A General Motors Corp. bankruptcy could become the Pension Benefit Guaranty Corp.'s biggest nightmare.
That's because the automaker could dump as much as $13.5 billion in unfunded pension liabilities onto the PBGC — the largest ever from a single company — if GM were unable to fund its U.S. defined benefit plans and terminated them.
The claim would be almost twice as large as the current record of $7.5 billion from the 2005 termination of the Chicago-based UAL Corp.'s United Airlines pension plans.
For this to happen, GM, Detroit, would have to terminate its plans and PBGC officials would have to agree to cover all the unfunded pension liabilities of the company's U.S. hourly and salaried plans. Together, the plans had a combined $84.5 billion in assets and $98.1 billion in liabilities as of Dec. 31, according to its 10-K report.
GM officials are considering, among other options related to a restructuring, filing for Chapter 11 bankruptcy protection or some sort of specialized government-backed bankruptcy protection. That way, GM could slash its debt and seek concessions from the United Auto Workers, including cuts in its retiree-health obligation.
“GM is a benefits-paying organization masking itself as an auto company. The real function of the company is trying to pay pensions and retiree health care. They could produce a car to compete with Toyota but couldn't pay the retiree liabilities they agreed to many years ago,” said Donald G.M. Coxe, chairman of Chicago-based Coxe Advisors LLC. Mr. Coxe doesn't invest in GM.
GM expects that it won't have to contribute to its U.S. plans until 2013 or 2014, according to a Securities and Exchange Commission filing in February. Its U.S. plans were overfunded by a combined $20 billion as recently as Dec. 31, 2007, according to the company's 10-K.
The GM defined benefit plans have less than $1 million in GM stock, according to its 10-K report.
GM's hourly and salaried 401(k) plans have combined assets of $20.3 billion, including $1.4 billion in GM stock, as of Dec. 31, 2007, according to its latest 11-K, filed last June. Based on a 91% drop in the share price since then, that stock would be worth $126 million now.
Last November, State Street Bank & Trust, Boston, investment manager for the GM company stock fund in the 401(k) plans, stopped participants from purchasing stock in GM because of its financial difficulty. (P&I Daily, Nov. 26, 2008.)