Delphi Corporation Plan History
In August 2009, PBGC assumed responsibility for Delphi Corporation's six pension plans. Below is a summary of events that led to PBGC's need to step in and pay benefits to Delphi retirees.
- In 1999, Delphi was spun off from General Motors as an independent auto parts supplier. GM remained Delphi's largest customer. At the time of the spin-off, GM agreed to provide a guarantee to its union (UAW, IAM, and USW) employees who were going to Delphi. The agreements specified that if the Delphi Hourly plan terminated, GM would pay the difference between the plan's benefits and the PBGC's guaranteed benefits. GM and its salaried employees did not have any such agreement.
- Delphi sponsored six defined benefit pension plans, including the Salaried Plan and the Hourly Plan. Delphi entered bankruptcy in 2005. Until the fall of 2008, Delphi intended to reorganize and keep its pensions ongoing. GM agreed to assume Delphi's Hourly Plan in exchange for a substantial claim in Delphi's bankruptcy. Just ahead of the collapse of the U.S. economy, and the auto industry in particular, GM assumed the first portion of the Hourly Plan, representing over $2 billion in net liabilities.
- Following the economic collapse, Delphi failed in its efforts to reorganize, and began liquidating its assets. Because Delphi could no longer satisfy its obligation to give the promised claim to GM, GM was not required to assume the balance of the Hourly Plan. In June 2009, Delphi announced that it would not be able to put money into its pension plans or administer them - meaning that the pension plans ultimately would have been unable pay out the benefits Delphi had promised to its retirees. In July 2009, the Salaried Plan was underfunded by $2.7 billion and the Hourly Plan underfunding was $4.5 billion.
- During Delphi's bankruptcy, the company contributed substantially less to its pension plans than it was required to pay. PBGC placed liens for these unpaid amounts against assets of Delphi's affiliated companies that were not in bankruptcy.
- When Delphi announced its intention to liquidate, and its lenders moved to foreclose on Delphi's assets, PBGC took action to protect all six pension plans by terminating and trusteeing them, as it is supposed to do under ERISA - just as it has done with thousands of other pension plans in similar situations. Delphi, as the plan administrator, agreed to the terminations.
- PBGC's guarantee provides all Delphi pension plan participants the maximum benefit payable under statutory guidelines (though not the full benefit Delphi had promised). In particular, to pay the guaranteed benefits of Salaried Plan participants, PBGC will use over $2 billion of its own funds. Absent PBGC's actions to terminate, the Delphi Pension Plans would have been abandoned by the company upon completion of its complete liquidation and many participants would have been left with little or no benefit at all.
- GM decided to honor its 1999 agreements to top up the benefits for the terminated Hourly Plan. PBGC had no control over the decisions and actions of these outside parties. Though Delphi and PBGC inquired many times, GM never agreed to assume responsibility for any part of the Salaried Plan.
- Plan termination triggers liability to PBGC. To collect on its claims, PBGC negotiated settlements with Delphi and with GM, as a purchaser of certain foreign assets of Delphi, which were encumbered by PBGC liens. In July 2009, PBGC held $195.9 million in statutory liens against Delphi's foreign assets for the benefit of the Salaried Plan. PBGC ultimately received proceeds in excess of $700 million from the settlements, which was well in excess of the amount needed to satisfy PBGC's Salaried Plan liens.