By on July 22, 2009

File this one under the “stealth bailout” file. GM dumped a number of its own pension obligations onto Delphi when the parts supplier was spun off in 1999. Now, the Detroit News reports that Delphi is abandoning $6.25 billion  worth of obligations to the Pension Benefit Guarantee Corporation, the second largest such takeover by amount. But the 70,000 affected Delphi workers and retirees will still miss out on an estimated $800 million in payments. And what does GM have to say about all this? The General’s statement (via webnewswire) betrays a guilty conscience:

There have been questions about General Motors Company’s responsibility toward Delphi’s pension plans, given that many of those covered were GM employees prior to GM spinning off Delphi in 1999. General Motors Corporation made appropriate provisions for the plans at the time of the spin-off, and Delphi became responsible for the plans from that point forward.

See how that works? Who cares that GM spun Delphi off as a means of jettisoning pensions. Once the deal was done it was Delphi’s problem. Move along now, nothing to see here . . .

As a result of bargaining at the time of the spin-off, General Motors Corporation did agree to top-up pension benefits for certain limited groups of hourly employees and retirees in the event that the Delphi hourly pension plan was terminated. As with other union agreements that it has assumed from the old GM, General Motors Company will honor these commitments.

General Motors Company and PBGC have reached a preliminary agreement whereby the PBGC would receive a $70 million cash payment from GM, as well as a portion of future distributions to GM from the new company that acquires Delphi assets upon resolution of its bankruptcy. GM expects to receive such distributions in return for capital contribution to the new company. Details will be communicated after the Delphi bankruptcy agreement is finalized.

There, aren’t you feeling better?

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11 Comments on “Bailout Watch 571: $6.25 Billion Worth of Delphi Pensions Dropped on PBGC...”


  • avatar
    paris-dakar

    Mad LULZ on all accounts here.

  • avatar
    mikey

    My heart goes out to people impacted, with up to
    50% reduction to younger retirees. Ouch!…hourly
    and salary its got hurt an already hurt’n state.

  • avatar
    lutonmoore

    Don’t worry, the US Taxpayer will cover all this. Gawdalmighty.

  • avatar
    Logans_Run

    Love the graphic! How appropriate! I’m surprised that Treasury stopped the shell game on Delphi. That one is going to cost the US taxpayer $8 Billion. Next comes the GM shell game. This one will take awhile to come to a stop, but be ready to get your checkbooks out. The unfunded liability of the salaried and hourly plans stood at about $20 Billion at the time of BK. They are still there. Then add in the $50 Billion or so on the hourly healthcare trust that was kicked down the road to the New GM. Remember that this is the actuarial cost of providing health care benefits to retired and eligible active hourly employees. The liability didn’t go away it just got reshuffled into equity in the New GM and some guarantees of payments from the New GM. Now what does the government do when GM does its final epic fail? Does it push for more taxpayer funding to support this UAW healthcare trust or do they push all the retired hourly workers on to the already BK Medicare trust? There is no good solution for this whole mess. GM will never generate the cashflow to meet these obligations.

  • avatar

    and the band plays on, band of bozos still running the show that is. all we seem to ever hear about GM is cuts, closings, and decline. absolutely makes no sense that real change doesn’t happen at the top.

    dealers forced out of business, wages cut in half, pensions rescinded, health care taken away…and people stand for it, WHY?

  • avatar
    spyspeed

    The kicker is that, as part of the deal, New GM is expected to (re)buy 4 Delphi plants.

  • avatar
    mtypex

    “dealers forced out of business, wages cut in half, pensions rescinded, health care taken away…and people stand for it, WHY?”

    Do you have an answer? Curious.

  • avatar
    topgun

    Hmmmm…. Government owned new GM will pay $70 million to govt run PBGC…..
    From the left pocket to the right! Think this is what economists call ‘velocity of money’ circulation.

  • avatar
    50merc

    I wonder why that congresscritter said pensions could fall as much as 50%. The newspaper article says:
    “Delphi’s Hourly Pension Plan covers 47,000 participants and has about $3.7 billion in assets and more than $8 billion in liabilities, according to PBGC estimates. The PBGC expects to be responsible for about $4 billion of the plan’s shortfall of nearly $4.4 billion. The Delphi Salaried Pension Plan covers about 20,000 workers and retirees, and has $2.4 billion in assets and liabilities of $5 billion, according to PBGC estimates.
    The PBGC expects to be responsible for about $2.2 billion of its estimated $2.6 billion in underfunding.”

    So that leaves a final shortfall of $.8 billion for liabilities of $13 billion. That’s a little more than six percent.

    We need some actual dollar-amount examples of the effect on retirees. If, say, a 50 year old retiree sees his benefit fall from $2,000 a month to $1,800 (a 10% reduction) it wouldn’t appear to terribly calamitous to me. Remember, Delphi is a dead horse and beating it won’t make it jump up and start churning out profits.

  • avatar
    mzrunner41

    50merc-

    Maximum benefit guarantee depends on age at commencement – appx $4k/month at 65, appx half that at 55.

    Guarantee further adjusts downwards depending on form of payment, or if any benefit improvements in last 60 months.

    Assets are not allocated proportionately over all benefit liabilities – instead assets are allocated by statutory priority categories. The intersection of the guarantee levels with which priority category the assets run out in determines the impact on any particular plan participant.

    Long way of saying that its very difficult to calculate the impact on any particular retiree until analysis is done.

  • avatar
    agenthex

    Remember kids, these are the external costs of crappy capitalism. It’s like rivers full of toxic waste on our hands generated by short term greed (the smart folks have already made off with their millions). Again, don’t forget that phrase above, it’s going to come up lot soon.


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