Gordon:  Welcome back to Flashpoint.  As we said at the top of the broadcast, we are eleven days away from the government imposed deadline at Chrysler…forty days away at General Motors…and with each passing day the chorus of experts who say that bankruptcy is likelier seems to grow.  Let’s turn now to the man who will quite likely be called upon to back up the pensions of companies if they do go bankrupt.  Vince Snowbarger is the man in charge at the government’s Pension Benefit Guaranty Corporation…Sir, thank you for joining us on Flashpoint.

Snowbarger:  Good Morning.

Gordon:  What determines…We’ve seen with United Airlines, Bethlehem Steel, a number of companies over the past several decades -- companies that when they file for bankruptcy, they reorganize but they also just get up and walk away from their pension obligations.  What in your experience usually determines whether or not a company will do that…and we do want to say as a preamble here that we do not know yet whether GM or Chrysler will do that…but what determines whether a company does?

Snowbarger:  Well yeah, let me add my two cents worth on that.  We don’t know yet what Chrysler and General Motors might do…and the other thing I’d add is that just because they go into bankruptcy doesn’t necessarily mean that they will terminate all or part of their pension plans.  The thing that primarily determines that is how much can they afford to maintain as an ongoing company after they exit bankruptcy…and how much continuing debt…and pension plans are a debt…how much debt will their lenders allow them to bring out of bankruptcy on the other side.  And of course there are the labor concerns.  Obviously United Auto Workers are trying to protect the pensions they have been earned by those workers in Detroit and across the country working for auto companies.

Gordon:  Now we know that the PBGC will enter into and back up the pension benefits.  You make sure the checks keep coming and that’s the important role that you provided. But do they keep coming at the same level as before or is there a limit to what the PBGC can supply pensioners?

Snowbarger:  Yeah, there are several limits that are imposed by law and I think it’s fair to say that most of the workers in the auto industry are going to see some kind of reduction in the benefits that they’ve been receiving or that they expected to receive because of those limits.

Gordon:  And how much are we talking about…at United Airlines for instance, we saw a one third reduction.  Folks who were expecting three thousand a month only got two thousand.  Do we know what the level of rollback would be for these folks?

Snowbarger:  Well I don’t think we can speculate on that yet because a number of factors are involved.  Not only the amount of assets that are available for distribution to various categories of beneficiaries, but also the exact terms of the plans and who are affected by those.  But again there could be some significant cutbacks.  If you’re below age 65, if you’re receiving early retirement supplements, or if you’re receiving benefits that were increased over the last five years, we only guarantee a part of those.

Gordon:  Now if you are 65 and over and you’ve been in the plant a while and receiving benefits… I understand at least from your website that your ceiling on average is $54,000 a year.  Is that pretty accurate?

Snowbarger: The $54,000 refers to the amount that you would be entitled to age 65 for a single life plan.  In other words, if you were to include your spouse on that plan it would be reduced.

Gordon:  Now as we look forward here, we know that at the end of 2008, your corporation was in deficit -- I think to the tune of about 11.3 billion dollars.  So if GM and Chrysler go under and if they do terminate their pension obligations, you would see the two largest entities you’ve ever taken on.  Is your organization in a fiscal place where you can do that?

Snowbarger: Well I don’t want to make light of your question but the answer to it is yes.  PBGC has run at a deficit for most of its 35 year history.

Gordon: OK --

Snowbarger:  By definition we take over plans that are under funded.  So we take in fewer assets then we take in liabilities.  But you need to understand that when that pension plan comes to us, we also take all of the assets that are in that pension plan.  And so because we pay benefits out over monthly payments, annuities, we’re going to have assets for a long period of time to here to come…to be able to pay those pension benefits with.  It buys us some time to potential grow out of that problem…and many people speculated what might happen down the road in terms of tax payer support…but very frankly that wouldn’t have to occur for a long period of time.

Gordon: And finally Mr. Snowbarger, we really appreciate you being with us this morning… do you know to what level Chrysler and GM’s pension funds are under funded.  How much would you have to make up?

Snowbarger:  I actually need to answer that in a couple of ways.  The GM pension plan is under funded by about $20 billion dollars.  We will not cover all of that amount, we’ll cover about four billion dollars of that amount.  $16 billion dollars would be sort of the loss that would be spread across to all the workers and retirees for General Motors.  For Chrysler, the total amount is about $9 billion, the amount that we would insure is about
$2 billion.  Therefore a $7 billion dollar retiree reduction.

Gordon: Alright…Mr. Snowbarger we hope that it never comes to that…but we appreciate getting to know you a little better and what your agency does.

Snowbarger: Thank you very much.

Gordon: And thank you…our auto industry analysts in a roundtable coming up next.