This case covers GM’s possible bankruptcy and its pension and retiree health care funds. Although the case covers relatively technical pension/retiree health care benefit issues, it is far more interesting than a typical pension case because of the negotiations between the U.S. government, GM, bondholders, and the UAW (Union of Auto Workers).
In 2007, GM was in serious financial difficulty but had an overfunded pension plan. The UAW, concerned about losing its health care benefits in the event of a GM bankruptcy, negotiated an arrangement whereby GM transferred its retiree health care fund obligations to the UAW, paid a significant amount into the fund, and promised to later pay more than $20 billion to the newly UAW managed retiree health care fund. GM also agreed to increase retiree benefits from the overfunded pension plan by $66.01 per employee per month beginning January 1, 2010.
In 2008, as the stock market collapsed, GM’s pension fund shifted to being underfunded. In late 2008 GM and Chrysler received government loans. In early 2009, the U.S. Government proposed a bankruptcy plan that would preserve the firm’s liability to the UAW pension and retiree health care fund. Bondholders were to receive eight cents in cash for each dollar in bonds, plus sixteen cents in new unsecured debt, and 90% of GM’s equity. The case includes a letter from advisers to the creditors that challenges that offer; it ends before the bankruptcy is resolved. The teaching note includes details on the bankruptcy.