Sunday? Sunday! That’s the day The Detroit Free Press chose to tell the world that GM’s recent accounts contain a time bomb: the revelation that the company raided—sorry, “borrowed from”—its employee pension fund to buy out United Auto Workers employees and pay into their health care fund. Even though we’ve become used to gigantic numbers, the sums involved are staggering. “Details are emerging about how General Motors Corp.’s U.S. pension funds went from a $20-billion surplus at the end of 2007 to a $12.4-billion deficit 12 months later.” I make that a $32.4-billion swing. It’s also approximately $11.4 billion more than GM’s CFO estimated its pension deficit, as declared in The General’s December pre-bailout report.
The GM pension funds’ erosion last year included $11.3 billion in value because of investment losses; $2.9 billion for hourly and salaried attrition programs, and another $8.7 billion for increases in benefit payments as part of changes to retiree health care and a deal regarding Delphi’s bankruptcy . . .
GM said it used $2.3 billion from the hourly pension fund to pay for buyouts in its UAW special attrition program, which encouraged thousands of workers to voluntarily leave the company as a cost-cutting move. The company also used $2.7 billion for the retiree health care trust—called a VEBA, or voluntary employee beneficiary association. GM spent another $2.3 billion for Delphi’s hourly pension program.
Also, as part of GM’s decision to cut company health care benefits for salaried retirees 65 or older, it increased pension benefits to retirees at a cost of $3.7 billion. The company spent another $600 million on white-collar retirement incentives.
The rest of the pension funds’ declines were attributed to service and interest costs, as well as changes in the discount rate and actuarial assumptions ($2.2 billion because people are living longer than expected).
The Pension Benefit Guaranty Corp. raised the red flag on GM’s pension funding last fall. And for good reason. And now union members (650k are “covered” by the fund) are scared shitless.
“They robbed it blind to pay off the people to get them to leave,” said Paul Heller, a GM salaried retiree from Washington, Mich. “I’ve got a retiree club that’s absolutely sick about it.”
Pension funds are just giant slush funds – tools of management with assistance of government regulators.
I worked for a large company that was bought by another large company twenty years ago. The rumor was that my employer was bought for about six billion dollars and then the purchasing company went to the pension fund and removed the “over-funding” in the pension plan to cover the purchase price. Net cost to the purchasing company was zero. And the pensions went poof.
“Over-funding” is a term from the same folks who told us all the savings and loans were sound.
These same folks told us that sub-prime mortgages were safe investments.
The Pension Benefit Guaranty Corp is run by the same folks.
All pension funds should be in accounts INDIVIDUALLY owned and supervised by the employee. These funds need to be kept out of the hands of corporate, union, and government management. They are all untrustworthy.
tced2:
Bingo.
“‘We’re taking advantage of the overfunded status, and it certainly helps with regard to not having to tap into corporate cash,’ a company spokesman said at the time [when the Freep asked GM about using pension money to pay for employee bailouts].”
I really really wanted GM to survive and not because i might be a GM fan. I am not. But i am an auto industry fan. But every time i hear one of these stories of GM’s total incompetence and mismanagement i get closer to saying to hell with them.
Any further bailout money that they might be inline to get should be used to honor all outstanding pensions etc etc, and they should just let GM die.
This move smells like pre-bankruptcy prep. Because in a bankrupty the US federal government will stand surety for much of GM’s pension obligations, it thus makes sense for GM to dissipate the pension pot, knowing the taxpayers will refill it. This ploy has been recognized as being on the Big Three’s radar screen for years.
Looting the “surplus” in the pension fund is absolutely shameful, while being a full $11.4 billion off in the report to Congress is borderline criminal (and I’m not saying that lightly). Perhaps they thought Congress would give them a pass for the heavy “borrowing” since it so strongly resembles Congress’ use of Social Security funds.
Just another nail in GM’s coffin, but there’s nothing I hate worse than corporate malfeasance hurting individuals on such a massive scale. Too many victims to count in this debacle. (And while I know many view the UAW as a fellow perpetrator, I’m speaking solely of the human toll of the meltdown.)
RF, did you take GM to task when they started this robbing-Peter routine just over a year ago? I’m too lazy to do the search. I only ask because I like to keep score, even if you no longer do the “TTAC Called It” line.
Bob Kemp, a pension expert at the University of Virginia, said many companies made decisions when their pensions were overfunded that looked good at the time.
“No one saw that all of a sudden the market would drop 40%-50%,” Kemp said. “I wouldn’t criticize GM one bit for those types of actions.”
Pah! What good are experts if they can’t predict a 50% decline in the market they are studying!
No worries. The president and congress will make up the difference with newly created public dollars.
Thus the overwhelming majority of taxpayers who have no pension will be compelled to have their treasure taken from them, and given to those who have one hell of a pension.
In the true north,strong and free, pensions are
monitored by the province.In the early ninetys we elected a far left,labour friendly provincial govt
GM managed to convince the then NDP government that making the full contributions to the pension wasn’t necessary.After all “they were too big to fail”.The NDP was replaced with a far right government,not so labour friendly.The
Conservatives ignored the problem for 7 more years.
Now in 2009 with a big chunk of the pension invested in GM shares,the center Liberal government has a big big problem.Hourly and salary
pensions are in deep doo…doo.The government pension gaurantee fund doesn’t have enough to pick up the slack.Ooops now what do we do?
In Australia, such funds are one-way. How simple is that? You can’t draw them down again, even if the value goes “up”.
Please clarify something, will you?
In one year GM burned through $32.4 Billion of the pension fund. Is that in addition to the cash burn of each of the same four quarters reported? In other words, did GM actually lose an extra $32.4 billon?
I’m not sure of the loss for Q3, but for the first two quarters GM lost $18.8 billion, so in total, IIRC GM will have lost a total of about $78 billion dollars in the past two years, or is it $110 billion?
And Congress thought that $15 billion would suffice? GM is burning through +/- $5 billion a month at this rate. Seriously, WTF is any further cash going to accomplish? It is so obvious, it is so apparent that GM is not only fiscally bankrupt but morally and ethically bankrupt as well. This is making me queasy in my stomach.
11 billion dollars worth of “investment losses” ?
Like, in, “We invested those in the company, and as the company stock has been falling like a rock, the investment is now considered worthless” ??
I don’t get it. So, they raided the pension funds for 30 billion dollars. Where are those 30 billion now?
Funny. These retirees were just fine with GM going under when they thought their pensions were funded. Now they realize they are in the same boat with everyone else and they are surprised? They shouldn’t worry though, Obama will bail them out.
Buying a company with the purchased company’s pension and asset sales has had quite a run in the United States of America. It always leaves quite a wreckage in its wake but wall street adores the practice.
In this case it was an inside job: The money was stolen by the senior executives to backhandedly fund wildly oversize executive pay and perks.
These guys have an insatiable addiction to money far ahead of any desire to leave General Motors standing at the end of the day. Even in the go-go years they took more than the company earned. It’s now a burned-out shell and they are still skimming every dime they can get their hands on.
Totally disgraceful and very painful to watch this all play out.
Company managed pension funds are a big conflict of interest problem. Management can do almost anything with that money without regard to the fiduciary responsibility they have to the employees for which the money is supposedly set aside.
In days now long gone by, companies generally treated the pension fund with great care, but starting with the green mail and leveraged buyout boom of the late 1980s that all crumbled and has gone from bad to worse. In part, another consequence of De-Regulation Gone Wild.
@rodster: I find it hard to believe that any GM-lifer would be fine with the company going under just as long as their pension was funded … except for the most misanthropic sort of person who hated the corporation so much that they would wish ill on their former coworkers, I can’t conceive of anybody having such an attitude/position.
@mikey: are you saying that the CDN pensions were funded with a healthy dose of GM stock? If so pity, and shame on the authorities … number one rule in the family should apply to govt as well, no two family members working for the same company, no 401k investments in stock for the company that you work for … to ignore this invites disaster…
In Switzerland, the money you pay into your pension fund in the company is portable and can move with you to the new job … and is strictly regulated against the kind of LBO money grabs that companies like Variety/Massey-F did in the 80’s/90’s, stripping the cash from pension funds of the acquired (or replacing them with questionable stock) to pay for the acquisition.
Precisely why there should be INDIVIDUALLY owned accounts. No company management. No government management. No union management. Rules can be made as to how much you can contribute and when you can take it out. The INDIVIDUAL will watch over his own money much better than a guy sitting in a fancy white building in Washington DC with his 535 assistants sitting in a domed building nearby.
One side political note: The 80’s and 90’s preceded the recent past administration. He cannot be blamed for loosening regulations during that time. He wasn’t in office yet.
@ Ingvar
Where are those 30 billion now?
IOUs!
To the extent that overpaid UAW members will suffer because other overpaid UAW members had to be bought out, I say here’s a quarter… call the UAW.
Am I right, or am I missing something here?
Wow Fracken WOW. And all legal… so how much money did GM burn through last year? This is an additional 20+ Billion on top of the 35 Billion?
I am waiting to see the perp walks on my nightly news.
Some of them should rightfully include United States House and Senate members, but that won’t happen.
–Thus the overwhelming majority of taxpayers who have no pension will be compelled to have their treasure taken from them, and given to those who have one hell of a pension.
Oh puleeze. 40 (soon 50%) won’t pay any income tax and the upper 2% will pay this tab anyway. Hard to feel sorry for the Donald’s and Gates paying anything. They will still be rich beyond belief.
GM will get at least $100B in tax money from the mega rich before this year is up. Heck AIG is getting another $30B tomorrow.
Obama #1
— Wow Fracken WOW. And all legal… so how much money did GM burn through last year? This is an additional 20+ Billion on top of the 35 Billion?
That’s nothing. AIG lost 60 BILLION DOLLARS JUST LAST QUARTER. I’d say GM is doing quite well comparatively-speaking.
“One side political note: The 80’s and 90’s preceded the recent past administration. He cannot be blamed for loosening regulations during that time. He wasn’t in office yet.”
The “get government out of the way” deregulation movement started in earnest with Ronald Reagan, 1981.
So, What’s the story on Chrysler’s pension fund?
Did the three-headed dog drain it?
(VEBA) The money left the pension funds and went to the UAW?
Lets see now,there are still people who think we should bail there sorry ass’s out now? This just gets worse as time goes on,there are times that you just have to do the right thing no matter how bad it will hurt and this is one of those time’s,let them go down! Please!
tparkit : This move smells like pre-bankruptcy prep. Because in a bankrupty the US federal government will stand surety for much of GM’s pension obligations, it thus makes sense for GM to dissipate the pension pot, knowing the taxpayers will refill it. This ploy has been recognized as being on the Big Three’s radar screen for years.
I always thought the pension fund was the last refuge before corporate bankruptcy too. GM has nothing left to raid, and it looks like the government is getting a bad case of bailout fatigue.
This might be a dumb question: is this a shameful act of corporate irresponsibility in a deregulated economy, or is it actually illegal?
tced2,
Regarding your statement that pensions should be individualized.
They were. That is what 401k’s are. Finding a company with a pension these days is very, very rare. Only old companies, such as GM, still have them. Oh, and government agencies.
Companies don’t want to have pensions anymore because they are damned-if-you, damed-if-you-don’t benefits. If they are fiscally conservative and have a healthy pension fund, they they can be raided or greenmailed by a corporate raider who will demand that these excess pension dollars be returned to the stockholders. If they underfund it, then their PBGC premiums go up.
That is why they simply set up a 401k, give the employee the retirement money, and leave it up to them to figure it out.
“That is why they simply set up a 401k, give the employee the retirement money, and leave it up to them to figure it out.”
Unfortunately many companies and/or their foolish employees load up their 401k plans with company stock. In fact, often company stock is the contribution the company makes to the 401k. 401ks aren’t “given” to employees. Normally the funds in a 401k are primarily money the employee themselves put into it. Sometimes companies do some matching, sometimes not. Ah, the joys of the ownership society Bush Jr. spoke so lovingly of.
>>I said: –Thus the overwhelming majority of taxpayers who have no pension will be compelled to have their treasure taken from them, and given to those who have one hell of a pension.
>>Rkeep 820 said: Oh puleeze. 40 (soon 50%) won’t pay any income tax and the upper
Please explain how 40% of taxpayers don’t pay any taxes.
Do the math. A million UAW retrees at 50k each equals 50 billion per year. That is why GM is not viable and why the pension plans are going to go kaput and also why the government needs to throw so much money at GM.
What’s going to happen to Canadian GM workers in Ontario re there Pension, one of two things, the Premier who wants to continue to be elected will cave in and have the Taxpayers here take the hit or he will let the retired GM Workers carry the can more or less, after all they made good money while they worked, surely they were wise to put Money away for a rainy day eh? We should all know after the Budget comes down on the 26th of March!
On June 1, General Motors released information that they plan on reducing their pension plan liabilities by an expected 26 billion dollars. GM hopes to accomplish this by offering selected U.S. GM retirees an option to take a lump-sum payment, while other retirees may continue to collect monthly pension benefits. Additional plan details have been outlined as a guide at this website: http://www.gmpensionbuyout.net. Because of the plan complexities and the July 20, 2012 deadline, it is suggested that affected plan members seek advice from a qualified financial advisor.