Retiree benefits and Bankruptcy

The other day both Robert Reich and Mark Kleiman were talking about the interplay between commitments companies have made to retirees and bankruptcy. My exposure to bankruptcy has led me to believe that, in those cases where there are outstanding commitments to retirees; retirees get a pretty raw deal. For the most part, they are not organized or present like current labor, creditors, debt holders or even stockholders. Plus many of the commitments made to them are partially covered by the PBGC.

Given that these commitments are such a potential drag to the competitiveness of older companies because they are costs that are not generally faced by newer entrants or foreign employers I wouldn’t be surprised to see more bankruptcies of older companies as a result.

If these companies go bankrupt the retirees will get whatever PBGC covers . Which may or not be all that the retirees had contemplated. I wonder if anyone has given any consideration to amending the bankruptcy laws, as was done with the asbestos matter, to allow corporations to retain some shareholder value while funding trusts to pay benefits that are due to retirees. Of course in the asbestos matters, the groups left holding the bag were injured people and insurance companies. In this case, I suppose it would mainly serve to accelerate the PBGC crisis that is looming but it might be the case that if it can be structured properly, retirees could end up at least as well off as if the company had just gone bankrupt and the company may be better situated to be competitive. Of course, if the incentives are such that even companies with adequately funded benefits programs choose to reorganize it would almost certainly be disastrous.

I am sure this is a horrid idea which would be made worse by the current Congress making it a sop for corporate interests but it seems to me if the PBGC crisis and the Social Security/Medicare crises occur in the same decade there are going to be some seriously bad results.