Charles E.F. Millard of the Pension Benefit Guaranty Corp. cautioned in the interview that the automaker pensions currently face a collective $41 billion pension shortfall, but still meet government funding requirements, according to a Detroit News report.
In total, the Big Three pensions cover nearly 1.3
million people. If all three automakers were to collapse
and turn their plans over to the pension corporation, the
agency estimates it would pay out $13 billion of the $41
billion. A $13-billion payout would more than double the
agency’s $11 billion deficit.
“It is certainly possible that none of these companies ever files for bankruptcy,” Millard said, according to the News. “It is certainly possible that they all do.” He said the risk to the agency “is significantly greater than it was six or seven months ago.”
Millard added: “We’re not trying to tell people that the pension house is on fire. The point is that in many ways this has a similar look to other situations, such as a Bethlehem Steel.”
The pension corporation assumed the pensions of 95,000 people at Bethlehem Steel in 2002, when the company filed for bankruptcy, and ended up having to pick up $3.7 billion in pension costs (see PBGC Reports Record Loss ). That plan was underfunded by $4.2 billion.
Understanding the Problem
According to the news report, Millard said
policymakers have to have “a clear understanding of the
magnitude of the numbers and the risks” of having three
large pension programs being in a comparatively
The news report said as of November 30, the pension plans for hourly and salaried workers at General Motors Corp. had a combined deficit of $20 billion, and Ford Motor Co. had an $11.7 billion deficit. Chrysler LLC had a $9.3 billion deficit as of January 1.
The three automakers reported $130.5 billion in pension assets, which represents only 76% of their combined liabilities. GM’s pension is 20% underfunded, Chrysler’s is 34% underfunded, and Ford is short by 27%.
Those figures alone aren’t cause for alarm, Millard said. “If GM were a healthy company with positive cash flow, able to meet all of its obligations and future funding obligations,” then the underfunded status wouldn’t be a significant issue, he said.