By on February 22, 2012

Even after Canadian taxpayers contributed $3.2 billion (Canadian) to General Motors’ pension fund after GM’s bankruptcy proceedings in 2009, the company’s pension fund for unionized employees is still short $2.2 billion – a fair amount for a plan that’s responsible for 30,000 employees.

The pension plan deficit was a key factor in GM’s pitch to the Ontario and Canadian federal governments when asking for bailout funds. Canadian taxpayers ended up providing $10.6 billion out of the $60 billion bailout package. Before we get to cries of “Government Motors” and “picking winners”, the problem appears to be deeper than just GM’s own finances. Pension plans are a big players in Canada’s finance scene (the Ontario Teacher’s Pension Plan and the Canada Pension Plan are among the juggernauts) but lately, low interest rates and increasing lifespan have hampered the returns delivered by pension funds.

The deficit was calculated by an actuary commissioned by the Canadian Auto Workers Union. Based on the value of the plan’s assets and liabilities if it were to be wound down during the date of calculation. Benefits for workers, retirees and surviving spouses would have been slashed by over 33 percent. To make matters worse, GM has seen the number of active workers fall as its number of retirees collecting benefits has risen, a ratio that will only increase in the future.

This trend is not confined solely to GM. Companies like Air Canada and Canadian Pacific Railway are facing similar issues relating to worker/retiree ratios, and GM’s story is indicative of another disturbing precedent – that the public may be forced to foot the bill for a bankrupt corporation’s weak pension plan, whether directly or through the government administered Ontario Pension Benefits Guarantee Fund. GM and the CAW are due to start labor negotiations this summer – look for the issue of pensions to be a major one.

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14 Comments on “General Motors Canada Pension Plan Faces $2.2 Billion Deficit...”

  • avatar

    Canada isn’t alone in having pension funds as major players in the financial markets, most of the US state pension funds are in the game.

    In fact, this is the truth about much of Wall Street. Every one of us who has a pension plan or a 401K plan is in this game and through the fund managers, we are actually the owners of much of the money being put in play each day.

    • 0 avatar

      @Derek… Pensions will not be a major issue in the 2012 talks. The GM Canada hourly pension agreement doesn’t expire untill 2015.

      The future of the “consolidated line” of Impala, and overflow Equinox will be a major issue.

  • avatar

  • avatar

    In the last 30 years lifespan did not unexpectedly increase so the only reason why pension plans are in trouble is because return on investment have been so bad in the last 10 years(or not as stellar as the proceeding 20 years).

  • avatar

    “Benefits for workers, retirees and surviving spouses would have been slashed by over 33 percent.”

    I don’t have a company pension plan, everything I will have to live on when I retire will have been saved up while I worked. Over the last few years the value of my savings funds has taken a nose dive, but I will just have to suck it up and live on less when I retire.

    So will the GM ex-employees. That’s life.

    • 0 avatar

      @[email protected]….I retired from GM Canada Dec 19 2008. Yup! the very day that George W wrote the first bail out check.

      I had then,and I have now, a plan in place should the pension plan go for a $hit. Yes, it will certainly mean, we will have to live on less.

      That being said,many of my former co workers would be decimated.

  • avatar

    There’s a similar problem with low rates for Americans with 401K’s nearing retirement. Getting decent returns without more risk is difficult.

    When those risks don’t pay off, there’s no time for your investments to recovery – unless you want to risk even more… So you work much later…

  • avatar

    Pikers. Illinois has a $200 billion public pension shortfall (source: Chicago Tribune). Now that’s a shortfall. And I don’t even want to contemplate California.

  • avatar

    So lets not forget that that the help from the Canadian taxpayers,was evenly split between the hourly, and salary, pension plans.

    The retired hourly are now looking at slashed benifits. Seems the “Health Care Trust” [HCT is the Canadian name for VEBA] Anyway the plan is hurting.

    How about the salary retirees? No benifit cuts for them…..yet.

    Do any of the experts here know why the GM plan is in such deep poo,poo?

  • avatar

    Lol… That’s like saying a ponzi scheme has a shortfall. These pensions are just a con game. I’ll gladly pay you Tuesday of 2045 for work you do today!

    Today’s teenagers will laugh their asses off when someone offers them a pension…

  • avatar

    I totally agree with lw.

    It’s simply absurd to promise any person that his pension would be, say, $2000/month, when there isn’t such money in fund.

    Instead, all the fund SHOULD promise is “since you have contributed this much to the fund, your retirement pay will be X% of the total remaining fund value at the time.”

    But, don’t worry and just let the pension fund fail. We Canadians have Canadian Pension Plan, don’t we?!

  • avatar

    Bailout part two? It is tiring to hear this over and over. GM, The Post Office and State gov’ts all crying that their pension plans are underfunded. When does this BS end? We certainly cannot live this way, how the hell can they.. repeatedly?

  • avatar
    DC Bruce

    There are usually two problems with “under-funded” pension plans. Problem #1 is that the employer didn’t put enough money in the plan in the first place (this is the problem which affects many U.S. state and local governments).
    Problem #2 is that return on pension investments are below expectations.

    Either way, actuaries continuously re-calculate the amount of assets needed to pay the promised pensions to retirees, based on both what is promised to those retirees, and projected future returns. When any of these get out of whack, then the plan is said to be “underfunded.” IIRC, in the U.S. private employers are required to remedy underfunding of pension plans.

    Sadly, public employers are not. So, what you have is politicians promising rich retirement benefits without being required to tell the voters the cost of paying for them.

    With increased job mobility, the whole premise of pension plans — lifetime employment with one employer — is crumbling. (Although union pension plans are an exception to that, so long as the worker continues doing union work.) The sad thing is that, in the U.S. at least, various tax-deferred self-funded retirement plans are woefully inadequate. If a U.S. worker contributes the maximum to a 401(k) plan and his employer matches it, the resulting accumulation of wealth will not fund any kind of a decent retirement. So, people who want a retirement equal to the kind provided by old-style pensions, have to fund it using a substantial amount of after-tax money.

    Think about this: the recommended withdrawal rate from a retirement “nest egg” is 4 percent. At that rate, you can be confident that you won’t run out of money before you die.

    So, using those numbers, funding a $40,000 pension takes a $1M “nest egg.” You can do a little better by purchasing an annuity, but that leaves nothing for your heirs.

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