Risk Management

Bankrupt Delphi Told It Can Cancel Retiree Benefits

U.S. judge gives permission for health-care and life-insurance coverage to be dropped for those who were salaried employees.
Stephen TaubFebruary 24, 2009

Delphi Corp received bankruptcy court permission to cancel benefits for 15,000 retirees, which would enable the bankrupt auto parts maker to save more than $70 million annually.

As a result, according to a report on the court proceedings in the Detroit News, on April 1 Delphi could cancel salaried retiree health care and life insurance benefits.

“Every dollar counts,” U.S. Bankruptcy Judge Robert Drain said in his ruling, adding that the move represents “good business judgment.” Judge Drain stressed that health and life insurance are not vested benefits, but he acknowledged the ruling would affect some retirees “in very dire ways,” according to the report.

The judge, however, did appoint a temporary committee to review whether some retirees —  including those who retired on disability — have special rights to continued health insurance. The committee is expected to complete its work in time for a critical March 11 hearing that will determine whether any of the affected retirees will be able to maintain their health care coverage, the paper explained.

The judge’s ruling could have widespread ramifications. Critics long have asserted that so-called legacy benefit costs put the U.S. automakers and other industrial companies at a disadvantage as they desperately compete in the global economy. As a result of the ruling, other companies may also seek to terminate their health care benefits as well.

The Detroit paper said that Delphi had asserted in a court filing Monday that “short-term liquidity needs require marshaling available cash as quickly as possible.” About 1,600 Delphi retirees filed objections, the News reported. It said that the legal case stems from a 1980 General Motors benefit handbook and other older documents that seemingly assured salaried employees that they would receive health benefits for life. GM previously owned Delphi.

The company, however, reportedly claimed that more recent documents repeatedly reflected its assertions that it could modify or end benefits unilaterally.