NEW YORK (CNNMoney.com) – With GM cutting 30,000 hourly jobs and at least 2,500 salaried positions, thousands of workers at the automaker face an uncertain future.
On the one hand, it won't be an unpaid future nor will it be an imminent one. The GM facilities slated to close will shut down between 2006 and 2008.
And, through an earlier agreement between GM and the United Auto Workers union (UAW), all workers are guaranteed full pay and benefits through the end of their contract in September 2007, whether or not the company has work for them. And workers who are laid off can expect a financial package of some kind.
But long-term there are economic risks, including the possibility of prolonged unemployment and a downturn in their local economy (including home prices).
There is also concern about the possible loss of healthcare should GM ever declare bankruptcy -- a possibility denied by the company but raised loudly in recent months. This year, GM is spending $5.6 billion on healthcare, $4 billion of which is for covering its 300,000 retirees and their families. Even after a cost-savings agreement with the union, the company is likely to continue to spend more than $3 billion a year on retirees' healthcare going forward.
Years of service key
The company said some of the job cuts would come through attrition -- meaning the jobs of workers who are retiring anyway or leave voluntarily for some other reason would be eliminated.
But for workers who are laid off, their package would depend in part on their years of service. At GM, once you've logged 30 years of service you're eligible for your full pension.
Given that GM's workforce is fairly mature -- the average age is around 50 -- between 14 percent and 18 percent of union workers qualify for full retirement today and a significant number are within 5 years of that threshold, said Leon LaBrecque, an attorney, accountant and financial planner who has worked both on behalf of the Big Three automakers and on behalf of the UAW on employee retirement issues.
Since there are ways for a company to get an exiting worker to qualify for 30 years of service if they're already close to it, "for many people who have 28 to 29 years of service, it's likely they will get their full pension," LaBrecque said.
According to LaBrecque, the average monthly base pay of a high-skilled trade worker is $4,200, or $50,400 a year. A typical full pension is $2,950 a month for retirees under 62, or $35,400 a year. But since the retired worker would only have to pay federal, state and local taxes, not Social Security and Medicare taxes, union dues and commuting costs as he did while working, he may net close to what he used to make, said LaBrecque.
But if you add overtime to the mix, the comparison is less favorable. LaBrecque estimates the average highly skilled worker earns about $63,000 a year with wages and overtime.
And after a retiree reaches 62, Social Security will replace the portion of his monthly pay known as the supplement, and that can mean a lower total monthly check.
The exiting GM workers who are likely to feel the greatest financial strain are those who have fewer than 20 years of service, LaBrecque said.
Based on severance packages from automakers that he's seen in the past, laid-off workers may get a lump sum in severance plus an early reduced pension.
That may make for adequate funding in the near-term. But if recent history is any indication, a lot of GM workers could be unemployed for a long time or, if they do find work, they may have a hard time finding work that pays them what they earn now.
Flint, Michigan -- known as "Vehicle City" -- has never fully recovered from a series of mass layoffs and plant closings that began in the 1980s. And according to a Bureau of Labor Statistics survey, manufacturing workers accounted for a disproportionately large share of the workers displaced between 2001 and 2003.
Of all displaced workers who had been employed for at least three years when they lost their job, only 65 percent were re-employed by early 2004. Of those who did find work, 57 percent had jobs that paid less than their former ones. Of those, about one-third had earnings that were less by 20 percent or more.
At the same time, a recent survey shows that manufacturers are now having trouble finding skilled workers to fill positions.
Beyond the payout
Among the auto workers he has worked with, certified financial planner Chris Cooper of Toledo, Ohio, has found that often those workers have not contributed to a 401(k) plan or otherwise saved much money on their own.
What's more, their biggest asset is typically their home, the price for which could take a hit if they live in a town where GM is closing its operations.
The pain won't be limited to auto workers, though, since a plant closing has a domino effect on other workers in the community whose jobs were tied to the industry.
LaBrecque figures for every one auto worker who loses his job, 1.6 people lose jobs in areas where the economy depends heavily on the fortunes of the car maker.
And those fortunes have been called into question in recent years.
In the worst-case scenario, if GM goes bankrupt and can't meet its pension obligations, the federal Pension Benefit Guaranty Corp. (PBGC) would step in and pay workers their pension up to a cap.
The cap for 2006 is $47,659 a year for people 65 and up. But a lower cap applies to workers under 65. For example, it's $21,446 for a 55-year-old. So if that person qualifies for a $35,000 pension from GM, he would get a lower payout from PBGC.
There could be an exception for many people, said Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries. He noted that there's a provision in PBGC law that allows certain workers and retirees to get most of their benefits from PBGC if they meet certain criteria. In GM's case, that would be workers and retirees who logged 33 years of service or who are 63 and have at least 13 years of service.
PBGC coverage, however, does not guarantee healthcare benefits.
Jeanne Sahadi owns a small number of GM shares.