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Pension Benefit Guaranty Corp. Keeping an Eye on GM

The automaker’s pension plan was overfunded, based on its latest filings, a PBGC official says. However, he says, ‘We aren’t sending out any flares or raising any panic.’

October 14, 2008
General Motors Corp. is being monitored by the Pension Benefit Guaranty Corp., “as financial reports come in,” said Jeffrey Speicher, PBGC public affairs specialist.

“We will be looking with great concern as financial reports come in,” he said. “We aren’t sending out any flares or raising any panic.”

GM’s pension plan was overfunded, based on its latest filings, he said. “From our point of view, it is difficult to say what the impact [of the market turmoil] is” on the plan, he said.

“I don’t know of any public contacts” the PBGC has had with GM executives, he said. “But there are no public steps we can talk about,” he added.

GM’s defined-benefit plan was $9 billion overfunded, based on assets of $117 billion and accumulated benefit obligations of $108 billion as of December 31, according to a Milliman report.

GM’s 10-K showed a funded status of $19 billion, based on assets of $104 billion and liabilities of $85 billion as of December 31.

GM’s pension asset allocation was 48.9 percent fixed income, 30.1 percent equity and 21 percent other, according to the Milliman report. GM’s 10-K lists the allocation as 26 percent equity, 52 percent debt, 9 percent real estate and 13 percent other.

Because the GM plan is overfunded, it would not be affected by curtailments of pension benefits, including shutdown benefits in the event of layoffs, under the Pension Protection Act of 2006, according to an ERISA attorney who asked not to be named because of potential conflicts with corporate clients.

In 2006, GM froze its salaried defined-benefit plan for all active participants, moving them into a new defined-contribution plan. That reduced pension expense by $383 million in 2006 and reduced the pension benefit obligations by $2.8 billion, according to its 2007 10-K.

Standard & Poor’s on Thursday, October 9, put the bond ratings of GM and its finance unit, GMAC, on negative credit watch, triggering an S&P review of the financial situation over the next three months.

The negative watch “reflects the rapidly weakening state of most global automotive markets, along with capital market conditions that will remain a serious challenge for the foreseeable future,” the S&P report said. It did not address pension issues.

Filed by Barry B. Burr of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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