GM Cutting Pension Return Assumptions

January 8, 2003 ( - General Motors Corp. is lowering its corporate sights for the 2003 rate of return on its $67-billion pension fund.

Chief Financial Officer John Devine wouldn’t specify how far GM was lowering its current 10% projected return, the Detroit Free Press reported. However, such a cut would like depress GM’s 2003 earnings by hundreds of millions of dollars.  Devine told the Free Press that the giant automaker would disclose the new return assumptions to Wall Street auto analysts Thursday. The company will also reveal how much the plan is underfunded.

At the end of September, Devine had estimated GM’s pension fund would be underfunded by $18 billion to $23 billion at the end of 2002. (See  GM: 2003 Pension Costs Up $1B ).  Devine said it looks like the $23-billion figure is more likely now. Going into 2002, the fund was underfunded by $9.1 billion.

“We’ve changed our assumption. That’s about all I can say now,” said Devine. “We’ve had three years of tough returns that have knocked us for a loop.”

10% Was Over Optimistic

The current 10% return projection was significantly over-optimistic since the GM fund – the largest private pension – lost 10% through the first nine months of 2002, 5.7% in 2001, and broke even in 2002, the newspaper reported. The fund covers about 452,600 GM retirees.

GM’s fund had a rate of return around 14% from 1993 to 1999, but has been hit hard since by a falling stock market, the Free Press said. About 60 % of GM’s fund is invested in stocks.

Using the 10-% figure, GM could assume a pension gain of $6.7 billion on its $67 billion fund. If GM cuts its assumption to 9.5 or even 9 %, as Wall Street analysts expect, GM can assume a pension gain of $6.37 billion to about $6 billion.

In 2002  GM contributed $2.2 billion to the fund , its first contribution since 1999.