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Pension Agency Seeks Outside Legal Advice on GM
By John Crawley, Reuters
March 24, 2006
The government agency that insures corporate pensions sought private legal advice this week to help sort through a range of possible financial scenarios involving General Motors Corp. (GM.N: Quote, Profile, Research), including possible bankruptcy.
According to documents outlining its proposal, the Pension Benefit Guaranty Corp. would like outside lawyers to provide "advice and counsel" on the potential spinoff of GM's financing arm, General Motors Acceptance Corp.; the bankruptcy of Delphi Corp. (DPHIQ.PK: Quote, Profile, Research), GM's chief parts supplier; and issues relating to GM pensions and work-force reductions and the prospects for a Chapter 11 bankruptcy filing or out-of-court restructuring.
"GM has suffered large losses; its credit rating has declined to well below investment grade; and there has been speculation in the press and elsewhere that the company may have to seek bankruptcy protection in the future," the agency said in its legal solicitation.
Such requests have become more common in recent years, according to one pension expert, as the PBGC comes under more pressure from struggling or failing companies. The pension agency used outside counsel in the United Airlines bankruptcy case (UAUA.O: Quote, Profile, Research). United wound up terminating its pension plans.
A GM spokesman said on Friday the company would not comment on the move by pension insurers. A spokesman for the PBGC said the request for legal assistance spoke for itself and would not elaborate.
Calculating pension funding balances has been a source of contention between regulators and companies, including GM. Congress is considering legislation that would require businesses to be more forthcoming about pension fund health.
The government is prohibited by law in most cases from disclosing corporate pension data, and funding figures can differ widely from what companies conclude they owe retirees based on accounting methods used to calculate costs.
GM says its pensions were overfunded by $6 billion at the end of 2005. However, a Credit First Suisse First Boston report in November indicated substantial underfunding in 2004, as did another estimate first reported by The New York Times last fall.
PBGC insures pension benefits for more than 40,000 private pension plans covering 44 million people, or about one-third of the American work force.
The agency's deficit has ballooned to more than $22 billion in recent years as more companies, including steel companies and airlines, terminated traditional pensions in bankruptcy.
GM sponsors several pension plans, including a salaried plan with 200,000 participants and another covering current and former hourly workers with about 500,000 participants, according to the
PBGC.
GM announced earlier this month it would shift thousands of salaried workers into a less expensive plan to cut its year-end liability by an estimated $1.6 billion.
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