Pension No Problem: GM

August 21, 2002 ( - General Motors may have a large unfunded liability in its pension plan, but investors shouldn't be concerned, according to GM Treasurer Eric Feldstein.

The stock market’s recent travails have reportedly cost GM’s US pension fund 3% of its value this year, leaving the $67 billion pension plan which covers more than 630,000 active and retired US workers underfunded by some $9 billion.

However, Feldstein told reporters and analysts yesterday that the firm’s pension plan is very sensitive to interest rates – who noted that a rise in rates could dramatically improve the funded status of the plan.

While Feldstein acknowledged that expenses for the pension plan will likely rise this year, he noted that those increases would be offset by further cost cutting  – and additional employer contributions.  GM has already contributed $2.2 billion to the plan this year, according to Reuters, but Feldstein said that, under accounting rules, GM is not required to make any contributions to its pension until late 2006.

Decades of plant closings, job cuts, and generous retirement packages have reportedly left US automakers with large pension obligations.  In fact, a Reuters report notes that some analysts estimate that the costs of supporting its retirees costs GM $1,000 per vehicle.

Depending upon the return of its pension investments, GM could expect to have to contribute, before taxes, between $6 billion to $12 billion to the plan through 2007, GM officials said.

Wide as the current gap might be, GM has dug its way out from worse.  Feldstein said that in 1993, its US pension plan was underfunded by $18.5 billion, and it contributed over $22 billion to the plan from 1993 to 1995.