CONGRESS SHOULD RESTORE FULL DELPHI SALARIED PENSIONS
In 1974 Congress passed the ERISA law that requires the Pension Benefit Guaranty Corporation (PBGC) to “encourage the continuation and maintenance of pension plans” AND “to provide for the timely and uninterrupted payments of benefits” 29 USC §1302.
35 years later, in 2009, the PBGC terminated the Delphi Salaried Retirement plan (DSRP) in an unprecedented circumstance that involved the financial affairs of another major U.S. corporation. It was driven by the U.S. Government buying most of the stock of that other corporation. The PBGC ignored its ERISA duties and stopped advocating for the retirees.
- In 2005 the former auto parts maker, Delphi Corporation, filed for bankruptcy. By early 2009, it was successfully working to reorganize. The PBGC was advocating for Delphi retirees -- as it should -- by a) allowing Delphi to make partial payments to the DSRP and b) placing liens on Delphi’s foreign assets to protect the retirees’ interest.
- But in early 2009, the DSRP got caught up in the Obama Administration’s efforts to save General Motors from financial collapse. The Government bought $50 billion in New GM stock as part of a 40-day, Government-led bankruptcy. But GM’s biggest supplier was Delphi, and the Government sought to accelerate Delphi’s emergence from bankruptcy, so the PBGC looked away and denied Delphi retirees up to 70% of their earned pensions!
- The lead Government official under U.S. Treasury said it advocated for the termination of Delphi’s pension plans (Feldman deposition extracts). This would hasten Delphi’s exit from bankruptcy, paving the way for the U.S. to buy New GM.
- Joseph House, the PBGC’s lead official in the matter, admitted in a Federal Court proceeding that the interactions between the PBGC and Treasury were unique (House Deposition excerpts) He separately noted that PBGC representatives invited to a court-ordered mediation of the Delphi bankruptcy instead “sat in a room and read books all day.” Following the mediation, those involved announced a global resolution of the Delphi bankruptcy that involved protecting the full pensions of union-represented Delphi retirees, but not those of salaried retirees. It’s unprecedented for the Executive Branch to be involved in the termination of a pension plan.
- The U.S. Treasury Secretary Geithner had conflicting interests because he was one of the PBGC’s three board members (with its mission to protect retirees). But he also wanted to protect the Government’s $50 billion investment in New GM (which pundits began calling “Government Motors”).
- The lead Government official under U.S. Treasury said it advocated for the termination of Delphi’s pension plans (Feldman deposition extracts). This would hasten Delphi’s exit from bankruptcy, paving the way for the U.S. to buy New GM.
Importantly, the DSRP was historically well-funded and well-managed – unlike other terminated plans that were not.
- It was frozen by Delphi in 2008, and certified to be more than 85% funded in October of 2007 and 2008 (ref. Watson Wyatt certification). And despite the Great Recession, the DSRP’s funded status was above the average of the nation’s 100 largest pension plans (ref. Wells Fargo) in July of 2009.
The Government officials involved tell what happened IN THEIR WORDS …
In a May 29, 2013 court deposition, Joseph House, the senior PBGC official stated that PBGC was still advocating to save Delphi’s pension plans in August 2008 and January 2009: “It’s consistent with the agency’s mission.” (pp 15-16). Mr. House was shown a late February 2009 email chain in which Delphi’s CFO wrote that he understood that U.S. Treasury had direct discussions with PBGC (Mr. House), and that Mr. House had stated that the PBGC’s position was that Delphi pension plans should be subsumed in GM’s pension plans. Mr. House’s response was, “I think that the Delphi CFO’s characterization is basically accurate.” (pp 97-99)
When asked about several potential acquirers of Delphi in April and May 2009, Mr. House said: “I’m familiar with entities with an interest in acquiring Delphi” (pg 38). But in later questioning, when asked if he was aware of any parties that had expressed interest in acquiring Delphi’s assets, Mr. House said the opposite and simply replied “No.” (pg 131)
- When asked: (a) whether the PBGC did anything to persuade Treasury to work towards preserving Delphi pension plans, House said “I don’t have any recollection of trying to persuade Treasury of anything.” (pp 44-45), or (b) whether he or PBGC did anything to persuade Delphi’s bankruptcy lenders to preserve its pension plans, Mr. House answered: “I don’t recall anything like that.” (pg 45)
- When asked "In other transactions that you've been involved with, where a pension plan is in trouble and there is a potential acquirer, does PBGC have communications with a potential acquirer ... have you ever had those sorts of interactions with a potential buyer? House answered, "I think the answer is yes." (pg 133). But when asked, "To your knowledge, no one from PBGC talked to any of these potential (Delphi) buyers," House replied "Not that I'm aware of." (pp 133-134)
- When asked “Has there ever been another situation where Treasury was not only on the (PBGC) board … but was also a key player in the transaction in which PBGC was interested in?” – Mr. House said: “Not that I’m aware of.” Asked, “So this was unique …?” House said “yes.” (pg 122)
In a July 2009 court deposition, the Auto Team’s Matthew Feldman [Feldman deposition] said he was “the lead person at Treasury on (auto industry) pension issues.” (pg 156) and that “In my initial discussions with the PBGC … we were trying to facilitate an agreement where the salaried plan would be … taken over by the PBGC …” (pp 158-59).
A 2013 Report by the Special Inspector General of the TARP Program [SIGTARP 13-003] stated:
- “GM officials told SIGTARP that GM needed PBGC to release liens on Delphi’s assets … According to one General Motors official interviewed by SIGTARP, ‘Ultimately to get Delphi out of bankruptcy, we needed the [pension] plans to be terminated.’” (pp 13-14)
- It’s “Summary/Lessons Learned” section states: “An important lesson Government officials should learn from the Government’s unprecedented TARP intervention into private companies is that the actions and decisions taken must represent the overarching responsibilities the Government owes to the American public.”
The DSRP’s termination was unique. Congress can – and should – restore it!