General Motors Co. and Chrysler Group LLC are projected to make required contributions totaling $14.92 billion to their pension plans by 2014 to comply with federal funding requirements, according to a Government Accountability Office report.
Under the Pension Protection Act of 2006 and the temporary funding relief of the Worker, Retiree and Employer Recovery Act of 2008, GM would have to contribute $5.9 billion in 2013 and $6.4 billion in 2014, while Chrysler would have to make contributions of $400 million this year, $40 million in 2012, $930 million in 2013 and $1.25 billion in 2014, the report said.
The “future viability of the companies and their pension plans is unclear,” the report said.
GM had $85.9 billion in pension assets and Chrysler, $20.4 billion, both as of Sept. 30, according to Pensions & Investments.
U.S. Treasury Department officials “expect both GM and Chrysler to return to profitability,” the report said. “If this is the case, and the companies are able to make the required contributions to their pension plans as they become due, then Treasury's multiple roles (as an owner and regulator) are less likely to result in any perceived conflicts. However, if the funding of any of GM's or Chrysler's defined benefit plans declines below (statutory required) funding levels, the company may request a waiver” from the IRS “to reduce its required contributions to its plans over an extended period.”
In addition, “automaker downsizing and the credit market crisis have created significant stress for (auto) suppliers and their pensions,” including in 2009 “a rise in the number of supplier bankruptcies, liquidations and pension plan terminations.” Last July, Delphi Corp., Troy, Mich., terminated its pension plans; as a result, the PBGC estimates it will have to finance about $6.2 billion of Delphi's pension funding shortfall, the report said.
In January 2009, the PBGC estimated that unfunded pension liabilities across the auto sector totaled $77 billion, “with the agency's exposure for potential losses due to unfunded benefits about $42 billion, leaving plan participants to bear the potential loss of the $35 billion difference through reduced benefits.”
Because of the funding risk, the GAO recommends Treasury should report publicly not only on the status of its auto investments but also on the status of the automakers' pensions. But in a response contained in the report, Herbert M. Allison Jr., assistant secretary for financial stability in the Treasury, wrote, “It would be inappropriate for Treasury in our capacity as a shareholder to separately report on the pension assets and liabilities under GM and Chrysler pension plans.”
Sergio Marchionne, CEO of Chrysler, expects the company “to break even this year,” said Mike Palese, Chrysler spokesman, who hadn't seen the GAO report and had no comment about it.
Julie Gibson, GM spokeswoman, couldn't be reached for comment.
