Updated: May 3, 2013 12:14PM
Deal or No Deal? What's inside the briefcase? This time it's not a popular television show. Many General Motors workers are faced with making a deal for their financial life.
In one briefcase, GM is offering its workers a $35,000 payout if they retire now, keeping their full post-retirement pension, health care and insurance benefits.
Inside another briefcase is more money -- up to $140,000 -- for those who don't qualify for retirement. But they get the money only if they leave the company now and give up all their promised post-retirement benefits, except vested pension benefits.
Or the "players" can wait for that call from the "banker" in this game, hoping to get a better offer. That means they'll have to hang around and see what might be in future briefcases. It could mean more money for the workers who don't take the current deal, because if GM prospers as a result of lower costs, the paychecks of the remaining workers eventually could rise.
Or they could wait for the next briefcase, and find it nearly empty. If workers hang onto their jobs and the company continues downhill, the next suitcase might contain only an unemployment check!
What would you do?
What kind of deal would you make? It's one thing to watch a game show and see the smiling girls in tight dresses reveal the numbers inside the briefcase. It's quite another to put your entire life on the line.
If a worker takes the current cash deal, what's he or she supposed to do for the next 20 years?
Many of those workers don't have transferable skills. And they certainly won't find the same income, even if they do transfer to jobs, offered by non-union companies now building cars in America.
Even worse, they'd be without health insurance, exposing themselves to financial catastrophe if a family member becomes ill. That upfront payout, even at the highest number, could be wiped out by an uninsured illness.
Then there's the question of the future pension checks. Those pensions have value -- or do they? Could they become just another discount briefcase?
As workers in the steel and airline industries have painfully learned, pension promises are only as good as the company that stands behind them. Millions of Americans who worked for companies in those industries will have only the remnants of that planned-for pension check because their company went bankrupt and defaulted on their pension promises.
The federal Pension Benefit Guarantee Corporation was created in 1974. Since then it has taken over pension payments to more than 1 million workers. Last year, it paid out $3.7 billion in benefits. Funded by contributions from well-managed company pension plans, it appears the PBGC offers retirement security by replacing corporate pension promises.
But take a closer look. For plans that are taken over in 2006, the maximum guarantee is $47,659.08 yearly ($3,971.59 monthly) for those who retire at age 65.
And if you decide to retire early, at age 55, the maximum guarantee is only $21,446.64 yearly ($1,787.22 monthly).
That lesson adds uncertainty to the decision that must be made by GM workers. If General Motors were forced to file for bankruptcy -- unthinkable, but not impossible -- then sticking around for the pension briefcase could be a very bad deal.
The UAW as Howie Mandel
The United Auto Workers union is playing the role of comedian Howie Mandel in this show, brokering the deal. Only it's no laughing matter. The union negotiated with GM to create this package. But the more workers that take the briefcase and run, the fewer members the union will have, and the less power to negotiate compensation for remaining GM workers.
Years ago, the UAW gave up some current salary demands for promises of future retirement benefits for its members. At the time it seemed like a good deal: easy for the companies to promise, and enticing for the workers to accept.
Those deals were made in an era of "What's good for General Motors is good for America." This is a different era. Now the question is far more personal: "What's good for the GM worker?" And GM's survival might well depend on whether workers say Deal or No Deal. That's the Savage Truth.
Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.