GM rightly favored Delphi UAW pensions over salaried, Rattner says

"The UAW was an absolutely critical party to bring to the negotiating table," Rattner says in written testimony submitted to the committee and posted on its Web site. "They had the power to hold up a deal in bankruptcy or to strike, either of which could have been devastating to GM's efforts to get back on its feet and in turn, to the U.S. economy. This disparity in bargaining leverage may not seem fair, but it was the reality."

Rattner, who helped guide GM through bankruptcy protection in 2009 with the assistance of a $51 billion federal bailout, contends that giving so-called "top-ups" to salaried retirees "would have been like paying for the pensions twice." Before spinning off Delphi into an independent supplier in 1999, GM fully funded pensions for salaried employees but not for hourly workers, who at that time negotiated for a top-up agreement, he explains.

Honoring that deal was "commercially reasonable," Rattner says in his testimony. Giving similar benefits to salaried employees, who did not have a similar agreement, "while generous, would not have been consistent with the goals of restoring GM to viability or protecting U.S. taxpayers' investment," Rattner says.

Delphi, which emerged from a four-year bankruptcy in 2009, terminated the pension plans for some 70,000 of its retirees, leaving a $7.2 billion deficit. The government's Pension Benefit Guaranty Corp. then took over the plans, assuming liability for about $6 billion of the shortfall.

The salaried pensioners have continued to fight that decision in the courts ever since.

Other testimony

Besides Rattner, the House committee is scheduled to hear from other members of the administration's auto task force and Christy Romero, the special inspector general for the Troubled Asset Relief Program created by Congress, among other witnesses.

One of the task force members, Matthew Feldman, says failing to fund the hourly pensions would have threatened GM's recovery and further jeopardized taxpayers' investment in the automaker. He says the ideal solution would have been for Delphi's creditors to assume the pension liabilities but that GM ultimately had to act after those creditors refused to consider doing so.

"It would have been costly and ultimately unconscionable to encourage General Motors to emerge from bankruptcy, but have Delphi continue to point an economic gun to its head."

Feldman says that at the time of Delphi's spinoff from GM, its salaried pensions were funded to a level of 123 percent of the expected payments it would need to make but hourly pensions were funded to just 69 percent of its expected payouts.

Potential strike

Another task force member, Harry Wilson, says GM's then-CEO, Fritz Henderson, told the task force that the UAW would begin a potentially devastating strike if hourly pensions were not funded.

The Delphi Salaried Retirees Association filed a federal lawsuit in November 2009 seeking to overturn GM's decision.

Dennis Black, chairman of the Delphi Salaried Retirees Association, said the group welcomed today's hearing.

"For four years, we've been trying to find out how the decision to terminate our pension plan was made in 2009," Black said Wednesday in a statement. "Today, we still fight them in two federal courts to get their documents and be able to depose people. The coverup must end."

Two Ohio congressman introduced bills last September that would have restored the full pensions of Delphi's salaried retirees using the proceeds received by the government when selling the shares of GM stock it had received in exchange for much of its bailout funding.

The same congressmen now are sponsoring legislation to permanently extend the federal tax credit that the retirees can receive for privately purchased health care coverage.

To see all the testimony prepared for today's hearing, click here.