Billions more deficit for PBGC after GM bankruptcy

The bankruptcy of General Motors has left the pension schemes of the company's bankrupt supplier Delphi in the hands of the US Pension Benefits Guaranty Corporation (PBGC) - adding an estimated $6.2 billion to the corporation's already massive deficit.

Yesterday's news will make the corporation responsible for shortfalls of $6.2 billion in Delphi's pension schemes, PBGC said it had initially underestimated the size of the unfunded liabilities. In its 2008 financial statements, it estimated it would only have to take over $2.7 billion of Delphi's unfunded liabilities.

Delphi filed for Chapter 11 bankruptcy protection in October 2007. In September 2008, GM took on $2.5 billion of its pension liabilities, and was due to take on at least another $5.5 billion, PBGC said yesterday.

However, its entry into bankruptcy effectively absolved the auto manufacturer from its responsibilities to Delphi's pensioners. "GM has met and continues to meet its obligations toward the Delphi pensions, and General Motors Company continues to support Delphi's emergence from bankruptcy at considerable cost to the company," the company said yesterday. It added that it would contribute an unspecified amount to PBGC after Delphi had been successfully reorganised, in addition to a $70 million cash payment. Ultimately, GM plans to repurchase Delphi, with the help of private equity investments, and the PBGC aid may bring this one step closer.

GM's own pension plans, meanwhile, will be maintained by the company after its exit from bankruptcy, GM said last month.

A group of retired and current Delphi employees, the Delphi Salaried Retirees' Association, promised to oppose the deal with legal action, citing fears that it could see their pensions and other retirement benefits cut. "Our current plan administrators are the individuals who make up Delphi's executive leadership. We have serious concerns about whether Delphi executives can protect our pension rights while at the same time serving Delphi's shareholders and creditors... we have decided to challenge this clear conflict of interest," the group said in a statement posted earlier this month on its website.

PBGC reported in May this year its deficit had more than tripled in the six months to March 31, reaching $33.5 billion from $11 billion at the end of September 2008. As well as the growing burden of unfunded defined-benefit pension schemes, it has been suffering from low interest rates, which increase the net present value of its liabilities.

See also: PBGC deficit triples to record $33.5 billion
PBGC throws in towel on liability-driven investment
Delphi bankruptcy jolts European credit markets