Who should take the risk on GM’s collapse: taxpayers, or the pension funds of the company itself?
In an opinion piece in the Financial Times, Bradley Belt and Charles Blahous, CEO and senior advisor, respectively, of Palisades Capital Advisors, note that Congress received bad news last week that the liabilities of the government-backed Pension Benefits Guarantee Corp. (PBGC) have soared to over $33 billion, up $11 billion in one year alone.
PBGC guarantees pensions of retirees in firms that have failed. This has raised concerns that with the major carmakers in bankruptcy, billions more in pension benefits will be at risk, of which the losses will have to be absorbed by government.
“Pressure will build on Congress to do something about pension finances. But what?” write Belt, a former executive director of the PBGC, and Blahous, former deputy director of the National Economic Council.
“With so many employers struggling, no Congress will pass legislation increasing employers’ near-term contributions. The worst thing would be to dig the hole deeper by providing funding relief for plan sponsors while allowing unfunded pension liabilities to continue to accumulate.”
Rather, the financiers argue that the pensions of General Motors, Ford, and Detroit should be encouraged to provide financing to Detroit. Some may complain that this puts the funds dangerously at risk, but, if that is really the case now, they say, then the battle to save Detroit is already lost, and taxpayers should not be forced to foot the bill anymore for restructuring the carmakers.
“Instead of viewing pensions solely as a problem, they should be seen as part of a solution,” the financiers write.
“Plan assets could be used as a source of financing for companies that are restructuring. There is no reason why taxpayers should be the first source of financing for the car industry restructuring. GM’s pension, with nearly $90 billion in assets, could provide debtor-in-possession loans to the parent. Some might argue that it is imprudent for the pension fund to invest in the restructuring of GM. If so, then the taxpayers should not be put on the hook either.”
The unions may be in a receptive mood now, given the horrid news out of motor city. According to Reuters, labor union officials representing 54,000 GM blue collar workers are scheduled to meet in Detroit to prepare for a quick ratification vote on a cost-cutting labor deal negotiated last week. The union aims to complete those votes by Thursday.
Approval of the contract would change payment terms on $20 billion owed to a UAW trust fund.
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