PBGC Takes Over Delphi Pension Plans

The Pension Benefit Guaranty Corp. is taking over the massively underfunded pension plans of financially troubled auto parts manufacturer Delphi Corp., a takeover that will cost the PBGC about $6.25 billion—its second-biggest loss ever.

The PBGC will take over six plans sponsored by Troy, Michigan-based Delphi, which is in bankruptcy.

The biggest plan, which is offered to Delphi hourly employees and has about 47,000 participants, has about $3.7 billion in assets and more than $8 billion in liabilities. The PBGC expects to assume about $4 billion of the plan’s nearly $4.4 billion shortfall.

The second-biggest plan, covering about 20,000 salaried employees and retirees, has $2.4 billion in assets and liabilities of about $5 billion. The PBGC estimates it will be liable for about $2.2 billion of the $2.6 billion shortfall.

In addition, the PBGC will be responsible for about $50 million in unfunded benefits in four small Delphi plans with about 2,000 participants.

The $6.25 billion loss to the PBGC is surpassed only by the agency’s 2005 takeover of four United Airlines pension plans, which cost the agency about $7.5 billion.

The PBGC estimates its takeover of Delphi’s plans will increase its deficit by about $3.5 billion. The agency had included the claim in its 2008 financial statements but at a much lower estimated amount.

Delphi said in a statement that it does not believe a termination by the PBGC of the hourly plan would violate Delphi’s existing collective bargaining agreements or prior bankruptcy court orders.

However, Delphi said it hasn’t yet agreed to a termination of the plan and “will not enter into an agreement with the PBGC to take over the plan unless the bankruptcy court finds that doing so is not a violation of Delphi’s collective bargaining agreements or a federal district court issues an order terminating the U.S. hourly plan.”

The PBGC earlier disclosed that its deficit hit a record $33.5 billion at the end of its fiscal 2009 first half on March 31, compared with $11.2 billion at the close of fiscal 2008.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.