Daimler AG will guarantee $1 billion in Chrysler LLC pension liabilities should the company terminate its pension plans, according to an agreement between Daimler and the PBGC.
Daimler still owns 19.9% of Chrysler, based in Auburn Hills, Mich.
Chrysler is considering filing for Chapter 11 bankruptcy protection as one option to cut its total debt, including from its pension plans. The company is seeking concessions from the United Auto Workers union on labor contracts, said Chrysler spokesman Mike Palese. He declined to provide details.
Chrysler has not indicated whether it would terminate its plans as part of a reorganization plan.
In an agreement with the Pension Benefit Guaranty Corp. in connection with Daimlers 2007 sale of 80.1% of Chrysler to Cerberus Capital Management, Daimler agreed to provide the $1 billion guarantee for up to five years after the close of the deal if Chrysler terminates its pension plans, according to a Daimler filing with the SEC in February.
The PBGC had announced the guarantee in 2007 when Cerberus bought the controlling interest, according to a PBGC statement.
Daimler spokesman Han Tjan said the guarantee agreement is still in effect and provides for no other Daimler pension contributions to Chrysler. Cerberus has approached Daimler about buying its remaining stake, and negotiations on a possible sale are continuing, Mr. Tjan said.
Chrysler had a $9.3 billion unfunded liability on a termination basis as of Nov. 30, according to the PBGC. The PBGC would assume only $2 billion of the shortfall should Chrysler terminate its pension plans, leaving $7.3 billion in lost benefits.
Chrysler had U.S. defined benefit assets of $21.6 billion as of Sept. 30, according to Pensions & Investments Jan. 26 report on the largest U.S. retirement funds.