Agency Raises Concerns About Car Makers' Pensions
By John D. Stoll
The Wall Street Journal
Saturday, January 10, 2009
DETROIT -- The government agency that protects pensions for
Americans is raising fresh concerns about the repercussions if
one or more of the U.S. auto makers were to collapse, saying 1.3
million workers and retirees could see their pensions slashed if
that were to happen.
The head of the U.S. Pension Benefit Guaranty Corp. acknowledged
in an interview that General Motors Corp., Ford Motor Co., and
Chrysler LLC have well funded pensions according to the standard
accounting rules applied by the Securities and Exchange
But by the PBGC's measures, the pension funds of Detroit's Big Three would be underfunded by as
much as $41 billion if one or more of the auto makers went under
and killed their pension plans, PBGC Director Charles E. F.
"An awful lot of people seem to think these plans are well
funded or overfunded," Mr. Millard said in an interview.
"Each of these plans is significantly underfunded [and] in three
years I don't want people coming back and saying, 'How come the
PBGC never told us that?'"
This concern adds fodder to an ongoing debate over what the
government's role should be in helping the struggling auto
makers from collapsing as the trio face a difficult road in
2009. Some people argue a bailout for Detroit would be a good
use of taxpayer money, and that holding back financial aid would
result in a collapse, and force the government to spend billions
shoring up the companies pension plans.
Mr. Millard estimates that the three auto makers only have
enough money in their pension funds to cover only 76% of the
pension obligations they have made, if they terminate the
pension plans. GM's plan is estimated to be $20 billion,
or about 20% underfunded, while Chrysler's plan is 34%
underfunded, leading to a $9 billion-plus shortfall, the agency
said. Ford's funded ratio is not publicly available, but
the company's pension plans are likely running at a $12 billion
About $13 billion of the estimated $41 billion shortfall would
be covered by the PBGC, Jeffrey Speicher, an agency spokesman,
said. The remainder represents benefits that PBGC could
not pay because of limits set by Congress, and those benefits
would be lost by employees and retirees.
If all three companies were to terminate their plans, the PBGC's
current deficit would double, as would the number of people
receive pensions from the agency.
GM spokeswoman Julie Gibson said the auto maker is in compliance
with pension accounting, its pension are adequately funded and
it doesn't have any near-term funding obligations. The
company could make more contributions to its pension plans in
coming years, but it also holds various credits with the
Internal Revenue Service that could help fund the pension plans.
The auto maker will report an update on its pension status when
it releases annual report filing in coming months.
When GM last gave a year-end update on its pension funds, the
funds covered more than 400,000 retirees and were overfunded by
$18.8 billion. But in November, GM said its plan for
hourly workers was underfunded by $500 million because of
restructuring expenses. Its plan for salaried employees
remains overfunded by at least $500 million. GM, like its
rivals, have relied on the pension funds to help cushion its
restructuring costs, and that has contributed to a quick
deterioration in the health of the funds.
"In regards to our pension plans, we take our obligations very
seriously, managing our plans with integrity and prudence even
during difficult times," Ford spokesman Bill Collins said.
The auto maker's most-recent numbers suggest its
plans 103% funded, or carrying a $1.3 billion surplus with $45.8
billion in plan.
Mr. Collins said Ford will update its funding status when it
releases its annual report.
A Chrysler spokeswoman did not return phone calls.
The PBGC steps in to take over failed pension plans, and
protects the retirement savings of almost 44 million Americans.
Because it is charged with insuring pensions in the event that a
business or organization terminates pension plans, the PBGC
monitors not only the SEC's accounting requirements, but also
attempts to estimate how well-funded the plans would be if they
were terminated in a liquidation or some other restructuring.
In recent months, as the cash reserves of GM, Ford and Chrysler
have been drained due to slow auto sales and heavy restructuring
obligations, concerns over the viability of these auto makers
The White House last month issued a $17.4 billion loan package
to GM and Chrysler, but that money is only expected to last
until the end of March. At that point, if the two car
companies can prove they are on the path to sustainability, they
may be able to successfully argue for more funding or be able to
tell the government that they have stabilized to the point where
they don't need government funding.
Write to John D. Stoll at