, DC for today's hearing, as well as the
other retirees who are in attendance. You have my continued commitment
to work on your behalf.
Mr. Chairman, while Delphi has been permitted to survive, their
retirees continue to struggle. This problem should not even have been
allowed to occur. I appreciate your holding this hearing today as we
look for additional answers.
Thank you.
______
Chairman Andrews. Mr. Rose said he had driven to be here
today. Can he stand? Welcome, sir. I am glad you are with us
this morning. Thanks for paying our salaries. We appreciate it.
We hope we can earn them for you today. Congressman Tim Ryan,
welcome back to the committee. And thank you for your efforts
to make today a reality.
STATEMENT OF THE HON. TIM RYAN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OHIO
Mr. Ryan. Thank you, Mr. Chairman. I would also like to
thank you--it has been months since we had talked and you right
out of gate said yes, we will help you. And I appreciate you
helping me keep my commitment to the Delphi salaried retirees.
So I appreciate that. Congressman Price, congratulations on the
promotion. Members of the Committee, Congressman Kucinich,
Congresswoman Fudge from Ohio and Mr. Kildee, thank you for all
your help helping address this issue.
I would also like to thank Chairman Miller, who was a big
part of allowing this to happen here. And I would also like to
thank Ohio's Governor, Ted Strickland, for his support, and
Senator Sherrod Brown for all his work on this issue, including
a hearing in the Senate and for particular reasons, the
original Packard Electric was started in my district in Warren,
Ohio by the Packard Brothers.
So this has been a company that has been around for a long,
long time in Warren, Ohio. And now with this bankruptcy, it has
all come to a head here. And bankruptcy, as you know, has too
often been used as a means to jettison commitments as you
stated earlier, made the workers and leave behind retirees and
that needs to change. One category of those left behind is the
hourly retirees represented by the IUE-CWA, the United Steel
Workers International Association of Machinists, Teamsters,
IBW, International Union of Operating Engineers, and others who
lost health care benefits and pensions. While the IUE-CWA, USW
and others had their pensions topped off under agreement with
GM, thanks to the efforts of this administration and others,
their health care benefits are in danger of being lost.
And furthermore, some workers with the smaller unions have
still been left completely behind. The other category, which we
will hear about today, is the Delphi salaried retirees, who, I
believe, should have had their issues regarding both pensions
and health care dealt within the context of the GM bankruptcy.
Thankfully the PBGC will pay the retirees a large
percentage of their promised benefits. But even with that, many
retirees will see substantial losses. This is unacceptable and
needs to be fixed. Furthermore, all retirees from Delphi will
see substantial reductions in or outright elimination of health
care coverage. Without the stimulus bill, the situation would
be even worse since many retirees are eligible for an 80
percent health care tax credit.
I have spoken with many retirees who are now concerned
about how they would be able to afford their mortgages, their
health care costs and even their children's college tuition
bills, including Nick Dragovich IUE-CWA local 717 in my
district who drove out to be at this hearing. Nick started at
Delphi, then called Packard Electric shortly after high school
and worked there through GM's ownership and the Delphi spinoff,
putting in over 34 years of service. In exchange for that
service, he, like everyone else with Local 717, has been
bounced around by companies that do not want to honor their
commitments.
The harm of lost pensions and health care does not stop
with the direct losses. There are so many retirees in my
congressional district that the losses will flow to everyone in
the region. As Senator Brown mentioned, a recent Youngstown
State University study state that the total losses to the
Mahoning Valley could be over $57 million annually. Those
losses translate into over 1,700 job losses in our region. The
bankruptcy system must be reformed to give a higher creditor
status to retirees.
Many of the creditors currently above retirees are in a
position to make informed decisions about the creditworthiness
of borrowers and set rates accordingly as you mentioned in your
opening statement. Furthermore, we need to tighten ERISA and
other pension protection laws to preserve promised benefits.
H.R. 1322, introduced by Congressman John Tierney, is a great
example of exactly what needs to be done to prevent more
situations like Delphi's and what my region saw over the last
30 years in the steel industry. An employee cannot possibly
plan for unexpected cuts and promised benefits after the game
has been played. Once again, we see systematic misalignment of
who pays for other people's risks.
But unfortunately, even if these steps are taken, it is too
late to help many of my constituents. That is why I have
introduced with Congressman Sherrod Brown H.R. 3455 to
establish a voluntary employee beneficiary association for
former Delphi employees. This bill would use unspent money
already authorized by the Emergency Economic Stabilization Act
of 2008 to provide health coverage to both hourly and salaried
retirees of the Delphi Corporation.
I ask that the text of these remarks and accompanying
documents, including a letter from the President of the Ohio
AFL-CIO, John Rugola, be included in the record. And this is
another example of how this is bipartisan and both union and
nonunion folks hanging together. So I ask that these be added
to the record. And I thank you again, Chairman Andrews, for
your commitment that you kept on behalf of our workers. Thank
you.
[The statement of Mr. Ryan follows:]
Prepared Statement of Hon. Tim Ryan, a Representative in Congress
From the State of Ohio
Chairman Andrews, Congressman Price, and Members of the committee,
thank you for allowing me this time to address the Delphi bankruptcy
and how it has affected my congressional district. Chairman Miller,
thank you as well for your efforts to bring attention to this matter. I
would also like to thank Ohio's Governor Ted Strickland for his
support, and Senator Sherrod Brown for all he has done on this issue in
the United States Senate. Bankruptcy has too often been used as a means
to jettison commitments made to workers and that needs to change.
Delphi was spun off from GM in 1999 as an independent parts
supplier. Most of the operations spun off had been a part of GM for
twenty to thirty years. Within a few years Delphi began a steep decline
and filed for bankruptcy in 2005. At that time roughly 150,000 people
worked for Delphi, many of whom were represented by collective
bargaining agreements. The United Auto Workers, International Union of
Electronic, Electrical, Salaried, Machine and Furniture Workers, United
Steel Workers, International Association of Machinists, Teamsters,
International Brotherhood of Electrical Workers, International Union of
Operating Engineers, and others represented Delphi employees. Very few
bankruptcy issues were resolved in a timely manner, and the company
languished in bankruptcy court for nearly 4 years.
During the time the company was in bankruptcy, the various pension
funds fell further and further behind on the balances required to meet
their obligations. This was compounded by an aggressive push for early
retirement by Delphi's management to trim the workforce. When Delphi
terminated the pension plans and sent their obligations to the Pension
Benefit Guaranty Corp they covered approximately 70,000 workers and
were under funded by over 7 billion dollars.
One category of those left behind include the hourly retirees
represented by the IUE-CWA, USW, IAMAW, Teamsters, IBEW, IUOE, and
others who lost health care benefits and pensions. While the IUECWA,
USW and others had their pensions topped off under agreement with GM,
thanks to the efforts of this administration and others, their health
care benefits are in danger of being lost. Furthermore some workers
with the smaller unions have still been left completely behind.
The other category are Delphi salaried retirees who I believe
should have had their issues regarding both pensions and healthcare
dealt within the context of the GM bankruptcy.
Thankfully the PBGC will pay the retirees a large percentage of
their promised benefits, but even with that, many retirees will see
substantial losses. The younger retirees who were promised the largest
early retirement benefits as part of the buyouts Delphi forced on them
will see the largest cuts as many of those payments are not insured by
the PBGC. Furthermore all retirees from Delphi will see substantial
reductions in or outright elimination of health care coverage. Without
the stimulus bill the situation would be even worse as many retirees
are eligible for an 80% credit
I have spoken with many retirees who are now concerned about how
they will be able to afford their mortgages, their health care costs,
and even their children's college tuition bills, including Nick
Dragojevic, a member of the IUE-CWA local 717 in my district who drove
out to be at this hearing. Nick Started at Delphi, then called Packard
Electric shortly after high school and worked there through GM's
ownership and the Delphi spin off putting in over thirty four years of
service. In exchange for that service, he like everyone else with local
717 has been bounced around by companies that do not want to honor
their commitments.
But it does not stop with the direct losses. There are so many
retirees in my congressional district that the losses will flow to
everyone in the region. A recent Youngstown State University study
stated that total losses to the Mahoning Valley could be over 57
million dollars annually. Those losses translate into over 1,700 job
losses in my region. The costs to local governments will also be
extraordinary through lost revenue and increased need for services.
So the people least responsible for the bankruptcy of a company
like Delphi are in the end, the ones who lose their job over it. The
bankruptcy system must be reformed to give a higher creditor status to
retirees. Many of the creditors currently above retirees are in a
position to make informed decisions about the creditworthiness of
borrowers and set rates accordingly. Retirees are in no position to
make those kinds of decisions. Just imagine what would happen if an
employee walked into the C.E.O.'s office and said, ``Boss you're
overleveraged and I'm concerned about future obligations so I would
like a three percent raise in retirement benefits to cover additional
insurance on my exposure''. They would be laughed out of the room, but
the banks, hedge funds, and other lenders who could do exactly that and
often fail spectacularly to do just that, are the ones protected by the
bankruptcy code.
Furthermore we need to tighten ERISA and other pension protection
laws to preserve promised benefits. H.R. 1322 introduced by Congressman
John Tierney is a great example of exactly what needs to be done to
prevent more situations like Delphi's and what my region saw in the
steel industry. An employee cannot possibly plan for unexpected cuts in
promised benefits after the game has been played. They cannot go back
25 years and invest more to cover the investment losses and
mismanagement of their employer. Once again we see systematic
misalignment of who pays for other people's risks.
But unfortunately, even if these steps are taken, it is too late to
help many of my constituents. That is why I have introduced H.R. 3455
with bipartisan support to establish a Voluntary Employee Beneficiary
Association for former Delphi employees. This bill would use unspent
money already authorized by the Emergency Economic Stabilization Act of
2008 to provide health coverage to both hourly and salaried retirees of
the Delphi Corporation. If we can use that money to save the bacon of
those that made the very errors calculating risk that put us in this
position, surely we can use the leftovers to save the innocent
bystanders who spent years of their lives working for Delphi and GM.
I ask that the text of these remarks and accompanying documents be
added to the record. Once again, thank you to the committee for your
time and attention.
______
Chairman Andrews. Thank you. And Mr. Dragovich, is he here
today that was mentioned? Welcome, sir. We appreciate you being
with us today as well and all of our guests this morning. At
this time, if any of the members on either side have questions
for the member panel, we welcome them. And then we would excuse
them. Mr. Tierney, did you have questions?
Mr. Tierney. I have one brief comment, Mr. Chairman, if you
will bear with me.
Chairman Andrews. Of course.
Mr. Tierney. Mr. Ryan, I want to thank you for your mention
of House Resolution 1322, which deals with retiree health
benefits and the obligation of companies to maintain those. I
do want to make the point however and invite Mr. Lee and Mr.
Turner and the minority ranking member over here to join on
that bill if they are serious about this. This is not a union
bill versus a nonunion bill. This deals with all people that
are working and get disfranchised on that. We have not had
anybody from your side, except for Mr. Jones, sign on to that
bill. So if we are serious about doing something for this
category of people, I hope you will join it or give us a reason
why you haven't and then we can move forward on that.
And there is language also in the health care bill that
would be supportive of this concept and I extend the invitation
and look forward to engaging with your offices on it. Thank
you.
Chairman Andrews. Thank you, John, for your good work on
this issue. Anybody else on our side? Mr. Kildee?
Mr. Kildee. I was sold, I use the word, when this thing
began to dawn upon us what really had happened, that from the
very beginning, this became a bipartisan matter. Christopher
Lee met with me on the House floor, suggested a letter and
asked me if I would co-sign it. And that gave me some hope this
had risen above some of the partisanship we find down there to
a bipartisanship. And I want to thank you especially, thank all
of you, but you especially.
Chairman Andrews. Thank you, Mr. Kildee. Anyone on the
minority side? Dr. Price, I know you have a unanimous consent
request to propound.
Mr. Price. I do, Mr. Chairman. If I may, I ask unanimous
consent that our colleagues off the committee be allowed to
join us for the second panel and be permitted to ask questions
of the panelists.
Chairman Andrews. Without objection. Gentlemen, you are
welcome to come up to the dais and participate in the hearing
in that way, each of you. Sherrod, you would be too.
Mr. Price. Well, I don't know about that.
Chairman Andrews. Of course he would. If I may, before you
depart, let me say this to the members, we appreciate your
testimony. What I am hearing is a focus on two points, the
first is that it is the bipartisanship that each of you
mentioned and Mr. Kildee just mentioned, that we need to work
together on this and we will continue to do that.
And the second is I understand the focus on the policy
questions, but I really do want our focus to be on trying to
help these individuals who were hurt by this situation. It will
do them no good if we pass some law that helps somebody 15 or
20 years from now. We really do want to focus to the extent
that we can on the actual people who were actually injured by
this and do the best we can for them. So thank you, gentlemen.
Please join us for the balance of the hearing if you would like
to. At this time we are going to ask that the panel step
forward, the second panel.
I am going to start to introduce the second panel as they
come forward to give us a little more time. The first witness
will be Mr. Bruce Gump. Mr. Gump is a member of the Delphi
salaried retirement association. He is a former salaried
employee of General Motors and Delphi. Mr. Gump, where do you
live? What town are you from?
Mr. Gump. Warren, Ohio.
Chairman Andrews. Welcome. He comes from Warren, Ohio, to
be with us this morning. Mr. Charles Cunningham is a member of
the Delphi Salaried Retirement Association. Mr. Cunningham is a
former employee of GM and Delphi. He retired after 31 years of
employment with those corporations in 2002. Mr. Cunningham, you
are from where?
Mr. Cunningham. Warren, Ohio.
Chairman Andrews. From Warren as well. Welcome. I am glad
that you are with us. And returning to the committee is Dr.
Norman Stein. Dr. Stein is a senior consultant with the pension
rights center and a Douglas Arant professor of law At the
University of Alabama Law School. After joining the faculty in
1984, he received his BA from New College and his JD from Duke
University.
Before we proceed, I also do want to make sure the record
reflects that two of our other colleagues have played a major
role in making this hearing happen this morning. That is Mr.
Kucinich from Cleveland and also Ms. Fudge also from that area
in Ohio. I did not mean to neglect mentioning them earlier, but
this has been a team effort. And again, both Dennis and Marcia
have expressed their interest in this. And as is typical with
each of them, has taken this very seriously and very
personally. And we appreciate that. For the newcomers to the
committee, here is the way the rules work. The written
statements that you have made will be a part of the record of
the hearing without objection.
So what you wrote will be part of the record. We ask you to
try to make an oral synopsis of your testimony to last about 5
minutes. When you are done, we will have questions from the
members of the committee who will ask you about what you had to
say so we can learn from each other and hopefully find some
solutions. In front of you is a light box. The green light will
go on when you start talking. When you have about a minute
left, the yellow light will go on which tells you we would like
you to try to wrap up. Don't worry if you go beyond it a bit.
There is no penalty for that here. But we just ask you to be as
brief as you could if the red light goes on so that we can hear
from as many members as possible. The most productive hearings
tend to be those where there can be a lot of interaction
between the witnesses and the members and we would like to try
to maximize that today. So we are very happy that you are with
us. And, Mr. Gump, we are going to start with you. Welcome to
the subcommittee.
STATEMENT OF BRUCE GUMP, MEMBER, DELPHI SALARIED RETIREMENT
ASSOCIATION, AND FORMER SALARIED EMPLOYEE OF GENERAL MOTORS AND
DELPHI
Mr. Gump. Good morning, Chairman Andrews and Ranking Member
Price and members of the committee. Thank you for the
opportunity to be able to describe the effect of the Delphi
bankruptcy on our members. The DSRA is made up of highly
educated and qualified people who were employed as secretaries
and technicians, engineers and salespeople, accountants and
many other positions. They worked for Delphi with the promise
of current and future compensation funded through the effort of
each worker. They all looked forward to a safe, secure and
healthy retirement. The salaried employees were told at the
time Delphi was spun off from GM, and again at the time
bankruptcy was declared, that our pension and other post-
employment benefits were a foremost priority for the company.
In addition, PBGC's director, Charles Millard, said in May
of 2008 that we will act forcefully to protect Delphi's pension
plans and we will draw down certain letters of credit and keep
liens in place on the company's assets until Delphi has
successfully emerged and made its pension plans whole. These
liens were on Delphi's foreign assets which were not included
in the bankruptcy, thus salaried employees were given
assurances by both the company and the PBGC that our pension
plan was being properly managed and protected when in reality
the company was not adding funds to the plan and in the end the
PBGC did not protect the plan by using their valuable liens.
I will leave the description of the legalities of the
process up to Mr. Cunningham, but suffice it to say for now
that we have definitive evidence that the PBGC acted under
powerful influence from the Department of Treasury, the
Secretary of which was charged with the rescue of the auto
industry and also happens to be a board member of the PBGC to
release the liens put in place to protect Delphi's pension
plans.
Consequently, the plan was terminated in a very underfunded
condition. This will cause many participants' pensions to be
reduced by 30 to 70 percent and any supplements that were used
to coerce early retirement will be eliminated. Even though the
hourly pension plans were also transferred to the PBGC, they
will not experience any pension reduction because of the
unprecedented agreement brokered by the auto task force for
General Motors to top up those pensions. Dr. Edward Montgomery
and Ron Bloom of the Auto Task Force explained the reason for
this discrimination against salaried retirees by telling us the
administration had chosen to follow a commercial model in
dealing with the auto industry bankruptcies.
Since the salaried retirees had no commercial value to
General Motors or Delphi, we therefore received no protection
or benefit from the Auto Task Force. We believe this is a very
dangerous precedent to follow. Consider what would happen if
the United States Government chose to follow exactly the same
thought process regarding health care or social security or
even contract law.
As Congressman Ryan had written, because government
assistance is taxpayer subsidized, additional considerations
must be included beyond the usual business judgments that take
place in the bankruptcy courts. We believe the United States
Treasury determined the standard of fairness when they helped
GM fund the benefits of the unionized workers and that same
standard should be applied to all worker groups involved.
I will now take a moment to describe some of the effects of
the treatment of the workers in the communities. On average,
the salaried retiree will lose about $300,000 over his or her
lifetime because of the transfer of the PBGC. Some, including
me, will have incomes below the national poverty level. A woman
who was forced into retirement at age 54 after more than 30
years of dedicated service had lost all of other health care
insurance and will lose more than half of her pension. She
could barely afford to purchase a high deductible health care
insurance policy to provide some protection for herself and her
self-employed husband. Two weeks later, she learned that she
might have cancer. Because of the high deductible policy she
had, she had to bear the entire burden of the costs of the
tests that determined if she would live or die.
A study by Dr. Frank Akpadock of Ohio's Youngstown State
University showed that the local economy in the northeast Ohio
region known as the Mahoning Valley, already damaged by the
loss of the steel industry, will sustain an additional loss of
$161 million per year leading to about 5,000 additional
nonautomotive, downstream jobs that will be lost in that
economy. That will cause the unemployment rate in my community
to rise to more than 20 percent. Taken to a national level, the
result will be about 85,000 Americans who will see, through no
fault of their own, their jobs simply evaporate due to the
unfair and inequitable treatment of the auto industry worker
groups.
In summary, we believe that Delphi's salaried pension plan
was improperly terminated, the taxpayer provided funds supplied
by the Congress through the Department of Treasury were applied
in a discriminatory manner, based on an ill-conceived
commercial model and the liens put in place to protect the
value of our pension plan were eliminated because the Auto Task
Force and GM were in a hurry. We lost the protection of the
United States Government and significant portions of our
pensions because it was inconvenient for the Auto Task Force to
follow the rules. We ask only for fair and equitable treatment
for all worker groups in the auto industry bankruptcies.
We all have the same contract with our government. Thank
you. I would be happy to answer questions.
Chairman Andrews. Mr. Gump, thank you. You did a great job.
Very well said. And we are happy that you are with us this
morning.
[The statement of Mr. Gump follows:]
Prepared Statement of Bruce Gump, Delphi Salaried Retirees Association
Good morning Chairman Andrews, Ranking Member Price and members of
the committee. Thank you for this opportunity to describe the effect of
the Delphi Bankruptcy on our members.
The DSRA is made up of highly educated and qualified people who
were employed as secretaries, technicians, engineers, sales people,
accountants, and many other positions. They worked for Delphi with the
promise of current and future compensation funded through the effort of
each worker. They all looked forward to a safe, secure and healthy
retirement.
The salaried employees were told at the time Delphi was spun off
from GM and again at the time bankruptcy was declared that our pension
plan and other post employment benefits were a ``foremost priority''
for the company. In addition PBGC Director Charles Millard said in May
of 2008 ``We will act forcefully to protect Delphi's pension plans.''
And ``We will draw down certain letters of credit and keep liens in
place on the company's assets until Delphi has successfully emerged and
made its pension plans whole.'' These liens were on Delphi's foreign
assets which were not included in the bankruptcy.
Thus salaried employees were given assurances by both the company
and the PBGC that our pension plan was being properly managed and
protected, when in reality the company was not adding funds to the
plan, and in the end, the PBGC did not protect the plan by using their
valuable liens.
I will leave the description of the legalities of the process up to
Mr. Cunningham, but suffice it to say for now that we have definitive
evidence that the PBGC acted under powerful influence from the
Department of the Treasury (the Secretary of which was charged with the
``rescue'' of the auto industry and also happens to be a Board Member
of the PBGC) to release the liens put in place to protect Delphi's
pension plans. Consequently, the plan was terminated in a very
underfunded condition. This will cause many participants' pensions to
be reduced by 30% to 70%, and any supplements that were used to coerce
early retirement will be eliminated.
Even though the Hourly Retirees' pensions were also transferred to
the PBGC, they will not experience any pension reduction because of the
unprecedented agreement brokered by the Auto Task Force for GM to ``top
up'' those pensions. Dr. Edward Montgomery and Ron Bloom of the ATF
explained the reason for this discrimination against Salaried Retirees
by telling us the Administration had chosen to follow a ``commercial
model'' in dealing with the auto industry bankruptcies. Since the
salaried retirees had no ``commercial value'' to GM or Delphi, we
therefore received no protection or benefit from the Auto Task Force.
We believe this is a very dangerous precedent to follow. Consider what
would happen if the United States Government chose to follow exactly
the same thought process regarding health care or social security or
even contract law. As Congressman Ryan has written: ``Because
government assistance is taxpayer subsidized, additional considerations
must be included beyond the usual business judgments that take place in
the bankruptcy courts.''
We believe the United States Treasury determined the ``standard of
fairness'' when they helped GM fund the benefits of the unionized
workers and that same standard should be applied to all worker groups
involved.
I will now take a moment to describe some examples of the effects
of this treatment on workers and communities:
The average Salaried Retiree will lose about $300,000 over his or
her life. Some will have incomes below the national poverty level.
A woman, who was forced into retirement at age 54 after more than
30 years of dedicated service has lost all of her health care insurance
and will lose more than half of her pension. She could barely afford a
high deductible health care insurance policy to provide some protection
for herself and her self-employed husband. Two weeks later learned she
might have cancer. Because of the high deductible policy, she had to
bear the entire burden of the tests to determine if she would live or
die.
A study by Dr. Frank Akpadock of Ohio's Youngstown State University
showed that the local economy in the NE Ohio region known as the
Mahoning Valley, already damaged by the loss of the steel industry,
will sustain an additional loss of $161 Million per year, leading to
about 5000 additional non-automotive jobs lost. That will cause the
unemployment rate in that community to rise to more than 20%. Taken to
a national level, the result will be about 85,000 Americans who,
through no fault of their own, will see their jobs simply evaporate due
to the unfair and inequitable treatment of the auto industry worker
groups.
In summary, we believe the Delphi Salaried Pension plan was
improperly terminated. The tax-payer provided funds supplied by the
Congress to the Department of the Treasury were applied in a
discriminatory manner based on an ill-conceived ``commercial model,''
and the liens put in place to protect the value of our pension plan
were eliminated because the Auto Task Force and GM were in a hurry. We
lost the protection of the United States Government and significant
portions of our pensions because it was inconvenient for the ATF to
follow the rules.
We ask only for fair and equal treatment for all worker groups in
the auto industry bankruptcies. We all have the same ``contract'' with
our government.
______
Chairman Andrews. Mr. Cunningham, welcome. We are happy you
are here as well.
STATEMENT OF CHARLES CUNNINGHAM, MEMBER, DELPHI SALARIED
RETIREMENT ASSOCIATION, AND FORMER EMPLOYEE OF GM AND DELPHI
Mr. Cunningham. Thank you, Chairman Andrews and Ranking
Member Price and the entire committee. It is great to have the
opportunity to be here and testify. And Chairman Andrews, I
agree with you that dialogue is the best way to get an answer.
So I am going to try to keep this brief so we have time for
dialogue.
Chairman Andrews. Please take your time, though, sir. Don't
rush. Say what you want to say.
Mr. Cunningham. I won't rush. I will just keep it brief.
Okay? I would like to expand a little bit on portions of Bruce
Gump's testimony and really particularly relating to the
Treasury's role in the GM and Delphi bankruptcies and the
ultimate effect on the salaried employees' pensions. Delphi
pension disposition was dictated by the U.S. Treasury. And it
was really dictated to meet the requirement of an expedited GM
bankruptcy. The successful emergence of bankruptcy by GM
required that Delphi, GM's largest parts supplier, also emerge
from bankruptcy as a viable entity. The last obstacle in
settling Delphi's bankruptcy was Delphi's pension plan
liabilities, although other options were considered, including
GM taking back all of Delphi's pension plans, union and
salaried. The final solution dictated by the Treasury was to
turn over all plans to the PBGC. The Treasury then brokered a
deal between GM, Delphi and the PBGC for the PBGC to surrender
its liens against Delphi's overseas assets valued at between $2
and $4 billion and accept only $70 million in payment from GM
as well as an unsecured claim which was essentially worthless.
The PBGC then began its termination process for Delphi
pensions. Subsequently, the Treasury agreed to provide GM with
the funding to top off hourly UAW pensions to prevent the
hourly people from having their pensions reduced to the PBGC
statutory limit. After deliberation with GM and eventually the
Treasury, the IUE-CWA and the United Steel Workers also had
their pensions topped up by GM. This action promoted by the
Treasury was not taken as a result of contractual obligations.
That is one thing that has been talked about so many times that
this was contractual. And honestly, I need the members of this
committee to understand, this was not a contractual obligation.
In fact, in public documents, GM's CEO or former CEO as of
yesterday, Fritz Henderson, has stated that these were not
obligations contractually, but they were gratuitous
contributions. And, in fact, most cases in bankruptcy, as I
hope our colleague on the panel would say, would--that these
contractual obligations particularly those that were side
agreements, would have been dismissed in bankruptcy court. So
this was a purely political decision. For what reason I cannot
tell you. I mean, I can only speculate. But it was not done for
contractual reasons. The other 3 unions that were mentioned by
the previous panel, they all had contracts also and they also
had side agreements. I heard them argue that in bankruptcy
court which I personally attended. So it wasn't contractual.
There were other reasons for the top-offs that were given to
the 2 unions. As a result of these actions, directed by the
Treasury, certain groups will receive their full amount of
earned pensions while others will be relegated to 30 to 70
percent of their pensions. A lot of our retirees are young and
a lot of them get larger reductions because of their age and
because of the amount of funding. What is equally disconcerting
is that the PBGC was obviously coerced into surrendering
valuable liens. I mean, they had a chance to get between $2 and
$4 billion that was substantial in this case to help fund these
pensions and chose to walk away from them so that Delphi was an
assured parts supplier to GM. These would have significantly
improved our funding levels. The assertions we are making are
well supported in documents found in the GM and Delphi
bankruptcy proceedings, mandatory SEC filings by GM and the
administrative record of the PBGC. We believe that further
significant evidence concerning discrimination against the
Delphi salaried retirees exists in the Treasury and automotive
task force documents relating to the GM and Delphi
bankruptcies. We have requested these documents under the
Freedom of Information Act over 2 months ago, but the
production of these documents by the Treasury has not been
forthcoming. In fact, a written request for these documents was
also made by Senator Enzi following the Senate hearing on
pensions on October 29, 2009. To date, this request has also
been ignored. And as you heard earlier, a bipartisan group of
the House Members had requested this same information months
and months ago. This is not transparency. This is not what we
would expect from our government. I think it is outrageous that
we don't know why we were treated in this manner or that our
congressional leaders can't know it. We are not looking for
special treatment. We are only asking you as elected officials
to assist us in securing fair and equitable treatment
guaranteed under our constitution. Nothing more, certainly
nothing less. Thank you.
Chairman Andrews. Mr. Cunningham, thank you for being so
persuasive and articulate. We appreciate it very much.
[The statement of Mr. Cunningham follows:]
Prepared Statement of Charles Cunningham, Delphi Salaried Retirees
Association
Good Morning, my name is Chuck Cunningham and I am a Delphi
Salaried Retiree. I spent 28 years with General Motors and 3 years with
Delphi before retiring in 2002.
I would like to thank Chairman Andrews, Ranking Member Price and
the entire Health, Employment, Labor, and Pensions subcommittee for the
opportunity to testify here today.
I would like to expand upon portions of Bruce Gump's testimony
particularly relating to the Treasury's role in the GM and Delphi
Bankruptcies and the ultimate effect upon the salaried employees
pensions.
The Delphi pension disposition was dictated by the U.S. Treasury to
meet the requirement of an expedited GM bankruptcy. A successful
emergence from bankruptcy by GM required that Delphi, GM's largest
parts supplier, also emerge from bankruptcy as a viable entity. The
last obstacle in settling Delphi's bankruptcy was Delphi's pension
plans liabilities. Although other options were considered, including GM
taking back all of Delphi's pensions plans, union and salary, with the
financial backing of the Treasury, the final solution, dictated by the
Treasury, was to turn over ALL the plans to the PBGC.
The Treasury then brokered a deal between GM, Delphi and the PBGC
for the PBGC to surrender its liens against Delphi's overseas assets,
valued at between $2-4 billion, and accept $70 million in payment, as
well as, an unsecured claim which was essentially worthless. The PBGC
then began its termination of the Delphi pensions. Subsequently, the
Treasury agreed to provide GM with the funding to ``top off'' hourly
UAW pensions to prevent the hourly people from having reduced pensions
to the PBGC statutory limit.
After deliberation with GM, and eventually the Treasury, the IUE/
CWA and the United Steelworkers also had their pensions ``topped off''
by GM. This action, promoted by the Treasury Department, was not taken
as result of contractual obligations but was ``gratuitous'' as
described by GM CEO Fritz Henderson in public documents.
As a result of these actions, directed by the US Treasury, certain
groups will be receiving the full amount of their earned pensions while
others will be relegated to receive a reduced amount in accordance with
the PBGC limitations. Many Delphi salaried retirees will only receive
somewhere between 30-70% of their earned pensions. What is equally
disturbing is that the PBGC was obviously coerced into surrendering
valuable liens which could have significantly improved the level of
funding for all the plan participants.
The assertions we are making are well supported in documents filed
in the GM and Delphi bankruptcy proceedings, mandatory SEC filings by
GM and the Administrative Record of the PBGC. We believe that further
significant evidence concerning discrimination against the Delphi
salaried retirees exists in the Treasury and the Automotive Task Force
documents related to the GM and Delphi bankruptcies. We have requested
these documents under the Freedom of Information Act over 2 months ago,
but the production of these documents by the Treasury has not been
forthcoming. In fact, a written request was also made by Senator Enzi
following the Senate Hearing on Pensions on Oct. 29, 2009 and, to date,
this request has also been ignored.
The Delphi salaried retirees are not looking for special treatment
in this matter. We are asking our elected officials to assist us in
securing fair and equitable treatment guaranteed under our
Constitution. Nothing more and, certainly, nothing less.
Thank you again for your time and attention. I will be happy to
answer any questions you may have.
______
Chairman Andrews. Professor Stein, welcome back to the
committee. You have been a great resource for us over the
years. We are happy you are back with us this morning.
STATEMENT OF NORMAN STEIN, SENIOR CONSULTANT, PENSION RIGHTS
CENTER, AND DOUGLAS ARANT PROFESSOR OF LAW, UNIVERSITY OF
ALABAMA LAW SCHOOL
Mr. Stein. Thank you, Mr. Chairman, Members of the
subcommittee, for inviting me here to speak with you this
morning on the impact of Delphi's bankruptcy and Delphi's
workers and retirees. The story of Delphi's retirement and
health commitments to its employees and their extraordinary
devaluation in bankruptcy is a heart wrenching human story in
an inordinately complex factual and legal setting. It is a
story that underscores both the success of the PBGC program and
some of its shortcomings. As such, it provides a moment to
rethink the various compromises made in ERISA and bankruptcy
law between assuring worker pension expectations and
constraining costs on plan termination.
What has happened and is happening to thousands of Delphi
employees who have lost medical benefits and have suffered
pension reductions is tragic. And Congress should certainly
consider providing relief to these hard working but hard hit
Americans, but it is critical that we view their loss in its
larger historical and social welfare context. The enactment of
ERISA was in part a response to the 1964 termination of the
pension plan for American employees of Studebaker. At that
time, there was no PBGC to ensure employee benefits from a
terminated defined benefit plan. Plan participants in
Studebaker and other companies received benefits from available
plan assets. And if there were not sufficient plan assets,
benefits were paid, reduced or eliminated in accordance with
the plan provisions allocating insufficient assets to various
benefit categories. In Studebaker, the plan had enough assets
to pay full benefits only to retirees. Other employees received
nothing or next to nothing. It was this tragedy that helped
frame the need for a Federal insurance system for defined
benefit plans and more generally underscored the need for a
Federal pension reform statute which ultimately led to
enactment of ERISA and the important protections in which
millions of employees and retirees now rely. The PBGC has been
an extraordinarily effective agency over the last 3 decades.
Without it, millions of employees would have suffered
catastrophic losses, consigning many to poverty in old age.
Even with the distressingly large losses that some Delphi
employees have suffered, every Delphi employee is better off
because Congress created the PBGC. And we should not lose sight
that the losses in Delphi are not typical. Historically, 85
percent of participants in terminating pension plans suffer no
pension losses.
From the broader perspective the PBGC is an amazing success
story. And we need to ensure that PBGC has the strength and
resources to continue its important mission and that effective
funding rules make unfunded plan terminations such as the one
we are seeing today a rare occurrence.
I turn now to the PBGC guarantees and limitations on them
and how they affected Delphi employees and retirees. The PBGC
guarantee program has undergone extensive modification since
ERISA's enactment in 1974, but the essentials of the actual
benefit guarantees and limitations on them have been relatively
stable. It is important to keep in mind that the limitations
are statutory and PBGC does not have discretion to vary the
guarantees even under the compelling circumstances that we have
heard today.
PBGC guarantees are subject to two types of limitations.
The first is structural. The PBGC does not guarantee all plan
benefits but only what we might think of as basic retirement
benefits. The second is that these basic retirement benefits
are subject to a dollar limit, which in 2009, the year that the
Delphi plan terminated, was $54,000. The dollar cap applies to
a benefit in the form of a single life annuity commencing at
age 65. If the benefit is taken before 65 or with a survivor
annuity, the benefit guarantee is actuarially reduced so that
it will be lower than $54,000 a year.
So let's start with benefits that were not eligible for the
PBGC guarantees. These were normal retirement benefits that
were not vested; certain supplemental early retirement benefits
which were paid only until an employee becomes eligible for
Social Security benefits; and, finally, subsidized early
retirement benefits, if--as of the plan's termination--an
employee had met all the criteria for the subsidy, which in the
case of Delphi was, for most employees, 30 years of service.
Many employees, some of whom were only months away from
qualifying for a subsidized early retirement benefit, lost
tremendously valuable pension benefits. Salaried Delphi
employees then lost benefits primarily in three ways. Many lost
the opportunity to qualify for the most valuable benefit under
the plan, the subsidized early retirement benefit, because they
fell short of the 30-year requirement. Many lost their
temporary supplemental benefits, and some lost benefits because
their basic benefits exceeded the maximum annual guarantee.
My written testimony includes a number of suggestions for
legislative action that could improve the statute's protections
of employees of the future. As you have mentioned, this is not
going to be very helpful to the Delphi employees who are here.
But thank you for the opportunity to speak with you, and also
Congressman Andrews, teaching at Drexel, where I understand you
are very good friends with the Dean.
Chairman Andrews. I am indeed.
Mr. Stein. I may need a note from you explaining why I
missed my train and will be an hour late for class.
Chairman Andrews. I will tell Dean Dennis that you have
excuse to be at least an hour late, because we appreciate that
you are here.
Mr. Stein. My students will be happy, I am sure, though.
Chairman Andrews. I am sure they will not be, but I
appreciate that. Thank you, each of the three panelists.
[The statement of Mr. Stein follows:]
Prepared Statement of Norman P. Stein, Senior Consultant, Pension
Rights Center, and Douglas Arant Professor of Law, University of
Alabama Law School
Thank you, Mr. Chairman and members of the committee, for inviting
me here to speak with you this morning on the impact of Delphi's
bankruptcy on Delphi's workers and retirees. I am a professor of law at
both the University of Alabama and the Earl Mack School of Law at
Drexel University. I also work with the Pension Rights Center on a
variety of policy-related activities. I am, however, testifying on my
own behalf this morning and my views should not be attributed to any of
the organizations with which I am affiliated.
The story of Delphi's retirement and health commitments to its
employees, and their extraordinary devaluation in bankruptcy, is a
heart-wrenching human story in an inordinately complex factual and
legal setting. It is a story that underscores both the success of the
PBGC program and some of its shortcomings. As such, it provides a
moment to rethink the various compromises made in ERISA between
assuring worker pension expectations and constraining costs on plan
termination, or put in interrogative form, how should we allocate the
economic fallout when a pension plan terminates without adequate
funding?
I have divided my testimony into three parts. The first part
provides some historical background and context for thinking about the
PBGC and the Delphi workers and retirees. The second part provides an
overview of the limits of PBGC pension guarantees, with an emphasis on
the losses suffered by Delphi salaried employees. The third part
suggests some statutory changes to ERISA and bankruptcy law that
Congress might consider in light of the Delphi bankruptcy.
Background and Context
What has happened, and is happening, to thousands of Delphi
employees who have lost medical benefits and have suffered pension
reductions, is tragic--and Congress should certainly consider providing
relief to these hard-working but hard-hit Americans. But it is critical
that we view their loss in its larger historical and social welfare
context.
The enactment of ERISA was, in part, a response to the termination
of the pension plan for American employees of Studebaker, when it shut
down its United States operations in 1964. At that time, there was no
PBGC or other program to ensure employee benefits from a terminated
defined benefit plan. Plan participants received benefits from
available plan assets, and if there were not sufficient plan assets,
benefits were paid, reduced, or eliminated in accordance with the
plan's provisions allocating assets to various benefit categories.
In Studebaker, the plan had been inadequately funded and did not
have enough assets to pay full benefits only to those who had retired
or were at retirement age. Other employees received nothing or next to
nothing.
It was this tragedy that helped frame the need for a federal
insurance system for defined benefit plans and more generally
underscored the need for a federal pension reform statute, which
ultimately lead to enactment of ERISA and the important protections on
which millions of employees and retirees now rely.
The PBGC has been an extraordinarily effective agency over the last
three decades. Without it, millions of employees would have suffered
catastrophic losses, consigning many of them to poverty in old age.
Even with the distressingly large losses that some Delphi employees
have suffered, every Delphi employee is better off because Congress
created the PBGC.
And we should not lose sight that the losses in Delphi are not
typical--historically, 85% of participants in terminating plans have
not suffered any pension loss.
From this broader perspective, the PBGC is an amazing success story
and we need to ensure that the PBGC has the strength and resources to
continue its important mission and that funding rules make underfunded
plans a rare occurrence.
The PBGC Benefit Guarantees and Delphi Salaries Employees
The PBGC guaranty program has undergone extensive modification
since ERISA's enactment in 1974, but the essentials of the actual
benefit guarantees and limitations on them have been relatively stable.
It is important to keep in mind that the limitations are statutory--
they are in the statute that PBGC administers \1\--and PBGC does not
have discretion to vary the guarantees even under the compelling
circumstances presented today.
---------------------------------------------------------------------------
\1\ In some cases, the limitations are in 30-year old regulations
interpreting the statute.
---------------------------------------------------------------------------
PBGC benefit guarantees are subject to two types of limitations.
The first type of limitation is structural: PBGC does not guarantee all
plan benefits, but only what we might think of as the basic vested
retirement benefit. The second limitation is that this basic retirement
benefit is subject to a dollar limit, which is stated in terms of a
benefit in the form of a single life annuity commencing at age 65. The
maximum guarantee amount for a life annuity commencing at age 65 is
$54,000 for plans terminating in 2009, when the Delphi plan terminated.
The guarantee is actuarially reduced if the benefit commences before
age 65 or if it includes a survivor annuity.
So let us start with benefits that were not eligible for the PBGC
guarantee. These include:
(i) normal retirement benefits that were not vested;
(ii) subsidized early retirement benefits, unless as of the plan's
termination an employee had met all the criteria for the subsidy (in
Delphi, this was 30 years of service, or a combination of age and
service totaling 85);
(iii) some supplemental benefits that are paid only until an
employee attains the age of Social Security eligibility. (The idea is
that once an employee attains Social Security eligibility, these
benefits are replaced by Social Security benefits, so that retirement
income remains stable despite the expiration of the supplemental
benefits.)
Many employees, some of whom were only months away from qualifying
for a subsidized early retirement benefit, lost tremendously valuable
potential benefits.
I also note here that this is not simply a plan termination problem
under Title IV of ERISA. When a plan sponsor sells a division or
divests a subsidiary, employees with long years of loyal service can
lose subsidized early retirement benefits because they no longer work
for the same controlled group, even though they continue to work for
the same company or division, doing exactly the same work they did
before, often in exactly the same location.
And of course, the $54,000 dollar maximum guarantee for benefits
that are ensured by PBGC was reduced for employees who begin receiving
benefits before age 65 or who took benefits in the form of a joint-and-
survivor annuity.\2\ Again, this is mandated by the statute that the
PBGC administers.
---------------------------------------------------------------------------
\2\ When a company such as Delphi essentially disappears, it is
often difficult for an employee to wait until age 65 to begin receiving
benefits, so they take the benefits immediately despite the reduced
guarantee level. And I can tell you from many conversations over the
years, that employees often do not understand why a benefit under the
nominal guarantee level gets a smaller guarantee amount, simply because
they are married and take a joint-and-survivor benefit or because they
begin receiving benefits before age 65.
---------------------------------------------------------------------------
Salaried Delphi employees, then, lost benefits primarily in three
ways: many lost the opportunity to qualify for the most valuable
benefit under the plan--the subsidized early retirement benefit--
because they did not have 30 years of service; many lost a portion of
their supplemental benefit; and some lost benefits because they
exceeded the maximum guarantee level.
Some Possible Statutory Changes
In light of the Delphi bankruptcy, Congressional might want to re-
evaluate some provisions of Title IV, pension law generally, and
bankruptcy. Here are some candidates for such re-evaluation:
1. It might be time to adjust some of the features of the PBGC
guarantee, particularly for employees and retirees who take benefits
prior to normal retirement age or as a joint-and-survivor annuity. An
increase in the guarantee amount for married participants who take a
joint-and-survivor annuity would have the beneficial effect of
encouraging more participants to choose such annuities.
2. A relatively costless measure would be to allow employees who
have lost their jobs to begin receiving guaranteed benefits but to
later suspend benefits, with a concomitant increase in the guarantee
amount. An alternative might be to allow retirees to establish a tax-
deferred savings vehicle to which they can contribute their early
retirement benefits until they reach age 65.
3. Perhaps there should be some limited cost-of-living adjustments
in the guarantee limits after plan termination, even if this is paid
for by temporarily reducing the annual increases to the guarantee
amount that applies at plan termination.
4. The PBGC and participants in health and retirement plans might
be given expanded protections in bankruptcy proceedings by improving
their priority above other unsecured creditors.
5. The problem of cliff-eligibility requirements for subsidized
early retirement benefits, not only in underfunded plan terminations
but also in cases of sales of subsidiaries or divisions or other
corporate reorganizations, destroys important and reasonable employee
expectations about when they are able to retire. It may be that when an
event such as plan termination or a corporate structural change occurs,
employees should receive a pro-rata portion of the subsidy, based on
how close they came to fulfilling the eligibility requirements for such
subsidies. In addition, or as an alternative, employees who continue
working at the same desk after termination or a corporate restructuring
should continue to be able to qualify for the subsidy.
6. It may be time to re-examine the Title IV asset allocations to
different classes of benefits. The current allocations create a cliff--
people who are either retired or could retire within 3 years of plan
termination, can receive all of their benefits, while employees just a
day younger can have their benefits substantially reduced.
7. The Pension Protection Act amended ERISA to provide that the
date of plan termination is retroactive to the date a plan sponsor
entered bankruptcy. Because Delphi filed for bankruptcy proceedings
prior to the effective date of that PPA provision, the date of plan
termination was in 2009 rather than 2006. If the Delphi plan
termination date had been subject to this rule, the losses suffered by
Delphi employees would have been far worse. This rule unfairly defeats
employee expectations and Congress might consider repealing it.
______
Chairman Andrews. I want to try to get us into the problem-
solving mode here, if we can. And I think, Mr. Cunningham, Mr.
Gump, you may know these facts best of anyone in the room. It
is my understanding that the difference between the obligation
assumed by the PBGC and making your group whole is the
difference between 4.4 billion and $4 billion; is that right?
Mr. Cunningham. No.
Chairman Andrews. Is that insufficient?
Mr. Cunningham. That is incorrect.
Chairman Andrews. What is the shortfall?
Mr. Cunningham. The shortfall is probably, as best we can
tell, in the neighborhood of $2.6, $2.7 billion.
Chairman Andrews. So it is substantial. What is the
difference that 400 million and the 2.6?
Mr. Cunningham. Well, the $400 million is the difference
between what the PBGC says is not in there, after they put the
2 billion in for the plan. They keep talking about 2 billion.
We would think it would be 2.2. But no, I think you would find
any actuary tell you it was about $2.6,$2.7 billion, how much
it is underfunded.
Chairman Andrews. Without treading on any proprietary
information, there is litigation over this issue, correct?
Mr. Cunningham. Absolutely there is, yes.
Chairman Andrews. In the course of that litigation have you
retained an actuary to come up with this number?
Mr. Cunningham. No, we have not. But we have done that, had
actuarial work done prior to that.
Chairman Andrews. Where I am going with this is I think the
legislation Mr. Ryan and others have initiated on the VEBA
concept provides us with an interesting vehicle to try to solve
your problem, to try to solve the immediate problem. And I want
some grip on the scope of that solution. Your claim is that the
foreign assets against which the lien was released are worth--
what did you say?
Mr. Cunningham. Between 2 and $4 billion. That can be
found, although we can't excuse that here today.
Chairman Andrews. Okay, I don't want you to discuss
anything that would imperil your litigation.
Mr. Cunningham. No, but I can tell you that that is in the
PBGC administrative record.
Chairman Andrews. Okay.
Mr. Cunningham. It was done by an independent agent,
working for the PGBC.
Chairman Andrews. They got an appraisal of the assets?
Mr. Cunningham. They got an appraisal of the assets.
Chairman Andrews. And that is a public record.
Mr. Cunningham. It is part of the PBGC record.
Chairman Andrews. And your testimony is that the assets
were in fact liquidated for like $70 million.
Mr. Cunningham. That is correct. In an unsecured claim,
which we know in the Delphi bankruptcy is worthless.
Chairman Andrews. So if we took the low-end valuation at 2
billion, and your testimony is 70 million, there would be a
difference there of $1.8-something billion.
Mr. Cunningham..93.
Chairman Andrews. And if there was a way that that could
somehow be recovered, or at least funded, that would close a
lot of the gap that exists, if not all.
Mr. Cunningham. It certainly would, Chairman. We would be
happy if you could do that today.
Chairman Andrews. I would be shocked if I could do that
today.
I just wanted to get some--you know, lawsuits sometimes
settle. And I would never presume to suggest to people how they
should settle a lawsuit, but an interesting approach would be
that I don't think you need statutory authority to create a
VEBA. I think you can just create one. I am not sure about
that. But if the VEBA could be created as part of the
settlement of the lawsuit and, in part, funded, it would go
part of the way toward closing this gap that exists. Here is
where I think we want to get. And this does not help you
immediately, but I think it is a fair picture of the goal.
Professor Stein, if defined benefit obligations of
employers were treated as the highest priority under the
bankruptcy law, what would have happened to Mr. Gump's and
Cunningham's Delphi?
Mr. Stein. It would depend in part on how high their
priorities were and what assets were secured. I think one of
the questions about foreign assets is they may have a very high
face value, but they may be subject to other liens----
Chairman Andrews. But I am asking a slightly different----
Mr. Stein [continuing]. Other liens, and also, yes, some of
the assets. You know, you have to factory in South America that
has some value as a going----
Chairman Andrews. But is it fair to say that there would be
a lot more money available for their fund if they had higher
priority in the bankruptcy----
Mr. Stein. Actually I think there are two things. One is a
higher priority in bankruptcy and the ability to create liens
prior to plan termination. Currently they can only create liens
for delinquent contributions prior to plan termination. In
bankruptcy, by the time you get to plan termination, it is too
late.
Chairman Andrews. I think the most creative solution to
this problem is one that would recognize that your class of
people here should be the first to benefit from a change in a
broader law. In looking at this case, I believe that to assume
that the expectations of pensioners should be on an equal or
lesser playing field than that of lenders and creditors and
shareholders is really rather astonishing, because you are not
in a position to protect yourself the way they are. So, given
that fact, and given the unusual governmental involvement here,
because of the government's ownership stake in GM--which I hope
is not repeated for lots of reasons--I think it would give us
the basis to maybe take Mr. Ryan's legislation, work with it,
and try to figure out a way to come to some solution that would
have a practical impact for each of you. I cannot promise you
that, but I think he has given us a very promising start that
we could work from.
I want to recognize my friend, the Ranking Member.
Mr. Price. Thank you, Mr. Chairman, and I want to thank the
panelists, Mr. Gump, Mr. Cunningham especially, for your
remarkably candid and compelling testimony about the challenges
that you are facing right now. And I am astounded at the
unresponsiveness of members of the administration to give
information about how these decisions were made, and we all
should be. So I want to thank you for the information that you
provided to us today.
Mr. Gump, regarding that evidence you say in your testimony
that ``We have definitive evidence that PBGC acted under
powerful influence from the Department of Treasury on the
release of these liens.'' Would you care to expand on that?
Mr. Gump. I could. But if you wouldn't mind, I would ask
you to transfer that question to Mr. Cunningham who is actually
closer to that issue than I am. So, if you wouldn't mind.
Mr. Price. Yeah, let me do that as well. Let me make
certain that I didn't have another item on your testimony. Let
me do that. Let me go to Mr. Cunningham and talk about that
evidence as well. And discuss, if you will, a little more about
the release of the liens, why you think that occurred, and the
nature of that evidence that you discussed.
Mr. Cunningham. Okay. First of all, the Treasury
involvement is clear in the documents related to the GM
bankruptcy, part of the Bankruptcy Court files. I mean you'll
see them in the testimony, you'll see them all through the
Bankruptcy Court filing in the GM bankruptcy. And we have--I
believe we have submitted some of those to the committee. If
not, we will get them to you, those specific pages.
We also have a tremendous wealth of information contained
in the PBGC administrative record that references the Treasury,
references the various scenarios and how this occurred.
Unfortunately, we are still--and this is another irony; we are
still battling with some other folks to be able to make those
records public, even though they are available to you folks. We
have been asked not to make them available in public. But they
are there, they are there on the administrative record of the
PBGC. And the detail that must be out there with the Treasury
and the Automotive Task Force would be tremendous. I mean we
have verbal statements from people, but not in writing.
Mr. Price. Do you have any sense of why this deal was cut?
Mr. Cunningham. Oh, absolutely. There is no reason--there
is no question as to why the deal was cut. GM needed to exit
bankruptcy early, that is number one. Number two is, in order
for GM to be successful post-bankruptcy, they had to have a
viable Delphi, because Delphi was still by far and large their
largest supplier. Delphi could not execute the sale to the DIP
financers without having those overseas assets available.
If you look at the valuation in this company, the valuation
of the entire Department of the Interior of Delphi was exceeded
by the value of those overseas assets. It wasn't just a factory
that would be sold; these were ongoing commercial operations
that were making profit. And in fact this was done on a net
present-value basis, which I considered to be very
conservative. And I think it could be worth between 5 and $7
billion, but their evaluator was very conservative. So that is
why it was done.
Mr. Price. The genesis----
Mr. Cunningham. It had to get done in a hurry, as Bruce had
said.
Mr. Price. And the genesis for all of this notion is that
all of this had to be done in a hurry.
Mr. Cunningham. Absolutely.
Mr. Price. And the rush on that was due to----
Mr. Cunningham. Due to the government and the Treasury, at
least from what we can ascertain, as well as many public
statements, that they could not allow GM to languish in
bankruptcy more than about 60 days; that that would hurt GM and
hurt the sales, and it had to be done. In fact, some of this, I
have to applaud some of these people, they did a beautiful job
on some of the things. Unfortunately we got thrown under the
bus.
Mr. Price. Yeah. My time is running out, but I wanted to
get to at least one other issue, and that is the whole notion
of whether there was a contract in place to top-up these
pensions of some of the workers. You mention that in your
testimony. Why do you believe some folks have said there was a
contract that necessitated the topping----
Mr. Cunningham. Because I think that is expeditious on
their part to say that. I believe the Treasury would much
rather have people believe that this was a contractual
obligation.
But let me point out one thing in the GM bankruptcy
hearing. Tom Kennedy, the attorney for the IUE questioned Fritz
Henderson and said, Why are you giving the top-off to the UAW
and not to us? And Fritz Henderson said, Because we don't have
any IUE employees anymore. Your people work for Delphi, you are
of no use, we do not have a contract with you. That was the
statement by Fritz Henderson.
It was followed through until whatever forces came out that
got the IUE topped off also. I can't speak to who did that. We
know it was prompted by the Treasury, but where the influence
came from I can't tell you.
Chairman Andrews. Thank you. The Chair recognizes the
gentleman from Illinois, Mr. Hare.
Mr. Hare. Thank you. Mr. Chairman, thank you for having the
hearing today. Just three questions maybe for the panel, or
Professor Stein. But it has been stated the administration
chose to follow a commercial model when dealing with all
bankruptcies. Just what exactly is a commercial model and how
is it applied?
Mr. Gump. The best we can answer that would be that from
all the publications that have come out from Mr. Ratner, et
cetera, who explained this in various magazines. They chose to
act as a business. When they were interfering--if I could use
that term--in the business of General Motors, the government
chose to act as a business, and so be commercial, think
commercially, all the things associated with what is it going
to take for the company to succeed as a company. And so the
government essentially said when it came to the retirees there
was no value to helping the retirees because they are not doing
anything to produce profit for their company. And so they
chose, the government chose to not protect or benefit the
retirees.
In the case of the UAW, because of the issues associated
with potential job stoppages or whatever that might happen,
they had to take care of UAW, which we think is a very good
thing. Those folks earned their pensions and benefits also, and
so it is a very good thing that they were able to receive--at
least a very, very large portion of them. However, because the
IUE had been cut off, and because the salaried folks had no
commercial value to the company, the government just decided,
as Mr. Cunningham said, to throw us under the bus.
Mr. Hare. I don't mean to interrupt you, but what is
considered commercial value? What do they mean by that when
they say you have no commercial value?
Mr. Gump. We had no ability to help the company create a
profit. So because we were retirees, no longer working for the
company, as any retiree in America is, we already earned our
benefits. We are not working for the company anymore. The
compensation that we should be getting is compensation for the
work that we have already put in. But today, and because we are
retirees, we are not working for the company and helping them
generate a profit. In this situation, the government chose to
say that we also deserved no protection.
Mr. Hare. Well, let me just say this from my perspective.
Maybe you can help me out here. Several of the unions that were
topped off in terms of their pensions were made whole, if you
will, or----
Mr. Cunningham. The two largest unions, the UAW, the IUE-
CWA and United Steelworkers were topped off. That represented
98, 99 percent of the unionized workers at Delphi, yes.
Mr. Hare. Well, I would just say back in my district, John
Deere is the world headquarters, and it is about 10 minutes
from my district office, but I know that their management
people had to file a suit when they cut their health care
benefits.
It seems to me you work for the company, you put all these
years in, and I agree with the Chairman, instead of--my father
used to say, God put eyes in the front of our heads so we don't
have to look backward all the time. I do think we have to maybe
take a look at this.
I would like to be able to work with Mr. Ryan and anybody
here on the committee to make sure that the people who were
left out of the pensions get the pensions. You put the time in,
you worked, you made the company what the company is. The
people on the line, the people in the offices, the people
that--you know, every position it just seems to me.
And to take that, a 30 to 70 percent hit, when you have
worked your entire life for a company and given it everything
you had--and not just the person, it seems to me, is affected,
your whole family too. I mean, ordinary people, it just seems
to me--which I think we all are really--you want to put your
kids through school, you want to have a home, and you want to
be able to get some decent health care. At the end of the day,
after working your whole life for a company, you would like to
have a pension you can count on.
And I think to lose that kind of funds and to lose that
kind of money is something we have to fix, and we have to fix
it quickly. And then we can look at and argue how this might
have happened and figure that out, but we have got to pick up
these people.
How many total people--and I know my time has run out--are
affected by this?
Mr. Gump. The salaried plan has about 20,000 in it, the IUE
was somewhere around 70,000.
Mr. Hare. So you have 90,000 people who have paid taxes,
American citizens; a lot of these people I am assuming served
in the military and they are getting shorted 30 to 70 percent.
We have got to fix this problem and I will be happy to work
with my friend, Congressman Ryan, or anybody here on the
committee to help solve this problem. I don't think anybody
ought to be left out on the pension program simply because you
were management or because you were a union, and maybe not
small enough. So I think we have an obligation to help you out
and I would be more than happy to do that. Thank you, Mr.
Chairman.
Chairman Andrews. Thank you Mr. Hare. The Chair is pleased
to recognize the Ranking Member of the full committee, Mr.
Kline.
Mr. Kline. Thank you, Mr. Chairman, and I thank the
panelists for being here.
Mr. Chairman, it is always interesting to me when you
speak. You are indeed a distinguished attorney and I am sure
were a fine litigator. We know that you are a famous student, a
law student, but I always get a little bit nervous when you try
to do math in your head.
I, on the other hand, being a Marine, have none of the
above. I cannot do math in my head, I am not a famous
litigator. I was a poor student in all those things. But
regardless of doing math in one's head, we have got a huge
difference here in money. We are talking about $70 million and
2 billion or 4 billion, or perhaps more in dollars. Regardless
of where you do your math, with a pencil or in your head, is a
big difference.
And I am concerned about two things here. Some have already
been addressed. And that is, is there something that be can be
done, the VEBA or something, addressing the issue of the Delphi
employees, the salaried employees in some of the smaller unions
today. But part of what we ought to be doing and I think what
we are doing in this hearing, in this committee, is what is at
the root of this problem? What happened? Who made decisions?
And I am very, very concerned that--I have heard language
and looked at testimony here today. Mr. Gump or Mr. Cunningham,
you said the PBGC walked away from $2- to $4 billion. And, Mr.
Gump, in your testimony you note that you have definitive
evidence that the PBGC acted and are a powerful influence for
the Department of Treasury. My colleague Mr. Price was trying
to get at that earlier.
The PBGC as Mr. Stein has testified--and by the way,
Professor, it is good to see you back here again. The PBGC has
been a very, very important backstop for so many retirees in
America as companies have gone into bankruptcy, and we want to
be careful to preserve that. But it is an independent
organization, or it should be an independent organization. And
the board, as I understand, is made up of several Department
Secretaries--Treasury, Labor, Commerce. And so the potential
for influence might be there through that board. But that is
something we ought to know about, Mr. Chairman. We in this
committee we ought to know about that, we ought to look at
that. We need to understand that the role of the Auto Task
Force in this, who made decisions there, who cut deals and why.
And so I am hoping, Mr. Chairman, that we will be able to
get answers, not just from this panel, but maybe we need to
hear from the PBGC itself. Maybe we need to hear from the Auto
Task Force to understand how these decisions were made, and is
it something that we ought to be able to prevent in the future,
not just for the Delphi employees, but make sure that there
isn't undue influence, if in fact there was, and we ought to
determine whether or not there was such influence.
So I don't have a question for this panel. I think you have
been very frank and forthcoming in giving us your best
information and describing the numbers to us. But I think we
have work to do here. I am eager that we get on with both of
those problems: What can we do for them now and what can we do
to uncover what happened and how we got here? I thank you and I
yield back.
Chairman Andrews. I thank my friend from Minnesota.
The Chair is pleased to recognize the gentleman from Ohio,
Mr. Kucinich, who has brought his usual tenacity and focus to
this issue, for 5 minutes.
Mr. Kucinich. Mr. Chairman, I want to thank you for holding
this hearing. And I think the first thing we should recognize
is that the salaried employees and those who had a union
contract are really in the same boat. They are both getting
denied their economic rights. We have got to be careful that we
don't let anyone split unity between two groups that may come
to the table from a different place, for sure, but they are
both appealing to this Congress for recognition of the fact
that they worked a lifetime, to come to the end of their work
days only to be told that the money they were promised at the
beginning would not be there in terms of their retirement
benefits.
Mr. Chairman, I don't think there is anything in our
democratic society that could shake people's confidence more in
our economic system and in our government than the inability,
the unwillingness, through either ineptness or fraud, to
deliver on a promise of economic security in people's golden
years that they worked for.
This isn't something that people are asking to be given,
some kind of a government handout. People worked for this.
Corporations have a moral responsibility. It should be first in
line, not last in line.
Mr. Ryan and I were in a bankruptcy court together a few
years ago when the steel industry in Ohio was struggling to
survive. And employees were basically told, you know, get at
the end of the line with the other creditors.
Why can't they be first, and ahead of the banks? Why can't
we have laws that say that we recognize the contribution of
workers to this economy as actually having precedence over
those who are making profits based on paper-shoveling? It
really is a statement of the values in our economy, it really
is.
It really is a challenge to capitalism itself when you can
have workers who are told they can have a piece of the dream if
they give 20, 30, 40 years to a corporation, and then at the
end of the time, say, ``Guess what? The money is not there.''
Really. Really.
Why aren't there criminal penalties attached to that? If
someone holds up a grocery store they will get 20, 30 years in
jail. What if you hold up your workforce, what if you hold them
up with a pen? The fundamental question is of economic justice
here; the economic justice due to salaried employees and hourly
employees as well.
And this Congress has a lot of work to do, as you know, Mr.
Chairman, to be certain that we look at all laws that can not
just protect workers in the future, but to see if we can find a
way to help people who are struggling right now, because there
will be a lot of American families who will find it tough to be
able to hold on when they find that the money they counted on
for their economic security in the future just isn't going to
be there. What do they do?
Let's not split the aspirations of salaried workers and
hourly workers. I am a strong union man, but at the same time,
if people are getting the shaft and they are not belonging to a
union, that might make our case down the road as to why the
fundamental economic justice movement in our society is to make
sure people have the right to organize.
Thank you very much.
Chairman Andrews. Thank you very much, Mr. Kucinich.
The Chair is pleased to recognize our guest for this
hearing, the gentleman from New York, Mr. Lee, for 5 minutes.
Welcome to the committee.
Mr. Lee. Thank you, sir, and I will try to keep it brief. I
truly appreciate what you have done on behalf of these
retirees. I just have one or two points. And I ask first and
foremost to reiterate the frustration of not having Mr. Bloom
here on an issue that is so important and trying to really
understand how these decisions were made is unfortunate. And
you do have my commitment that we will continue to try to push
for him to be honest with the retirees on truly what has
happened. I think that is an important part of this hearing we
do not want to lose sight of.
But the other part--and I have to commend my colleagues who
are talking here--it was mentioned, the fact that all you are
looking for is fairness, not looking for anything special, you
just want to be treated equally. And if there is pain to be
shared, let's do it on a united front. And that is the part
that from day one when I got involved with this issue, I have
had the utmost respect for the individuals who are in this
room. And that really is--my hat is off to you, but it is truly
what has inspired me to want to help as much as I can.
One other question. I know the Chairman has outlined a
potential remedy. I am curious if any of you had thoughts or
ideas on what else could be done to help try to assist retirees
in this situation, and that is open to any of you.
Mr. Cunningham. I believe that--and I liked what the
Chairman suggested, I think that is excellent. But I believe
the money is there now. I believe the money is within GM right
new to top off--top up our pensions as well as the others.
Although the number from a net present-value standpoint might
be 2.6, 2.7 billion----
Chairman Andrews. Would the gentleman yield for one second
so I can ask a question about that? And, again, if this is
something you can't answer I appreciate it. Is GM a defendant
in the suit that you brought?
Mr. Cunningham. Yes, it is.
Chairman Andrews. Okay.
Mr. Lee. Go ahead.
Mr. Cunningham. I believe that GM has the money. And I
think it is, again, just outrageous to think that GM is
choosing to use the money they are drawing down now, in the
words of GM, to look at acquisitions and restructuring, most of
which are overseas. They are talking about using billions of
dollars of taxpayers' money to invest in, potentially, Opel or
other foreign entities, while they could be putting that money
to work to pay for our pension top-up. And it wouldn't be 2.7
billion straight up-front. In fact, it would be very small in
the opening years.
So I believe the money is available. It was given to them
by the Treasury. They said it is not required, the drawdown is
not required for the day-to-day operations of the business. So
if they don't need it for that, they ought to be able to use
some of it, a very small part every month, to supplement us as
they have the other groups. So I think that remedy is very
simple, it is out there, it is available tomorrow.
Mr. Lee. Thank you. Mr. Gump, anything you wanted to add?
Mr. Gump. Only that the issue is really--the issue we are
fighting about here is about how the United States Government
interfaces with the people of the United States. In this
particular case, the United States Government chose to kind of
pick and choose who and what groups they were going to support.
This letter that was introduced by Congressman Ryan from
the President of the Ohio AFL-CIO is written on behalf of the
700,000 members of the AFL-CIO in the State. And it calls for
retirees to be fairly and equitably treated; provide for the
full earned pensions and other post-employment benefits in the
same manner for all groups, regardless of their representation.
I am strongly union also. I believe that unions are
absolutely necessary in our business model. And in spite of the
fact that I was salaried, the reason I am salaried is because
no union was available at the time. I would have been happy to
have joined one.
I would also like, if you wouldn't mind, to introduce a
concurrent resolution, currently being considered in the Ohio
General Assembly, that calls for fair and equitable treatment
for all workers' groups.
Chairman Andrews. Without objection, it will be made part
of the record.
[The information follows:]
Joseph P. Rugola,
President, Ohio AFL-CIO,
November 25, 2009.
To: Members of the Ohio General Assembly.
Subject: Delphi Retirees.
STATEMENT OF SUPPORT
On behalf of Ohio's working families and the Ohio AFL-CIO's 700,000
members we offer our support for the introduction of a Senate
Resolution that urges the President of the United States, the Secretary
of the Treasury, the head of the President's Auto Task Force, and the
members of the United States Congress to treat all of the General
Motors-Delphi retirees fairly and equitably and provide for the full
earned pensions and other post employment benefits in the same manner
for all groups regardless of their representation.
______
------
------
Mr. Gump. I would be happy to leave those here.
The point I am trying to make: Everyone that we have spoken
to, other than the administration who has tried to justify
their actions based on a commercial model and determining that
one person has more commercial value than another, is a
question that we settled in this country a long time ago and we
shouldn't have to discuss it today.
Trying to justify on that, every other person that I have
spoken to, be they in politics, in business, be they in any
other conditions, has said this is just a matter of right and
wrong. It is a mistake.
And quite honestly--and I don't believe there was malice
involved here, at least I don't want to believe that there was
malice involved here--the issue is really more one that there
was a policy that was improperly implemented and taken a little
too far and it created an error. It is just an error that needs
to be corrected, that is all this is. And it needs to be backed
up. It is not difficult to do so.
I absolutely agree with Mr. Cunningham, the money is
available. It is not this difficult to make this happen, and it
just needs to be done. So I would be happy to introduce these,
and I didn't mean to take too much time.
Mr. Lee. That is fine. I yield back.
Chairman Andrews. The Chair recognizes Mr. Kildee.
Mr. Kildee. Thank you very much, Mr. Chairman. Dr. Stein--
--
Mr. Stein. It is Mr. Stein, actually.
Mr. Kildee. Whatever. I will give you a doctorate.
Mr. Stein. Thank you. My brother is doctor and I think
would object.
Mr. Kildee. All I got was an MA.
What changes could or should Congress make in ERISA or in
the bankruptcy laws to help those already hurt, or to prevent
such harm from befalling others in the future? Or is there any
need to change law?
And the second part of my question here. You also mention
in your testimony that losses for Delphi workers are not
typical; that historically 85 percent of participants in plans
have not suffered any pension losses. I ask you this question.
How adequate is the reporting obligation of companies to the
PBGC and how strongly does PBGC enforce that reporting?
From what I can gather in the 33 years I have spent here in
Congress serving on this committee is that there isn't--there
is fuzziness of information going back and forth. You can fall
into a situation where there is not much money being put into
the PBGC.
If you could answer both those questions. Any changes in
law and how well is PBGC enforcing information coming to them?
Mr. Stein. Let me start with the second question. I think
one of the problems that we are seeing here, and that we see
often when we have terminations of underfunded plans, is
employees are completely unprepared. No one really told them
that this is possible. In fact, the message I think employees
get from employers and from, to some extent, the PBGC, is your
benefits are secure. And in fact that is true for a lot of
people, but it is not true for everyone. And when there are
losses, the losses are great. And people should know exactly
what would happen--plan termination, if it happens, what would
be the result?
I think there are a number of changes in the law that would
be really helpful, I think Chairman Andrews is exactly right
that PBGC and participants should be given much more
consideration in bankruptcy, and even before bankruptcy.
I think one of the problems here, and this is one reason I
hope I am--the liens that PBGC can get before bankruptcy only
attach to--only relate to delinquent contributions. They have
to wait until bankruptcy when it is essentially too late to get
a lien on a company for underfunding that doesn't relate just
to delinquent contributions. And PBGC really should be able to
go in, when a plan is seriously underfunded, and create a lien
before termination. That would have really helped in this
situation.
I made a number of suggestions, I think it would take too
long to deal with here, to itemize here, of changes that might
happen.
Something else the committee might look at. I know or I
have heard that not all TARP funds have been expended. One of
the things that upset me about the use of TARP funds is that it
has not been focused on the real life pain of real people,
employees. And perhaps some TARP money could be used, not only
to help the Delphi employees, but there are other employees who
also have, because of the economy turndown, suffered pension
loss. And maybe that is a possibility.
I also want to say that I think all the Delphi employees
who have lost benefits have a compelling story to tell. But if
you think about prioritizing, the employees that are in the
worst shape are those already retired or very close to
retirement, who are up against this $54,000 annual limit, which
moves downward if you take a survivor benefit for your spouse;
which moves downward if you start your pension a few years
early. They have, I think, the most compelling story to tell.
The younger employees who suffered tremendous losses--the
losses that they suffered is the ability to take full
retirement at earlier ages--they have a pretty good story to
tell too; but I don't think it is as compelling as people who
are very close to retirement, or who have already retired.
So if there is limited money to go around, where I would
focus it initially are people who are retired and very close to
retirement and then look at the subsidized early retirement
benefits.
Mr. Kildee. One thing that has bothered me in my 33 years,
you ask a company how fully funded is your pension plan and
they say, oh, it is about 100 percent. One said we are over 100
percent funded. And you can never get that from PBGC. We are
operating in----
Mr. Stein. Yeah, and of course what it means to be 100
percent--it shouldn't have different meanings--but you ask
somebody what 100 percent funding means, you will get very
different answers depending on who you are asking and what
their interest is.
And one of the things which I think you might look at, GM
transferred money when they set up Delphi to the salaried
pension plan and said it was fully funded. I spent some time
trying to track this down, and I couldn't come up with a
complete story. But I wonder whether under a realistic
definition of full funding, the plan in fact was fully funded
in 1999 when the assets were transferred.
Mr. Kildee. It is hard to pull a number out of PBGC and the
company. I think we need a change of attitude also, rather than
a change of law, or maybe a little bit of both. Thank you very
much.
Chairman Andrews. Mr. Kildee, thank you. I am going to turn
now to Mr. Ryan and invite him and Mr. Lee to continue working
with us and the others as we work on this issue. I think we
have heard some promising ideas today. And, again, Tim, using
your legislation with your colleagues as a starting point, we
can work together on it. But we are glad you are with us this
morning.
Mr. Ryan. Great. I just wanted to thank you again. One
question, Bruce--and I know you know the answer to this--if you
could share with the committee how many years you worked for
General Motors.
Mr. Gump. That depends on how you want to calculate it. The
number of years I was paid for was 32 years and 7 months. I
probably worked closer to 42 or 43 years altogether at 8 hours
a day. Working 30 percent or more overtime is not at all
uncommon amongst the salaried employees. So while we didn't pay
union dues, we certainly paid dues to the company. All that
overtime was gratis; it was free, unpaid.
So in addition to that, we probably had--in my case it was
probably on the order of 3 or 4 years away from my family,
weeks or months at a time on various travel excursions for the
company.
So you know, the answer--I know you want a simple number,
but honestly when it comes to trying to determine whether or
not one is worthy, if you will, of protection from the United
States Government to receive the same benefits that our friends
in the unions have, I think it is important to understand we
paid our dues; we have depended on the company and our
government. And at this point in time, we have been let down by
both. So we would really like to have that corrected. Thank
you.
Mr. Ryan. I would just like to add, Mr. Chairman, it is
complicated where we are from, because we have a General Motors
plan that is going to make the Chevy crews. They just added a
second shift, so we are seeing some of the benefits. But we
also have thousands of employees who I don't think would be
willing to buy GM cars anymore, should this situation continue.
And just to say that working with you, I am more optimistic
after this hearing than before with trying to build coalitions
in Congress to get this done and your personal willingness to
help us. But this could be and would be a stimulus for other
local communities when you talk about 50-plus millions of
dollars rippling throughout a couple of concentrated areas in
Ohio. I think this would very much stimulate our local economy.
And the TARP money, again I voted for TARP. I was here when
things were happening, and voted for it and supported it. But
we have an opportunity, I think, to use some of this money now
to help average families, middle-class families that we are
obligated.
So I want to thank Bruce and Chuck and Marianne and Nick
for you all coming down here and being so tenacious with me and
with our staffs. This is a very important issue and there is
nothing more heartbreaking, especially--Mr. Kildee represents
Flint, Michigan. So he knows exactly what we have gone through
in our area. And there is nothing more heartbreaking than
promises not being kept and watching families have to go
through that.
Dr. Stein--I am going to call you Dr. Stein now that you
are promoted--mentioned that things are a lot better now than
they were when the steel mill would close in Youngstown 30
years ago, you would show up for work and the gate would be
locked and that was it. Things have improved, but we are not
done yet. So we will keep going.
I thank you very much for your help, the staff and the
committee on this as well. So thank you.
Chairman Andrews. Tim, thanks for your leadership and we
look forward to working with you, Mr. Lee, and your colleagues.
At this time I will turn to my friend the Ranking Member,
Mr. Price, for any closing remarks that he has.
Mr. Price. Thank you, Mr. Chairman. I think this has been a
wonderfully helpful hearing in gaining insight into the
specific challenge that many hourly and salaried workers at
Delphi have, based upon what has occurred. And really the wrong
that has occurred and the information that has to be gained.
This has been remarkably helpful in providing that foundation
of information.
But I think, as my colleagues have said, and we could have
agreement on, there is information out there that we need, that
we don't have. And so I would hope that the committee continues
to work, to go forward in gaining that information from the
administration, from the Secretary of the Treasury, from the
PBGC and others as to what happened.
Yes, we do need to make certain that we correct what has
occurred to date, but we can't make certain that it doesn't
happen again unless we know how this one happened in the first
place. I thank the Chairman.
Chairman Andrews. I thank my friend.
I want to thank the witnesses for really helping educate
the panel, helping us learn not only about your situation but
how we might address similar situations and prevent them. What
I take away from this is a renewed commitment to work with the
Members and Senators who care about this, and with you. And I
break it into what we do not know and what we do know.
What we do not know are some, as Dr. Price said, some facts
that we do need the answer to about the valuation of those
assets, the decision-making dynamic around the release of those
assets, and the ways this decision was made. I agree we do need
that information.
What we do know is that tens of thousands of people have
taken an awful hit as a result of this. We also know that there
are two vehicles through which we could address that hit, try
to fix this problem. The first is the legislation Mr. Ryan has
proposed, along with the other members. It gives us some
framework within which we can work. And the second is the
litigation that you have launched, which, although it is a
separate branch of government, a separate thing, it is quite
useful, frankly,to have that out there at this time as well.
What we would like to do is help you in whatever way we can
to remedy this hurt that you have suffered, this wrong that you
have suffered. But then, as Dr. Price has suggested, use the
lessons learned from this situation to construct better laws so
that this doesn't happen to other people in the future.
One of the reasons I am sitting here today is that when was
14 years old, my father who had worked for 38 years at shipyard
came home and said he wasn't going back to work the next Monday
because the yard was closed. He was 61. This is before ERISA.
And so he got one severance check that was probably worth 15
percent of what his pension was. Never got a pension. He wound
up at the age of 61 back in the workforce, was fortunate enough
to find a job with our hometown, picking up mail every morning
at the post office and doing the banking for the local
government in our town, and literally worked until the day he
died when he was 75 years old because he never got a pension.
This is personal. And the fact that this could happen to
somebody after the law of 19--had this happened to him after
1974, his pension would have been protected and he would have
had a very different last few years of his life. But we are
thankful he had those years and he was healthy enough to work
and did it. We were grateful that he was.
But the fact that this is post-ERISA, post-1974, and you
have relied upon these promises and because of circumstances
beyond your control, for which you have no causal effect, you
have to suffer these consequences, is just wrong. And rather
than just say that, we would like to try to take it to the next
step and figure out some way to try to help you and then learn
from the lessons that you have taught us today to try to
prevent for other people down the road.
As previously ordered, members will have 14 days to submit
additional materials for the hearing record.
[The statement of Mr. Kildee follows:]
Prepared Statement of Hon. Dale E. Kildee, a Representative in Congress
From the State of Michigan
Chairman Andrews, I would like to thank you for holding this
important hearing. Thank you to our witnesses testifying today as well.
The Delphi pension issue is an issue that greatly affects my
constituents in the 5th District of Michigan and that is why I
requested this hearing. Until recently my district had two Delphi
plants in Saginaw and one in Flint.
I believe it is both fiscally and morally right to ensure retirees
receive the benefits they were promised by their employers and have
planned on having during their retirement years.
Delphi retirees were promised a lifetime pension and health
benefits. However, they have now learned that those promises were not
100% guaranteed.
These Delphi retirees have seen their pensions taken over by the
Pension Benefit Guaranty Corporation (PBGC).
While the hourly workers will receive a top-off of their pension
plans thanks to the commitment GM made to those workers when Delphi
spun off from GM in 1999.
GM did not make the same guarantees to salaried employees and has
stated that the salaried plan was fully funded when Delphi spun off
from GM. Unfortunately for the 20,000 Delphi salaried retirees, they
will be limited to the benefits from the PBGC as things stand now.
We will hear from the second panel about how workers have been
affected by Delphi's bankruptcy. The loss of retirement benefits will
have a devastating impact on thousands of workers and their families.
These individuals spent a lifetime working towards their
retirement, only to find that their retirement benefits were not there
when they needed them.
I hope that today we will have a meaningful discussion on possible
remedies, including possible legislation, to benefit our workers and
retirees and look forward to working with the Committee and with our
witnesses to help find legislative solutions to ensure that retirees
receive the pension and health benefits that they have earned.
______
[The statement of Mr. Boehner follows:]
Prepared Statement of Hon. John Boehner, a Representative in Congress
From the State of Ohio; Minority Leader, U.S. House of Representatives
Chairman Andrews and Ranking Member Price, thank you for holding a
hearing on the ``Impact of Bankruptcy on Delphi Workers.''
The bankruptcy of Delphi has far-reaching impact in the 8th
District. Delphi had multiple facilities in the Dayton area and many
retirees live in my district. Many of these individuals spent most of
their careers as General Motors (GM) employees before Delphi was spun-
off as an independent company.
After over three years in bankruptcy, bankruptcy court approved a
reorganization plan for Delphi at the end of July. As part of its
reorganization, Delphi terminated its pension plans in June, defaulting
responsibility for the pension plans of its workers and retirees to the
Pension Benefit Guaranty Corporation (PBGC). Reportedly, this is the
fourth-largest takeover of plans in terms of people covered and second-
largest based on the amount of money PBGC will pay out. More than
70,000 workers are affected.
Subsequently, Delphi's former parent company, GM, topped off the
pensions of thousands of hourly workers and retirees under UAW and
other union contracts. However, 15,000 salaried retirees still face
significant cuts to their pensions based on PBGC rules and maximum
benefits. Affected retirees may lose up to 70 percent of their expected
pension benefits. Hourly and salaried employees and retirees worked
side-by-side during their careers yet now are receiving disparate,
inequitable treatment.
In June, I joined Congressman Mike Turner (R-OH) in writing Ron
Bloom, Senior Advisor on the Auto Industry at the U.S. Department of
Treasury, asking the Automotive Task Force to support the assumption of
Delphi Corporation's hourly and salaried pension obligations by GM. Mr.
Bloom's response, dated October 14, 2009, states, in part, ``While GM
has agreed to assume Delphi's hourly pension plans, unfortunately there
simply is no realistic alternative to the termination of the existing
Delphi salaried pension plans and the transition of their stewardship
to the PBGC.''
However, the taxpayer-funded rescue of GM, combined with the
government-directed bankruptcy and reorganization of GM, has resulted
in unprecedented government involvement and intervention in the
workings of a private company and the economy. Neither GM nor the
Automotive Task Force has provided a full explanation as to why some
Delphi pension obligations will be met by GM while the salaried
retirees are not made whole. I commend you for highlighting these
issues during this hearing, but I am disappointed that an
Administration official was unavailable to testify to bring some much
needed transparency to this process.
On June 26, 2009, joined by 7 of my Republican colleagues, I
introduced a Resolution of Inquiry--H.Res. 591. This resolution
requests that President Obama transmit all information in his
possession relating to certain specific communications with and
financial assistance provided to General Motors Corporation and
Chrysler LLC to the United States House of Representatives. This
resolution focuses on the role of the Presidential Task Force on the
Auto Industry in any negotiation or approval of the companies' plans
for reorganization.
In regard to salaried retirees' benefits, the resolution seeks
information regarding the role of the Task Force in negotiating,
reviewing, approving, determining, or in any other aspect relating to,
levels of and reductions in the employee and retiree benefits of
General Motors' salaried employees and non-union hourly retirees.
On July 10, the House Committee on Financial Services considered
the resolution for amendment. While I am not a member of this
committee, I am pleased that Congressman Chris Lee (R-NY) offered an
amendment, which was adopted, to include determination of pension
benefits of Delphi retirees as part of the inquiry.
The resolution passed the committee by voice vote. I am hopeful
that this resolution will be scheduled for a vote on the House Floor.
The American people, especially those affected by the bankruptcy
proceedings, deserve to be a part of an open and transparent process.
______
Chairman Andrews. Any member who wishes to submit follow-up
questions in writing to the witnesses should coordinate with
the Majority staff within 14 days.
Without objection, the hearing is adjourned.
[Whereupon, at 12:23 p.m., the subcommittee was adjourned.]