Delphi Pension Plan Under Funded By $10.8 Billion

By Barbara Rose, Chicago Tribune

Oct. 12–Bankrupt Delphi Corp.’s employee pension plan is under funded by $10.8 billion, or more than twice the shortfall the auto supplier reported at the end of 2004, according to the federal agency that insures private pensions.

The Pension Benefit Guaranty Corp. released the figure Tuesday amid speculation that the agency would be forced to pick up some of Delphi’s pension obligations.

“It’s too early to speculate on what’s going to happen with the pension plans,” a Delphi spokeswoman said Tuesday. “That will definitely be part of the restructuring discussions when talks are restarted” with unions and General Motors Corp.

The pension agency said Tuesday that it would insure no more than $4.1 billion of Delphi’s obligations.

The agency already is struggling with billions of dollars in liabilities from bankrupt companies, mainly in the steel and airline industries. Delphi’s bankruptcy shines a spotlight on pension problems in the troubled auto sector, where the total industry shortfall ranges between $45 billion and $50 billion, according to PBGC estimates.

Without some kind of fix, the agency will run out of cash around 2020, according to the non-partisan Center on Federal Financial Institutions. The agency’s deficit totaled $23.3 billion at the end of 2004, and it will be releasing updated figures in November.

Legislation aimed at addressing the problem is pending in the Senate and the House, but a PBGC analysis released Tuesday by Congressman George Miller, D-Calif., suggests the bills would only worsen the agency’s deficit, increasing the prospect of a taxpayer bailout.

“There’s a lot at stake here,” said James Klein, president of the American Benefits Council, which represents employers and plan service providers. “There are millions of participants who are relying on the continuation of their pension plans and we think it would be inappropriate for Congress to just walk away from that by not making the changes that need to be made.”

Analysts predict the PBGC will be saddled with Delphi liabilities in a matter of months. Troubled companies can terminate their pension plans if they persuade a bankruptcy judge they can’t survive without dumping the obligations.

Delphi Chief Executive Steve Miller headed Bethlehem Steel when it shifted $3.7 billion in pension liabilities to the PBGC in 2002.

“I think it’s almost a certainty they’ll terminate the (Delphi) plan,” said Douglas Elliott, director of the Center on Federal Financial Institutions. “You have the capability of everybody at the bargaining table turning and pointing at the PBGC and saying, ‘let them take over $4 billion.’”

GM, which agreed with the United Auto Workers to cover certain benefits when it spun off Delphi in 1999, could be on the hook for the remainder.

“GM is not going to be happy about (Delphi) pushing this obligation onto them” but the automaker is also is a client and major creditor, Elliott noted. “It’s going to be a really complicated negotiation.”

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