Sun, Dec 14, 2003 - Page 11 News List

GM likely to overcome its pension deficit


General Motors said on Friday that it stood a good chance of ending the year with its pension plans for American employees fully financed, after beginning the year with the biggest deficit of any company.

While the rising stock market helped GM's pension funds, the company accomplished this feat mostly by taking extraordinary measures to raise cash for the funds. It is contributing much of the US$17.5 billion raised in an unusual bond offering earlier in the year. In addition, GM is infusing US$4.1 billion from the sale of its Hughes Electronics unit to the News Corp, a deal it expects to complete soon.

Many other large companies continue to cope with pension deficits. Because several years of data are used in pension fund calculations, some of these companies will probably have to make big cash contributions in the coming year. Even if stock prices continue to rise, they will still be incorporating the effects of adverse market conditions over the last few years.

But John Devine, GM's vice chairman and chief financial officer, said on Friday that he believed GM's experience showed that most companies could find ways to keep their pension obligations under control, and would do so voluntarily. Congress and the Bush administration should therefore abstain from far-reaching changes in the pension laws, he said.

"We don't believe the wholesale reform of pension rules is necessary," Devine said in a conference call with securities analysts and the media.

The last three years have been the worst for America's corporate pension funds in the postwar era, and business groups and the Bush administration have been discussing a variety of possible changes in the pension laws. GM's pension funds have been closely watched, because they had a shortfall of almost US$19 billion at the beginning of the year -- by far the largest deficit in the private sector.

Bush administration officials have advocated tightening the pension laws, but Devine and other GM executives said that they favored modest changes, and that demands to shore up company pension funds would hurt the competitive position of American business.

"Frankly, if we make a wholesale reform, it could be a step backward," he said.

Some companies, like certain large airlines and old-line manufacturers, cannot afford to make pension contributions. GM has put US$14.4 billion of the total bond proceeds into its US pension funds, according to a report supplied by the company. That, combined with the anticipated US$4.1 billion from the sale of Hughes, would make a total pension contribution of US$18.5 billion for the year. The contribution did not affect GM's executive pension plans or its pension obligations to workers outside the US, officials said.

The US$18.5 billion contributions would have been more than enough to close the US$17.8 billion shortfall the American plans had at the beginning of the year, but several factors added to GM's pension obligations over the course of the year, according to the company. Its workers built up their future benefits by about US$6 billion, a new labor contract with the United Auto Workers added US$2.1 billion in obligations, and interest rates fell, increasing obligations. GM succeeded in closing those gaps by achieving an 18 percent return on its pension assets, which added US$10.8 billion in investment income.

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