© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the August 2005 edition of BENEFITS CANADA magazine.
Frontlines: GM’s pension payment
General Motors gets money back for its U.S. pension plan.
By Joel Kranc

At a time when defined benefit (DB)pension plans are facing funding problems, it must be a relief to be able to recover some of that money for future use.

According to the Pension Benefit Guaranty Corporation in Washington D.C., taxpayers in the U.S. could be on the hook for billions of dollars. In the manufacturing sector, possible liabilities could reach US$8.4 billion; in services it could go as high as US$7.9 billion and in the retail sector, taxpayers could be responsible for as much as US$5.8 billion.

A case in point is the recent decision by a U.S. federal court concerning General Motors(GM)and its bid to recover pension money from the federal government. The court said GM could recoup as much as US$253 million for one of its underfunded plans.

In the U.S., when companies have contracts with the government, the government pays for salaries and a piece of the pension costs. When companies close or sell a unit with a surplus plan, the government recovers that portion of the pension surplus it contributed to the fund.

GM argued that the government should similarly make contributions to an underfunded pension plan of a division it sold in 1993, known as Allison Gas Turbine. GM filed the claim in 1996 for US$253 million and sued the government in 2000.

Judge Nancy Firestone, who oversaw the case, said the government should pay the amount of the underfunded portion of the penion plan although a dollar amount was not mentioned. The judge did deny GM’s motion to recover not only the underfunded amount, but a profit as well.

The government is expected to appeal the case and any payment to GM could take years. However, if the pension ruling is upheld, it could mean that ceilings on government spending under contracts would not apply to pension claims.

The move could trigger other government contractors to get back some of the underfunding of pension funds that existed when the contractors sold divisions.


U.S. pension funds should double their allocation to real estate to combat deficits, says Los Angeles-based property consultancy firm CB Richard Ellis.

The firm said that an analysis carried out with the help of JPMorgan Asset Management revealed the most appropriate allocation to real estate within a pension fund “is in the order of 10% to 15%.” This target compares with the average 6% allocation in Europe.

“It is essential for pension funds to make a greater investment in commercial property if the predicted pensions shortfall is to be alleviated,” the consulting firm said in a statement.

The report also said that European pension plans have an increased appetite for real estate, but the portfolio rebalance is likely to be accomplished at the expense of equities and bonds.

Pension funds must get more time to erase deficits in order to prevent higher premiums during bad times, said the majority of the Dutch parliament during interim budget discussions.

The Christian Democrats, the government’s largest coalition partner, have proposed allowing pension plans a five-year period for rebuilding their reserves, in case their coverage ratio falls below 105%.

This, the Christian Democrats say, would prevent pensions from being prone to harsh economic conditions and fluctuations.

The main opposition labour party agreed with a longer period, although one that is less than five years. The government’s new financial assessment framework calls for pension funds to raise their funding ratio to 105% within a year. The Dutch parliament will be debating the new pension bill later this year.

Joel Kranc