Automaker Pensions Underfunded by $17 Billion

April 6, 2010
Automaker Pensions Underfunded by $17 Billion
By NICK BUNKLEY

DETROIT — The pension plans at General Motors and Chrysler are underfunded by a total of $17 billion and could fail if the automakers do not return to profitability, according to a government report released Tuesday.

Both companies need to make large payments into the plans within the next five years — $12.3 billion by G.M. and $2.6 billion by Chrysler — to reach minimum funding levels, according to the report, prepared by the Government Accountability Office. Whether the companies will be able to make the payments is uncertain, the report concluded, though Treasury officials expect the automakers will become profitable enough to do so.

If either company’s plan must be terminated, the government would become liable for paying benefits to hundreds of thousands of retirees. The effect on the government’s pension insurer, the Pension Benefit Guaranty Corporation, would be “unprecedented,” the report said. The agency manages plans with assets totaling $68.7 billion, less than the $84.5 billion in G.M.’s plan alone.

The carmakers’ pension plans were jolted by the downturn, increased liabilities and other factors. G.M.’s plan was overfunded by $18.8 billion in 2008, and was then underfunded by $13.6 billion last year, the report said. Chrysler’s plan was overfunded by $2.9 billion in 2008 but underfunded by $3.4 billion last year.

The plans cover about 650,000 people at G.M. and 250,000 at Chrysler.

The Treasury Department owns 61 percent of G.M. and 10 percent of Chrysler as a result of the emergency loans the carmakers received last year. The government spent $81 billion bailing out the companies and others in the auto industry.

The report issued Tuesday said Treasury officials were confident that G.M. and Chrysler would earn enough to allow the government to gradually sell its stakes. But the report warned that the government could push the companies out of business, consequently terminating their pension plans, if their recovery efforts failed.

“In the event that the companies do not return to profitability in a reasonable time frame, Treasury officials said that they will consider all commercial options for disposing of Treasury’s equity, including forcing the companies into liquidation,” the report said.

In addition, the report said the government’s interests as a shareholder of G.M. and Chrysler could clash with those of pension participants and beneficiaries. “For example, Treasury could decide to sell its equity stake at a time when it would maximize its return on investment, but when the companies’ pension plans were still at risk,” the report said.

President Obama has said he wants to sell the government’s stakes in the two companies as soon as is practicable. G.M. executives have said that a public stock offering could happen this year but that the company would need to be profitable and meet other criteria first.

G.M. is scheduled to release its financial results for 2009 on Wednesday. Chrysler plans to provide an update on April 21.