GM short $12.3B, Chrysler $2.62B for near future pension funds

According to a report by the Government Accountability Office, General Motors will need to add $12.3 billion into its pension fund by 2014, while Chrysler will need to add $2.62 billion in the same time frame. Should the two automakers have to terminate their pension funds, the federal government's Pension Benefit Guaranty Corporation insurance program would become responsible for as much as $14.5 billion in unfunded liabilities.



According to the Associated Press, the Government Accountability Office said that the future of the automakers' pension plans "remain uncertain," but also added that if the automakers can return to profitability, they should be able to meet their obligations.

Back in January 2009 the GAO estimated GM's pension plan was $13.6 billion underfunded in 2009, with Chrysler's plan being underfunded by $3.4 billion. Until recently, Chrysler refused to make the status of their pension plans public, according to Detroit News, but now that they are publicly held they are legally required to do so.

"Chrysler Group LLC is aggressively pursuing its financial goals as the company achieves financial viability," announced Chrysler in a statement earlier today. "Our pursuit of these goals, which were outlined in detail on November 4, 2009, is on track and we fully expect to meet our obligations to our customers, business partners, employees, retirees and to the U.S. and Canadian taxpayers."

According to the AP report, Chrysler pension obligations currently cover 254,000 employees and retires, compared to 702,000 for GM's hourly and salaried workers.

A spokesman for GM, Greg Martin, said that GM "continues to believe our pension plans are adequately funded to meet current obligations."

GM is set to pay $5.9 billion towards its pension liabilities in 2013, following by an additional $6.4 billion in 2014, according to Detroit News. Chrysler is set to pay $400 million in 2010, $930 million in 2013 and then an additional $1.25 billion in 2014.

Should the federal government have to step in and assume some or all of the pension's shortcomings, it would not be the first time they heavily intervened in the automotive industry in recent history. In 2009 the PBGC was forced to assume several pension plans following the bankruptcy filings of GM and Chrysler, which subsequently led to hundreds of additional bankruptcies at parts supplier companies.

In all, the PBGC assumed $6.5 billion in unfunded liabilities in 2009, with the lion's share - $6.2 billion - coming from Delphi Corp. as a result of their bankruptcy filing.

Potential conflict of interest
The GAO report also points out the potential for a conflict of interest by the federal government should funding need to be allocated between partially government owned GM or Chrysler, or to their pension funds.

"Until Treasury either sells or liquidates the equity it acquired in each of the companies in exchange for the TARP assistance, its role as shareholder creates potential tensions with its role as pension regulator and overseer of PBGC in its role as pension insurer," the GAO said, according to Market Watch.

References
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