STUDEBAKER Corp. announced the closure of its South Bend, Ind., factory 40 years ago next month. The scene displayed a sad sameness to plant shutdowns in any decade.
Workers punching out of their shifts that cold, rainy day refused to believe the afternoon newspaper being hawked at them, according to a reminiscence in the South Bend Tribune by Jack Colwell, who covered the story.
Incredulity changed to outrage, then resignation and despair. Paychecks stopped. Suicide rates rose. The South Bend economy went through a painful adjustment. And pensions disappeared or shrank substantially for about 4,000 Studebaker workers.
The Studebaker crisis was a landmark in the events that created a safety net - however narrow or low - for retirees of recently bankrupt Bethlehem Steel Corp., according to financial historians.
A decade after Studebaker disappeared, Congress passed the Employee Retirement Income Security Act. ERISA established the Pension Benefit Guaranty Corp., which insures worker retirement benefits promised by private corporations that go belly up.
Today, nearly 800,000 people receive company pensions not from the corporation for which they once worked, but from the PBGC, according to the agency.
The PBGC charged into the breach again last week, taking responsibility for the pensions of about 23,000 workers and former workers from Pillowtex Corp., a textile concern that filed for bankruptcy protection three months ago and said it would shut down.
PBGC's Pillowtex liabilities of $176 million are dimes and quarters compared with the total burden the agency has taken on in recent years as the recession and the strong dollar have decimated U.S. manufacturers.
"We've had some of the largest plans in our history in the last few years, with Bethlehem Steel being by far the largest in our history that we've ever taken over," PBGC spokesman Jeffrey Speicher said.
Bethlehem Steel's plan, covering 95,000 workers and retirees, presented a liability to PBGC of about $3.7 billion when the agency stepped in almost a year ago. That's almost half of PBGC's deficit of $8.8 billion, as reported recently by agency director Steven A. Kandarian.
Bethlehem workers are understandably upset and angry with the recent turns of events. The company's Sparrows Point plant has not closed, but the recent purchase of Bethlehem's assets by International Steel Group Inc. has led to a large reduction in workers' retirement benefits.
Retiree health coverage disappeared. That was especially tough on people younger than 65 who had taken early-retirement offers and weren't eligible for Medicare, although the state of Maryland provided some relief.
Life insurance was cut, and so were pension payments. Melvin Schmeiser, a 56-year-old Bethlehem retiree quoted in The Sun last week, said his expected annual Bethlehem pension of $34,200 was cut almost in half.
And here's the worst part: He says the pension fund is demanding repayment of $15,000 that he shouldn't have gotten under the new, post-Bethlehem regime.
"It's certainly going to be a financial burden," Schmeiser told the newspaper.
But the burden would have been even greater if he were receiving no pension at all, which would have been a real possibility without the Pension Benefit Guaranty Corp. The PBGC has come in for its share of carping and criticism recently, but the fact is that this is a government program that works.
For an extremely affordable premium of $19 per participant per year - plus penalty premiums for companies whose plans are under funded - the PBGC ensures that at least some retirement income workers expect does not evaporate in the vagaries of the market.
Workers often get less than they expect, although agency spokesman Speicher said historically 90 percent of PBGC participants receive full pensions.
One reason Bethlehem retirees will get less is the generous nature of Bethlehem pensions. The PBGC limits payouts at about $43,000 a year, and some Bethlehem pensioners were due more. Another is that the PBGC doesn't cover supplemental payments promised to early retirees.
With responsibility for all U.S. defined-benefit pension plans and a multibillion-dollar deficit, the PBGC can't be expected to cover all benefits that might have been promised.
Bethlehem workers are naturally angry. But their beef is with Bethlehem's prior management, their unions and their pension managers, not the PBGC. It's very tough, but they're making out better than the Studebaker folks did.