Austan Goolsbee and Alan Krueger’s new working paper for the National Bureau of Economic Research, “A Retrospective Look at Rescuing and Restructuring General Motors and Chrysler,” provides an excellent analysis of the auto bailouts. However, it focuses mostly on the impact of bailouts on auto production and jobs for current workers. Unfortunately, for the most part it fails to discuss the impact on retirees, which had major ramifications for the federal government and the country as a whole.

The issue of the retirees was of critical importance to the auto companies’ passage through the bankruptcy process. At the time General Motors filed for bankruptcy, it had 10 retirees for every active employee. Chrysler’s retiree-to-active worker ratio was similarly skewed. Overall, there were about 870,000 UAW retirees and dependents in the pension and health care plans at GM, Chrysler, and Ford at the time of the federal bailout. The alternative to the auto bailouts—uncontrolled bankruptcies at GM and Chrysler, and the likely demise of Ford as well—would have had devastating consequences for the huge numbers of retirees and their families.

Goolsbee and Krueger do note that if the companies had not received the federal bailouts, and instead had undergone uncontrolled bankruptcies, their pension plans would have been terminated and billions of dollars in unfunded pension liabilities would have been transferred to the Pension Benefit Guaranty Corporation (PBGC), threatening the financial stability of that agency. However, the authors fail to mention that the termination of the pension plans would also have made retirees aged 55 to 64 eligible for the federal health care tax credit. This would have put the federal government on the hook for billions of dollars in retiree health care liabilities.

Moreover, the PBGC would not have guaranteed significant portions of the pension benefits earned by retirees, such as supplements for early retirees. The net result is that many retirees would have been hit with a major drop in their pension income.

Thanks to the success of the federal bailouts, the company pension plans have all continued and paid all benefits earned by the retirees. And no pension liabilities have been transferred to the PBGC or the federal government.

Just as importantly, the bailouts helped sustain health care benefits for the retirees and their families. Although the auto companies and the UAW had already agreed in their 2007 collective bargaining negotiations to transfer all retiree health care liabilities from the companies to a Voluntary Employee Beneficiary Association (VEBA), effective January 1, 2010, these agreements required the companies to make substantial payments to fund the VEBA. As Goolsbee and Krueger note, the terms of the federal bailout required cuts in the retirees’ health care benefits, and also converted much of the employer contributions from cash to equity, thereby greatly increasing the risk for the retirees. But thanks to the success of the federal bailouts, as well as prudent management of the VEBA, the association has been able to continue providing health care benefits to the retirees and even to restore some of the benefits that were cut. And it is on a sound financial footing to continue providing these benefits for the lifetimes of the retirees.

In contrast, uncontrolled bankruptcies surely would have slashed the company contributions to the VEBA, leaving the retirees with pennies on the dollar. This would have forced the VEBA to sharply curtail health care coverage for the retirees. Although retirees aged 55 to 64 would have been able to get some relief through the health care tax credit, this would not have made them whole. And while retirees age 65 and older would have been eligible for Medicare, they still would have lost most of the supplemental “Medigap” coverage that fills in for the significant health care expenses that are not covered under Medicare.

The combination of cuts in their pension and their health care benefits would have exacted a heavy toll on the retirees and their families, resulting in a sharp reduction in their standard of living. The extent of the human suffering would have been enormous. In addition, this surely would have exerted a considerable drag on the overall economy.

Thus, when one considers the impact on retirees, as well as active workers and auto production, the case for the auto bailouts and their success is even more compelling than that suggested by Goolsbee and Krueger.