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Judge Grants Delphi’s Wish to End Retiree Health Benefits

February 26, 2009
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Delphi, the largest auto parts supplier to General Motors, convinced a federal court that the success of its bankruptcy reorganization depended on terminating health benefits for thousands of white-collar retirees.

About 15,000 retirees will lose their health benefits as soon as March 31.

The company will also be allowed to eliminate retiree health care for all current and future salaried employees.

U.S. Bankruptcy Judge Robert D. Drain approved the request at a New York hearing Tuesday, February 24, over the objections of about 1,600 retirees who held that the company didn’t have the right to unilaterally eliminate their health benefits.

The benefits that will be terminated include health reimbursement accounts for Medicare-eligible retirees and their spouses and a 1 percent contribution to a retiree savings plan for active workers hired between January 1, 1993, and the end of 2000. The company will also end post-retirement basic life insurance benefits for current and future retirees.

The court said Delphi, in terminating the benefits, was making a “reasonable business judgment.”

Eliminating these benefits is estimated to save Delphi $70 million annually, or $200 million from April 2009 until the end of 2011. Terminating retiree health benefits also removes $1.1 billion from the company’s balance sheet.

Retiree health care costs have burdened the struggling auto industry. In recent years, the Detroit Three automakers have eliminated defined health benefits for white-collar retirees.

Last summer, GM announced it would no longer provide health care benefits to white-collar retirees 65 or older, instead providing a slight increase in pension payments to help cover the cost of supplemental Medicare plans. Ford has made its white-collar retirees pay more for medical benefits. Chrysler eliminated medical benefits for its retired salaried workers in 2006.

Union retirees have retained their health benefits, but that could change depending on the ability of automakers to weather the recession.

The United Auto Workers said this week it had renegotiated the terms of its retiree health care with Ford, allowing the company to fund the plan with stock instead of cash. Both GM and Chrysler are expected to strike similar deals.

—Jeremy Smerd


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