Key Events Leading to the Termination of the Delphi Defined Benefit Plans
Gao ID: GAO-11-373R March 30, 2011The Delphi Corporation was a global supplier of mobile electronics and transportation systems that began as part of the General Motors Corporation (GM) and was spun off as an independent company in 1999. Following bankruptcy in 2005, Delphi's six qualified defined benefit (DB) plans were terminated and trusteed by the Pension Benefit Guaranty Corporation (PBGC) in July 2009. These terminations culminated from a complex series of events involving Delphi, GM, various unions, the U.S. Department of the Treasury (Treasury), as well as PBGC. Congress asked us to examine a range of issues related to PBGC's termination of Delphi's DB plans, such as the decision to terminate, the efforts to secure plan assets, the treatment of collective bargaining agreements, and Treasury's role throughout the process. As discussed with Congressional staff members in December 2010, this report includes a timeline of key events leading to the termination of Delphi's plans. The timeline focuses, in particular, on events related to the reasons for GM providing retirement benefit supplements to certain Delphi employees, but not to others, and Treasury's role in those events. We will compare PBGC's process for terminating Delphi's pension plans with its process for terminating other large, complex plans in a future report.
During the 1999 spin-off negotiations between GM and Delphi, three unions secured benefit guarantees for their members: International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW); the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, AFL-CIO (IUE); and the United Steelworkers of America (USWA). The benefit guarantees included an agreement that GM would provide a retirement benefit supplement (referred to as "top-ups") to certain Delphi employees who were members of these unions should their pension plans be frozen or terminated and they were to suffer a resulting loss in pension benefits. No other Delphi employees had a similar agreement to receive a top-up, including salaried workers and hourly workers belonging to other unions. Over the course of events that followed, the agreements with these three unions were ultimately preserved through the resolution of the bankruptcies of both GM and Delphi. Because Delphi's pension plans were terminated with insufficient assets to pay all accrued benefits, and because PBGC must adhere to statutory limits on the benefits it guarantees, many Delphi employees will receive a reduced pension benefit from PBGC compared with the benefits promised by their DB plans. Those Delphi employees receiving the top-ups will have their reduced PBGC benefit supplemented by GM while others will not.
GAO-11-373R, Key Events Leading to the Termination of the Delphi Defined Benefit Plans
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GAO-11-373R:
United States Government Accountability Office:
Washington, DC 20548:
March 30, 2011:
Congressional Requesters:
Subject: Key Events Leading to the Termination of the Delphi Defined
Benefit Plans:
The Delphi Corporation was a global supplier of mobile electronics and
transportation systems that began as part of the General Motors
Corporation (GM)[Footnote 1] and was spun off as an independent
company in 1999. Following bankruptcy in 2005, Delphi's six qualified
defined benefit (DB) plans were terminated and trusteed by the Pension
Benefit Guaranty Corporation (PBGC) in July 2009. These terminations
culminated from a complex series of events involving Delphi, GM,
various unions, the U.S. Department of the Treasury (Treasury), as
well as PBGC. You asked us to examine a range of issues related to
PBGC's termination of Delphi's DB plans,[Footnote 2] such as the
decision to terminate, the efforts to secure plan assets, the
treatment of collective bargaining agreements, and Treasury's role
throughout the process. As discussed with your staff members in
December 2010, this report includes a timeline of key events leading
to the termination of Delphi's plans (see enclosure I). The timeline
focuses, in particular, on events related to the reasons for GM
providing retirement benefit supplements to certain Delphi employees,
but not to others, and Treasury's role in those events. We will
compare PBGC's process for terminating Delphi's pension plans with its
process for terminating other large, complex plans in a future report.
To construct the timeline, we relied on publicly available documents,
such as bankruptcy filings by GM and Delphi, company reports to the
Securities and Exchange Commission, press releases; and on documents
received from groups with whom we have talked, including Delphi, GM,
the Delphi Salaried Retiree Association (DSRA), PBGC, and Treasury. We
conducted our work from October 2010 to March 2011 in accordance with
all sections of GAO's Quality Assurance Framework that are relevant to
our objectives. The framework requires that we plan and perform the
engagement to obtain sufficient and appropriate evidence to meet our
stated objectives and to discuss any limitations in our work. We
believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions
in this product.
Summary:
During the 1999 spin-off negotiations between GM and Delphi,[Footnote
3] three unions secured benefit guarantees for their members:
International Union, United Automobile, Aerospace, and Agricultural
Implement Workers of America (UAW); the International Union of
Electronic, Electrical, Salaried, Machine and Furniture Workers, AFL-
CIO (IUE);[Footnote 4] and the United Steelworkers of America (USWA).
The benefit guarantees included an agreement that GM would provide a
retirement benefit supplement (referred to as "top-ups") to certain
Delphi employees who were members of these unions should their pension
plans be frozen or terminated and they were to suffer a resulting loss
in pension benefits. No other Delphi employees had a similar agreement
to receive a top-up, including salaried workers and hourly workers
belonging to other unions. Over the course of events that followed,
summarized in figure 1 and described in more detail below, the
agreements with these three unions were ultimately preserved through
the resolution of the bankruptcies of both GM and Delphi. Because
Delphi's pension plans were terminated with insufficient assets to pay
all accrued benefits, and because PBGC must adhere to statutory limits
on the benefits it guarantees,[Footnote 5] many Delphi employees will
receive a reduced pension benefit from PBGC compared with the benefits
promised by their DB plans. Those Delphi employees receiving the top-
ups will have their reduced PBGC benefit supplemented by GM while
others will not.
Figure 1: Overview of Key Events Leading to Termination of Delphi's
Pension Plans:
[Refer to PDF for image: time line]
September 1998 - December 2000:
Delphi spins off from GM:
* Delphi becomes a separate corporate entity and sponsor of its
employees‘ pension plans;
* Certain unions (UAW, IUE, and USWA) secure benefit guarantees from
GM for their members, including a pension benefit ’top-up“ should the
hourly plan be frozen or terminated;
* Delphi‘s pension plan for salaried retirees is fully funded and its
plan for hourly retirees is not fully funded.
January 2001 - February 2006:
Delphi suffers losses; files for bankruptcy:
* Funding of pension plans deteriorates;
* Delphi files for bankruptcy protection.
March 2006 - November 2008:
Delphi attempts restructuring and sale; negotiates agreements with GM:
* Missed pension contributions by Delphi trigger liens on behalf of
plans and the Internal Revenue Service grants Delphi funding waivers;
* GM, Delphi, and unions extend GM top-up agreements;
* Delphi files reorganization plan that includes settlement agreement
with GM to transfer part of Delphi hourly plan to GM hourly plan;
* Proposed Delphi reorganization falls through when investors refuse
to fund Delphi‘s reorganization plan;
* Delphi and GM amend their settlement agreement to transfer part of
Delphi‘s hourly plan to GM;
* Delphi freezes all but one of its six defined benefit plans.
November 2008 - November 2009:
Economic downturn contributes to GM bankruptcy and termination of
Delphi plans:
* Delphi nears liquidation following expiration of agreement with
debtor-in-possession lenders;
* Delphi states publicly it is unable to continue funding its pension
plans;
* GM enters bankruptcy and sells its assets to a new entity (’new GM“)
with assistance from Treasury;
* New GM agrees to honor the Delphi UAW top-ups based on UAW‘s
continued relationship with GM;
* PBGC negotiates agreements concerning liens on foreign assets, and
terminates Delphi‘s plans with the agreement of Delphi;
* New GM negotiates settlement agreements that include top-ups for IUE
and USWA to help resolve the Delphi bankruptcy;
* Delphi reorganization complete with sale of assets;
* Delphi Salaried Retiree Association files and amends complaint on
termination of Delphi‘s salaried plan.
Sources: GM, Delphi, and Treasury documents. (For further details, see
enclosure I).
[End of figure]
Three Unions Secured Top-Up Agreements in Negotiations Following
Delphi's Spin-Off from GM:
As part of Delphi's spin-off from GM in 1999, GM was required to
collectively bargain with the unions affected by the spin-off--
including UAW, IUE, and USWA, as well as other "splinter" unions.
[Footnote 6] As a result of these negotiations, GM agreed to provide
top-ups to "covered employees" with UAW, IUE, or USWA if the Delphi
pension plans were terminated or frozen at a later date, covering any
shortfall of benefits below the level promised by the Delphi plans.
"Covered employees" were generally defined as those who had been
represented by these unions as GM workers and now as Delphi workers
with no break in employment or seniority as of May 28, 1999. The top-
up benefits were part of separate benefit guarantee agreements, signed
between September and December 1999, between GM and certain unions
representing Delphi workers--specifically, the UAW, IUE, and USWA.
Also, on December 22, 1999, Delphi agreed to indemnify GM for all
benefits provided by GM under the UAW benefit guarantee[Footnote 7].
At the time GM entered into these agreements, Delphi's salaried plan
was fully funded while Delphi's hourly plan was not fully funded (see
enclosure III).
After Delphi Filed for Bankruptcy, Delphi and GM Agreed to Extend the
Top-Up Agreements with the Three Unions:
Over the period 2001 to 2005, Delphi suffered large losses, and the
company filed for bankruptcy in October 2005.[Footnote 8] During the
bankruptcy, Delphi failed to make required minimum contributions to
the plans and, as a result, liens were triggered by federal statute on
behalf of the plans. Beginning in March 2006, PBGC took steps to
perfect these liens in accordance with law.[Footnote 9] While Delphi
was in bankruptcy and attempting to restructure, in May 2007, the
Internal Revenue Service (IRS) granted Delphi waivers that temporarily
allowed Delphi to forego making minimum contributions to its plans and
to provide letters of credit as collateral for the waivers.
Shortly thereafter, Delphi and GM agreed to extend the top-up
agreements with UAW, IUE, and USWA. In June 2007, GM, Delphi, and UAW
entered into a memorandum of understanding (MOU) extending the GM
benefit guarantee for Delphi UAW workers, which would be enforceable
if benefit accruals for future credited service in the Delphi hourly
plan were frozen and if the plan were terminated. On August 5, 2007,
GM and Delphi entered into a MOU with Delphi IUE, and on August 16,
2007, with Delphi USWA, providing the same top-up guarantee as the
Delphi UAW MOU. The splinter unions negotiated for other benefits at
this time, but were not guaranteed top-ups; nor were any agreements
reached regarding top-ups for salaried workers.
In September 2007, GM and Delphi entered into a global settlement
agreement that included a plan to transfer assets and liabilities from
Delphi's hourly pension plan to the GM hourly pension plan, and for
Delphi to freeze new accruals to its hourly plan. The agreement did
not establish a specific effective date, but listed various conditions
that had to be met in order for it to become effective. Before
becoming effective, the agreement was modified in September 2008,
based on further negotiations described below.
Under Delphi's initial reorganization plan, the company planned to
emerge from bankruptcy without terminating its pension plans. However,
in April 2008, the deal with investors that would have made this
possible fell through. Five months later, in September 2008, Delphi
and GM amended their September 2007 global settlement agreement to
specify that GM would take responsibility for approximately $3.4
billion of net liabilities in Delphi's hourly plan in two phases. In
phase 1, GM would assume a portion of Delphi's hourly plan with net
liabilities of $2.1 billion. This transfer took place on September 29,
2008. In phase 2, upon "substantial consummation" of Delphi's
reorganization, the remaining assets and liabilities in Delphi's
hourly plan were to be transferred to GM. No comparable arrangements
were made concerning a transfer of assets and liabilities for Delphi's
salaried plan or other smaller plans.
In September 2008, Delphi froze its salaried plan and three of its
smaller plans, and in November 2008, Delphi froze its hourly plan as
well.[Footnote 10]
Losses throughout the Auto Industry Pushed Delphi Near Liquidation and
GM to Seek Assistance from Treasury:
Beginning in the fall of 2008, economic conditions deteriorated
throughout the auto industry. Delphi experienced declining revenues as
GM and other manufacturers sharply reduced production in light of
rapidly falling sales. According to documents provided by PBGC, when
Delphi's financing agreement with its debtor-in-possession (DIP)
lenders expired on April 21, 2009, Delphi's operations were threatened
by the prospect of imminent liquidation. On April 21, PBGC determined
that it would seek termination of the Delphi salaried and hourly
pension plans to avoid the losses that would result if the DIP lenders
were to foreclose on their collateral and break up Delphi's controlled
group. However, at the request of Delphi and the DIP lenders, PBGC
agreed not to proceed with the termination in order to allow the
parties to continue negotiating. In exchange, the DIP lenders agreed
to give PBGC advance notice of any decision to foreclose so that PBGC
could commence termination of the Delphi pension plans in time to
protect PBGC's claims.
GM's losses in the fall of 2008 led the company to seek assistance
from Treasury through the Automotive Industry Financing Program
(AIFP).[Footnote 11] As a condition of receiving this assistance, GM
was required to develop a restructuring plan to identify how the
company planned to achieve and sustain long-term financial viability.
In April and May 2009, Treasury worked with GM to develop a
restructuring plan through the Presidential Task Force on the Auto
Industry (Auto Task Force) and its staff (auto team).[Footnote 12] On
June 1, 2009, GM filed for bankruptcy and sought the approval of the
bankruptcy court for the sale of substantially all of the company's
assets to a new entity ("new GM").[Footnote 13] In court documents, a
Treasury official stated that Treasury was mandated by the President
to act in a "commercially reasonable manner" as it related to GM's
restructuring and ensure that the new GM assumed only those
liabilities of the old company that were thought to be "commercially
necessary" for the new company to operate.[Footnote 14] As GM's
primary lender, Treasury was concerned about GM's overall exposure to
risks related to distressed suppliers, including Delphi. Specifically,
Treasury was concerned about how GM's Delphi liabilities would fit
within the new company's business plan. According to a Treasury
official deposition, Treasury's mandate to restructure GM included
helping GM determine the "best resolution" of the Delphi bankruptcy
from GM's perspective, which was guided by three principles (see table
1).[Footnote 15] However, as Treasury asserted in a February 2010
court motion, the Auto Task Force did not dictate what should be done
with the Delphi pensions.[Footnote 16]
Table 1: Treasury's Three Guiding Principles for Resolving GM's
Liabilities Related to Delphi:
Principle: Development of a resolution that guaranteed the "sanctity"
of GM's supply chain;
Treasury rationale: Treasury did not want GM's attention, which was
focused on its own restructuring, to be diverted to finding suppliers
for the products provided by Delphi.
Principle: Quick resolution of the Delphi bankruptcy;
Treasury rationale: Treasury wanted Delphi's bankruptcy to conclude
sooner rather than later, given that Delphi had already been in
bankruptcy for 3 years by this point.
Principle: A resolution that required the least possible amount of
investment by GM;
Treasury rationale: Because GM had already invested billions of
dollars in Delphi during Delphi's bankruptcy process, Treasury
believed that GM should not provide additional money to Delphi absent
an overall resolution of the Delphi bankruptcy.
Source: Deposition of Treasury Official, No. 04-44481 (RDD) (S.D. N.Y.
July 21, 2009).
[End of table]
In assisting with GM's reorganization, Treasury conducted analysis
confirming GM's assessment of the Delphi pension liabilities.
Specifically, in May 2009, Treasury had anticipated that Delphi's
salaried pensions would be terminated, but that GM would assume
additional liabilities for the Delphi hourly plan, as called for in
phase 2 of the September 2008 agreement. Additionally, on June 1,
2009, Delphi announced that its hourly plan would be "addressed by
GM." According to a Treasury official deposition, there was a
reasonable argument for GM to assume the Delphi hourly plan for UAW-
represented workers, given that UAW's role was continuing with the new
GM and that the hourly plan was not fully funded at the time the plan
was transferred from GM to Delphi in 1999. However, the phase 2
transfer called for Delphi to pay a $2.055 billion administrative
claim to GM, which it could not do. In the Treasury official's
deposition, it was noted that shortly after GM's bankruptcy filing, GM
notified Treasury that it had not built sufficient funding into its
restructuring plan to take on the hourly plan, but that it had built
in the assumption that it would provide the top-up for Delphi UAW
retirees. Treasury's auto team assessed GM's analysis on the potential
cost of GM taking on the Delphi hourly pension plan and agreed with
GM's conclusion that the hourly plan was a "$3 billion liability that
General Motors could not afford."[Footnote 17] Phase 2 of the transfer
of hourly plan liabilities from Delphi to GM was not in GM's
reorganization plan and never took place.
GM's Reorganization Maintained Delphi UAW Top-Ups Based on UAW's
Continued Relationship with GM:
As part of the sale of the assets of old GM to new GM, GM negotiated
with UAW--which represented its largest employee group--to modify
wages, benefits, and work rules to be more cost competitive. As a
result of these negotiations, GM and UAW agreed that new GM would
assume all employment-related obligations and liabilities under any
assumed employee benefit plan relating to employees that are or were
covered by UAW collective bargaining agreements in its master sale and
purchase agreement, to which Treasury gave its approval.[Footnote 18]
Thus, the master sale and purchase agreement included only GM's
obligation to provide top-ups to Delphi UAW retirees.[Footnote 19] No
other negotiations took place that resulted in comparable obligations
concerning top-ups for members of the two other unions, IUE and USWA,
even though they had previously secured top-up agreements with GM; nor
for the splinter unions or the salaried employees who had no previous
top-up agreements with GM. As noted in a Treasury official deposition,
because of the bargaining between GM and UAW concerning the GM
bankruptcy and new UAW agreement, GM was prepared to honor the
obligation of providing top-ups to UAW Delphi retirees, while the
situation regarding comparable obligations with the other unions was
less clear.
On June 19, 2009, IUE and USWA objected to the proposed sale of GM's
assets because retirees of Delphi represented by IUE and USWA would
not receive the same benefits as retirees of Delphi represented by
UAW.[Footnote 20] The court overruled these unions' objection to the
sale, stating that new GM needed a "properly motivated workforce to
enable [new GM] to succeed," requiring it to enter into "satisfactory
agreements with the UAW" and was not "similarly motivated in triaging
its expenditures to assume obligations for retirees of unions whose
members, with little in the way of exception, no longer work for GM."
[Footnote 21] Accordingly, the bankruptcy court approved the sale of
GM's assets on July 5, 2009, and those assets were conveyed to new GM
on July 10, 2009.
Delphi Publicly Stated That It Was Unable to Fund Its Plans and the
Plans Were Terminated:
On June 1, 2009, Delphi, citing its inability to fund its plans and a
lack of feasible alternatives, publicly stated that PBGC "may initiate
an involuntary termination" of the Delphi salaried plan. Delphi and GM
entered into agreements with PBGC that provided PBGC an unsecured
claim in Delphi's bankruptcy and released PBGC's current claims and
foreign liens on Delphi's assets on July 21, 2009. PBGC agreed to
release its $196 million of foreign liens (foreign subsidiaries had
not filed for bankruptcy) and other termination claims in exchange for
a $3 billion unsecured claim in Delphi's bankruptcy, a $70 million
cash contribution from GM, and 10 percent of the first $7.2 billion of
distributions from Delphi Automotive LLP, the newly-created British
partnership that purchased most of Delphi's assets. On July 22, 2009--
12 days after the sale of GM's assets to new GM--PBGC announced the
termination of all six of Delphi's qualified DB plans, and on August
10, 2009, PBGC assumed trusteeship of the plans. PBGC stated that the
Delphi pension plans were underfunded by $7 billion when they were
terminated. PBGC estimates that it will need to make up about $6
billion of that shortfall using PBGC funds, leaving plan participants
to bear the loss of the $1 billion difference through reduced benefit
amounts provided by PBGC.
New GM Ultimately Agreed to Provide Top-Ups for IUE and USWA to Help
Finalize Delphi's Bankruptcy:
The approval of the sale of old GM did not resolve IUE's and USWA's
claims that new GM was required to continue to provide the pension
benefit guarantees in accordance with collectively bargained
agreements. Both old GM and new GM denied these claims. According to a
company filing, new GM maintained that it was not obligated to assume
or to continue to abide by old GM's collective bargaining agreements
with IUE and USWA, while old GM maintained that it was entitled to
cancel or terminate all obligations arising from collective bargaining
agreements between old GM and IUE or USWA.[Footnote 22] In the summer
of 2009, IUE and USWA shifted the focus of their objections from the
GM bankruptcy settlement to the Delphi bankruptcy settlement. On July
9 and July 15, 2009, IUE and USWA, along with some of the splinter
unions, filed objections against Delphi's proposed reorganization plan
and sale.[Footnote 23] On July 15, 2009, Delphi Salaried Retiree
Association (DSRA) filed an objection against Delphi's bankruptcy
based on Delphi's modified plan including the termination of the
salaried plan, among other things. On July 30, 2009, the Delphi
bankruptcy court overruled the IUE, USWA, and DSRA objections and
authorized the consummation of Delphi's modified reorganization plan.
Delphi remained a significant--if not the largest--supplier for GM.
Thus, although GM was not required to provide the top-ups to IUE and
USWA under its own bankruptcy settlement, GM was motivated to resolve
Delphi's bankruptcy, and Treasury, as previously noted, was interested
in a quick resolution of the Delphi bankruptcy that required the least
possible amount of investment by GM, but that guaranteed the
"sanctity" of GM's supply chain. According to the Delphi-GM master
disposition agreement, IUE's and USWA's consent was required to
finalize the sale of assets in Delphi's bankruptcy.[Footnote 24] As a
result, new GM continued negotiating with IUE and USWA to resolve
their objections against Delphi's bankruptcy case.
On September 10, 2009, new GM, old GM, IUE, and USWA signed a
settlement agreement that, among other things, required new GM to
provide top-ups to retirees of Delphi represented by IUE or USWA who
were covered by the benefit guarantee agreements that GM had entered
with IUE and USWA in 1999.[Footnote 25] The parties entered into this
agreement after consideration of the "factual and legal arguments
regarding these issues, as well as the costs, risks, and delays
associated with litigating these issues." In its February 2010 court
motion, Treasury noted that in light of these costs, new GM had solid
commercial reasons for agreeing to provide top-ups to Delphi retirees
represented by IUE or USWA. As part of the settlement agreement, IUE
and USWA agreed to withdraw their objections against Delphi's
bankruptcy, resulting in the completion of Delphi's reorganization on
October 6, 2009, with the sale of its assets.
The settlement agreement did not provide top-ups to the splinter
unions or to any other noncovered employees, including all members of
Delphi's salaried plan. On September 14, 2009, DSRA filed a complaint
against PBGC in U.S. district court related to the termination of
Delphi's salaried plan.[Footnote 26] DSRA amended its complaint on
November 5, 2009, to include new GM, Treasury, and the Auto Task Force
as defendants. New GM was later removed new GM as a defendant in the
case.[Footnote 27]
We provided a draft of this report to PBGC, Treasury, and the
Department of Labor for their review. These agencies provided us
technical comments, which we have incorporated where appropriate. In
addition, we received technical comments on certain segments of the
draft report from GM and Delphi, and have incorporated their comments
where appropriate as well.
We are sending copies of this report to the appropriate congressional
committees, the Director of PBGC, the Secretary of Labor, the
Secretary of Treasury, and other interested parties. The report also
is available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact Barbara Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov or A.
Nicole Clowers at (202) 512-8678 or clowersa@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Key contributors to this report
are listed in enclosure V.
Signed by:
Barbara D. Bovbjerg:
Managing Director, Education, Workforce, and Income Security Issues:
Signed by:
A. Nicole Clowers:
Acting Director, Financial Markets and Community Investment Issues:
Enclosures (5):
[End of section]
List of Congressional Requesters:
The Honorable John Boehner:
Speaker of the House of Representatives:
The Honorable Roger Wicker:
United States Senate:
The Honorable Spencer Bachus:
Chairman, Committee on Financial Services:
House of Representatives:
The Honorable Mike Pence:
House of Representatives:
The Honorable Michael Turner:
House of Representatives:
[End of section]
Enclosure I: Chronology of Key Events Leading to the Termination of
the Delphi Defined Benefit Plans:
Delphi Spins Off from GM (September 1998-December 2000):
September 1998-May 1999: Delphi spins off as independent company from
GM;
* Delphi becomes an independent company after incorporating as a
wholly-owned subsidiary of General Motors Corporation (GM), taking on
its share of GM corporate assets and liabilities and issuing stock.
Its spin-off from GM is complete on May 28, 1999;
* GM transfers assets and liabilities from its salary and hourly
pension plans to newly established Delphi salary and hourly pension
plans;
* GM retains responsibility for paying benefits to Delphi hourly
employees who retired by January 1, 2000.
September - December 1999: UAW, IUE, and USWA negotiate with GM to
provide pension "top-ups" and other benefit guarantees for their
members;
* As part of Delphi's spin-off from GM in 1999, GM is required to
collectively bargain with the unions affected by the spin-off--
including the International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America (UAW), the United
Steelworkers of America (USWA), and the International Union of
Electronic, Electrical, Salaried, Machine and Furniture Workers, AFL-
CIO (IUE), as well as other "splinter" unions[A];
* UAW negotiates agreement on September 30 with GM for benefit
guarantees for their members now working for Delphi who had seniority
as of May 28, 1999;
- Under this agreement, GM would make supplemental payments, or "top-
ups," to "covered employees"[B] should the pension plans be frozen or
terminated, covering any shortfall of retirement benefits below the
level promised in the Delphi plans[C];
* The IUE and USWA sign similar guarantees, including the top-ups,
with GM on November 14 and December 16-17;
* On December 22, Delphi agrees to indemnify GM for all benefits
provided by GM pursuant to these benefit guarantees[D];
* National union negotiations also result in allowing for the
possibility of future transfer of some UAW hourly employees back to
GM, with pension responsibility allocated between GM and Delphi based
on time of employment;
* No comparable agreements regarding top-up provisions are reached
with other GM employees spun off to Delphi, including salaried workers
and hourly workers belonging to other smaller unions;
* According to Delphi documents, as of the end of 1999, Delphi's
salaried plan is fully funded while Delphi's hourly plan is not (see
enclosure IV).
2000: Delphi is profitable.
Delphi Suffers Losses, Files for Bankruptcy (January 2001--February
2006):
2001-2005: Delphi financial condition deteriorates;
* Company net income falls from $1.0 billion in 2000 to -$4.8 billion
in 2004 (see enclosure III);
* Funding for hourly and salaried pension plans deteriorates (see
enclosure IV);
* Delphi financial rating is downgraded from investment-grade to
speculative-grade (March 2005).
October 2005-February 2006: Delphi files for bankruptcy protection;
* Delphi (October 8) and certain of its U.S. subsidiaries (October 14)
file for Chapter 11 bankruptcy;
* On October 8, Delphi notifies GM about the likelihood that top-ups
could be triggered;
* Delphi announces in February 2006 that the company expects to emerge
from bankruptcy in early to mid-2007.
Delphi Attempts Restructuring and Sale as Delphi and GM Negotiate
Agreements (March 2006--November 2008):
March 9, 2006: Missed pension contributions by Delphi trigger liens
against Delphi's foreign subsidiaries on behalf of plans;
* Delphi first reports missed required contributions to its DB plans
in January 2006, triggering liens under federal statute;
* PBGC takes steps to perfect a lien of $75.2 million on behalf of
salaried plan[E];
* Throughout the remainder of Delphi's bankruptcy, PBGC continues to
take such steps as liens are triggered.
March 31, 2006: Delphi announces its restructuring plan;
* As part of plan to emerge from bankruptcy by the middle of 2007,
Delphi announces its intention to freeze hourly and salaried DB plans
by end of 2006.
May 1, 2007: Internal Revenue Service grants Delphi funding waivers;
* Waivers allow Delphi to temporarily forego minimum contributions to
hourly and salaried plans;
* Waivers are conditional upon Delphi exiting bankruptcy by February
29, 2008;
* Waivers result in Delphi providing letters of credit to PBGC of $100
million for the hourly plan and $50 million for the salaried plan as
collateral for the waivers;
* IRS approves waiver modifications on July 13, 2007; October 4, 2007;
February 27, 2008; and March 28, 2008; ultimately extending until May
9, 2008 the date by which Delphi must exit bankruptcy and increasing
the amount of letters of credit on behalf of hourly plan to $122.5
million.
June-August 2007: GM, Delphi and larger unions enter into Memorandums
of Understanding (MOU) to extend and trigger top-up guarantee;
* With the GM top-up agreement set to expire in October, on June 22
UAW enters into an MOU with Delphi and GM extending the top-up
guarantee,which would be enforceable if benefit accruals for future
credited service in the Delphi hourly plan were frozen or if the plan
were terminated][F];
* IUE (August 5) and USWA (August 16) negotiate separate agreements
for the top-up guarantee extension that are the same as the UAW
extension;
* All three unions' MOUs also include plans for freezing the pension
plans and triggering the top-ups during Delphi's reorganization;
* The splinter unions negotiate other benefits at this time but are
not covered by the same top-up agreements.
September 6, 2007: Delphi files reorganization plan with the
bankruptcy court;
* GM and Delphi enter into a global settlement agreement outlining the
resolution of major business issues, including a plan:
- to freeze Delphi's pension plans "as soon as practicable following
the effective date" of reorganization;
- to transfer part of Delphi's hourly pension plan to GM's hourly
pension plan; and;
- to release GM, Delphi, and related parties from claims, except for
those in the agreement;
* Under the reorganization plan, Delphi is to continue sponsoring all
its pension plans.
April 4, 2008: Proposed Delphi reorganization deal falls through;
* Despite Delphi announcing that it had met the conditions to
"substantially consummate" their reorganization plan, investors inform
Delphi they are terminating their planned investment in Delphi.
May 2008: Internal Revenue Service funding waivers expire and PBGC
takes additional defensive action to protect plan;
* PBGC draws down the Delphi letters of credit worth $172.5 million,
which results in crediting $122.5 million in contributions to the
hourly plan and $50 million to the salaried plan.
September 2008: Amended Delphi-GM settlement agreement provides for
transfer of liabilities from Delphi's hourly plan to GM's hourly plan;
* GM and Delphi agree to move up to $3.4 billion in net liabilities
from the Delphi hourly plan to the GM hourly plan in two phases:
- Phase 1: On September 29, 2008, Delphi transfers $2.7 billion in
liabilities and $0.6 billion in assets transfer from its hourly plan
to GM's hourly plan. Delphi agrees to release GM from all potential
litigation arising out of the 1999 spin-off;
- Phase 2: Upon Delphi's substantial consummation of its
reorganization plan, Delphi is to transfer the remaining liabilities
from its hourly plan to GM's hourly plan, and at the same time is to
provide GM with a $2.055 billion administrative claim in Delphi's
bankruptcy to compensate GM, in part, for its assumption of the up to
$3.4 billion in unfunded Delphi pension liabilities;
* No comparable arrangements are made concerning a transfer of assets
and liabilities for Delphi's salaried plan or other smaller plans;
* PBGC states that the first transfer will eliminate more than $1.2
billion in liens filed against Delphi's nondebtor foreign affiliates.
PBGC's liens on behalf of the Delphi salaried plan are unaffected by
the transfer and remain in effect;
* GM also agrees to reimburse Delphi for the pension benefit cost
associated with credited service in Delphi's pension plan between
January 1, 2007, and the date its pension plans are frozen;
* In a September 12 press release, Delphi announces it has "remained
committed to fully funding [its] pension plans."
September-November 2008: Delphi freezes pension plans;
* Effective September 30, Delphi freezes its salaried plan, the ASEC
Manufacturing Retirement Program, the Delphi Mechatronic Systems
Retirement Program, and the Packard Hughes Interconnect Non-Bargaining
Retirement Plan;
* Effective November 30, Delphi freezes benefit accruals under its
hourly plan.
Economic Downturn Contributes to GM Bankruptcy, Termination of Delphi
Plans (November 2008-November 2009):
November 2008: Collapse of financial markets impacts multiple sectors,
including auto industry;
* The September bankruptcy of Lehman Brothers, in part, triggers stock
market collapse and financial crisis;
* Macroeconomic slowdown brings significant financial stress to
automobile industry.
December 2008-February 2009: GM receives TARP funding, Auto Task Force
established;
* On December 31, the U.S. Department of the Treasury (Treasury)
provides GM $13.4 billion in bridge loans through the Automotive
Industry Financing Program (AIFP), part of the Troubled Asset Relief
Program (TARP);
* On February 15, President Obama establishes the Presidential Task
Force on the Auto Industry (Auto Task Force) and Treasury creates a 15-
member staff (auto team) to oversee federal assistance to the auto
industry, including evaluating GM's restructuring plan.[G]
April 2009: Delphi nears liquidation, PBGC recommends termination of
plans;
* Delphi's declining revenues and pending April 21 expiration of
agreement with its debtors-in-possession (DIP) lenders threaten
company's operations;
* According to PBGC documents, on April 21, PBGC determines it will
seek termination of Delphi's hourly and salaried pension plans to
avoid losses that would result if Delphi's DIP lenders were to
foreclose on their collateral and break up Delphi controlled group.
PBGC agrees not to proceed with termination in order to allow the
parties to continue negotiating. In exchange, the DIP lenders agree to
give PBGC advance notice of any action to foreclose.
April-June 2009: Treasury works with GM to develop a reorganization
plan;
* Auto team, with assistance from consultants, reviews GM's new
restructuring plan, and Treasury provides an additional $6 billion of
AIFP funding to GM on April 22 and May 20 to help the company continue
operating while it restructures;
* In May, according to a Treasury official deposition, Treasury
anticipates that Delphi's salaried pensions will be terminated and GM
will assume liability for the remaining portion of Delphi hourly plan,
as called for in phase 2 of the September 2008 agreement;
* Auto team concludes that GM should file for bankruptcy and move for
an order permitting the assets of old GM to be sold to a "Treasury-
sponsored entity," new GM;
* In court documents, Treasury officials state that Treasury is
mandated by the President to act in a "commercially reasonable
manner," which ensures that GM's restructuring plan results in GM
assuming only those liabilities of the old company that are thought to
be "commercially necessary" for the new company to operate;
* As GM's primary lender, Treasury is concerned about GM's overall
exposure to risks related to distressed suppliers, including Delphi.
Specifically, Treasury is concerned about how Delphi's liabilities fit
into GM's business plan. According to a Treasury official deposition,
Treasury tells GM that it should develop a quick resolution of the
Delphi bankruptcy that requires the least possible amount of
investment by GM, but that guarantees the "sanctity" of GM's supply
chain;
* According to a Treasury official deposition, GM informs Treasury
around June 3 that it is financially unlikely to be able to take over
Delphi's hourly pension plan but had assumed in its restructuring plan
that it would provide the top-ups for Delphi UAW retirees. After
reviewing GM's calculations and discussing with GM's pension team,
auto team agrees with GM's assessment that it is a "3 billion dollar
liability that General Motors could not afford."
June 1, 2009: Delphi states publicly that PBGC may terminate salaried
plan;
* In a press release, citing its inability to fund its pension plans
and lack of feasible alternatives, Delphi states that "PBGC may
initiate an involuntary termination of the salaried pension plan" and
that its hourly plan "will be addressed by GM."
June-July 2009: GM files for bankruptcy and new GM emerges;
* On June 1, to effectuate its restructuring plan, GM files a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy
Code, and Treasury provides an additional $30.1 billion to GM to help
it continue operating through its restructuring[H];
* In GM's master sale and purchase agreement, new GM (the entity
purchasing the operating assets of old GM), is to assume all
employment-related obligations and liabilities under any assumed
employee benefit plan relating to employees that are or were covered
by UAW collective bargaining agreements. As part of this agreement,
new GM is to assume the top-ups to covered Delphi UAW retirees;
* On June 19, IUE and USWA object to the proposed sale of GM because
their Delphi retirees do not receive the same benefits as those
provided to Delphi UAW retirees[I];
* On July 5, the court overrules their objection, citing that new GM
needed a "properly motivated workforce to enable [new GM] to succeed,"
requiring it to enter into "satisfactory agreements with the UAW" and
was not "similarly motivated, in triaging its expenditures to assume
obligations for retirees of unions whose members, with little in the
way of exception, no longer work for GM." The court approves the
proposed sale of GM;
* GM emerges from bankruptcy on July 10 with the sale of assets to new
GM. Treasury receives 60.8 percent equity and $2.1 billion in
preferred stock in the new GM.
July 9-July 15, 2009: IUE and USWA file objection to Delphi bankruptcy
proceedings;
* Following the court overruling their objection to GM's refusing to
honor top-up agreements in GM bankruptcy proceedings, these unions
file objections to Delphi's Modified Plan of Reorganization on July 9
and July 15.[J] According to the Delphi-GM master disposition
agreement, IUE's and USWA's consent is required to finalize the sale
of assets in Delphi's bankruptcy. GM continues negotiating with IUE
and USWA to resolve their objections against Delphi's bankruptcy case;
* On July 15, the Delphi Salaried Retirees Association (DSRA) also
objects to Delphi's Modified Plan of Reorganization, asserting that
Delphi cannot legally enter into agreements with PBGC terminating its
pension.
July 21-22, 2009: PBGC terminates Delphi's six defined benefit plans
and settles its Delphi claims;
* Delphi states that the planned second transfer of hourly plan
liabilities to GM's hourly plan will not happen because the conditions
under the global settlement agreement have not been met, and it was
decided that GM could not afford these additional liabilities;
* PBGC and Delphi enter into an agreement that provides PBGC with a $3
billion allowed general unsecured claim against all the debtors in the
Delphi bankruptcy. Delphi agrees to sign a termination and trusteeship
agreement with respect to its pension plans;
* PBGC and GM negotiate that, in exchange for PBGC's release of its
final outstanding foreign liens totaling $195.9 million, all of which
apply to missed contributions to the Delphi salaried plan, and PBGC's
release of its other claims, PBGC will receive $70 million in cash
from GM, and 10 percent of the first $7.2 billion of distributions to
GM from post-bankruptcy Delphi;
* On July 22, PBGC announces it is terminating Delphi's plans:
- Delphi's unfunded benefit liabilities total approximately $7.0
billion for all six of its plans, with the hourly plan underfunded by
$4.4 billion and the salary plan underfunded by $2.6 billion.
July 30, 2009: Bankruptcy court approves Delphi's Modified
Reorganization Plan;
* The plan includes provisions implementing GM's agreements with
Delphi and PBGC's agreements with Delphi and GM, including the
execution of the agreements terminating Delphi's pension plans.
August 10, 2009: PBGC assumes trusteeship of Delphi plans;
* PBGC and Delphi sign trusteeship agreements terminating the six
Delphi pension plans effective July 31, 2009;
* Because the portion of pension benefits guaranteed by PBGC following
termination of a plan are subject to certain limits prescribed by
federal statute and related regulations, those Delphi employees
receiving the top-up benefits from GM will receive the full amount of
their pension benefits promised under their plans, while many other
Delphi employees will not.[K]
September 10, 2009: New GM signs a settlement agreement with IUE and
USWA covered employees;
* GM confirms that it will pay top-up benefits to covered employees,
while IUE and USWA agree to withdraw their objections to Delphi's
reorganization plan and sale, allowing Delphi's bankruptcy
reorganization to proceed;
* In the settlement agreement, new GM maintains that it is not
obligated to assume or to continue to abide by old GM's collective
bargaining agreements with IUE and USWA while old GM maintains that it
is entitled to cancel or terminate all obligations arising from
collective bargaining agreements between old GM and IUE or USWA. The
parties enter into this agreement after consideration of the "factual
and legal arguments regarding these issues, as well as the costs,
risks, and delays associated with litigating these issues";
* The agreement notes that the splinter unions will not receive top-up
benefits. GM estimates the total liabilities for the top-ups for UAW,
IUE, and USWA to be approximately $1 billion;
* On November 12, the bankruptcy court approves the top-up agreements
for IUE and USWA.
September 14, 2009: DSRA files a complaint on the termination of
Delphi's salaried plan;
* DSRA files a complaint against PBGC in the U.S. District Court for
the Eastern District of Michigan related to the termination of
Delphi's salaried plan.
October 6, 2009: Delphi reorganization is completed with sale of
assets;
* Four UAW sites in the United States and its steering business are
sold to GM;
* Most of Delphi's remaining U.S. and foreign operations are sold to a
new entity, Delphi Automotive LLP ("new Delphi"), in accordance with
Delphi's plan of reorganization;
* Delphi Corporation (now "old Delphi") changes its name to DPH
Holdings Corp., and stock in the company is issued to a trust
established to sell or dispose of remaining assets for which there
were no interested buyers, such as closed manufacturing plants with
environmental liabilities.
November 5, 2009: DSRA amends its complaint to include new GM,
Treasury, the Auto Task Force and present and former Treasury
officials;
* In its complaint, DSRA alleges that new GM, acting at the direction
of the U.S. government, decided to top-up the pension benefits for
certain limited groups of Delphi employees, specifically certain
hourly workers, but did not top-up the benefits for the salaried
employees. On March 12, 2010, the court dismisses new GM as a party to
the DSRA lawsuit.
[A] The splinter unions include International Association of
Machinists and Aerospace Workers; International Brotherhood of
Electrical Workers; Michigan Regional Council of Carpenters, Local 687
and Interior Systems, Loca11045; International Brotherhood of Painters
and Allied Trades of the United States and Canada, Sign & Display
Union Local 59; International Brotherhood of Teamsters; The
International Brotherhood of Boilermakers; International Union of
Operating Engineers; and United Catering Restaurant Bar & Hotel
Workers. Effective October 1, 2000, IUE merged with the Communications
Workers of America to become the Industrial Division of CWA (IUE-CWA);
for the purposes of this report, we continue to refer to this entity
as the IUE.
[B] "Covered employees" were defined as those employees represented by
these unions previously as GM workers and now as Delphi workers with
no break in seniority or employment, with the exception that the IUE
and USWA agreements excluded certain workers employed under
competitive hire and wage agreements.
[C] The supplemental payments that GM was required to make were
payments equal to the pension benefits called for in the
GM/Delphi/UAW, GM/Delphi/USWA, or GM/Delphi/IUE agreements applicable
at that time minus any pension benefits received from a pension plan
sponsored by Delphi, any of its subsidiaries or affiliates, or any of
their successor companies, from the Pension Benefit Guaranty
Corporation (PBGC), and/or from a pension plan sponsored by GM.
[D] Under the indemnity agreement, Delphi was required to immediately
enter into an indebtedness agreement to provide security to cover any
losses incurred by GM for benefits paid under the benefit guarantee
agreement.
[E] Perfecting a lien involves registering it with the proper legal
authority, resulting in it becoming a secured interest and thereby
receiving a higher priority in bankruptcy.
[F] The new agreement specified the top-up benefit would "continue in
full force and effect" anytime after the Delphi hourly plan was frozen
and either terminated or amended in a way to diminish benefits below
those required by the agreement, regardless of whether the termination
or amendment occurred before or after the original expiration date of
the top-up agreement.
[G] Treasury established an internal working group--referred to as the
auto team--to oversee AIFP and provide analysis in support of the Task
Force.
[H] 11 U.S.C. § 1101-1174. GM conducted a court-supervised asset sale,
in which substantially all of the operating assets of the company were
sold to the new entity ("new GM") and most of the company's debt and
liabilities remained in possession of "old GM," which was addressed in
bankruptcy court.
[I] The International Union of Operating Engineers also objected to
the sale of GM, although their members had not negotiated any top-ups
from GM.
[J] The International Union of Operating Engineers local unions, an
International Brotherhood of Electrical Workers local union, and the
International Association of Machinists and Aerospace Workers also
filed objections in the Delphi bankruptcy case related to their plans
not being transferred to GM.
[K] When a plan is terminated without sufficient assets to pay all
promised benefits, PBGC guarantees participant benefits only up to
certain limits, specified under the Employee Retirement Income
Security Act of 1974. 29 U.S.C. § 1322(b)(1), (3) and (7), and 29
C.F.R. §§ 4022.21, 4022.24 and 4022.25 (2009).
Sources: GAO analysis of GM, Delphi, PBGC, and court documents.
[End of table]
[End of section
Enclosure II: Terminated Delphi Defined Benefit Plans, as of July 31,
2009:
Plan: Delphi Hourly-Rate Employees Pension Plan (hourly plan);
Number of participants: 47,176.
Plan: Delphi Retirement Program For Salaried Employees (salaried plan);
Number of participants: 20,203.
Plan: Packard-Hughes Interconnect Non-Bargaining Retirement Plan;
Number of participants: 1,383.
Plan: ASEC Manufacturing Retirement Program;
Number of participants: 533.
Plan: Packard-Hughes Interconnect Bargaining Retirement Plan;
Number of participants: 165.
Plan: Delphi Mechatronic Systems Retirement Program;
Number of participants: 148.
Source: Pension Benefit Guaranty Corporation (PBGC).
[End of table]
[End of section]
Enclosure III: Delphi Financial Statistics, 1999-2009:
Year: 1999;
Net income; (Dollars in millions): $1,094;
Net sales; (Dollars in millions): $29,192;
Stock price (Price per share): $15.75.
Year: 2000;
Net income; (Dollars in millions): $1,002;
Net sales; (Dollars in millions): $29,139;
Stock price (Price per share): $11.25.
Year: 2001;
Net income; (Dollars in millions): ($428);
Net sales; (Dollars in millions): $26,302;
Stock price (Price per share): $13.66.
Year: 2002;
Net income; (Dollars in millions): $318;
Net sales; (Dollars in millions): $27,641;
Stock price (Price per share): $8.05.
Year: 2003;
Net income; (Dollars in millions): ($10);
Net sales; (Dollars in millions): $28,077;
Stock price (Price per share): $10.21.
Year: 2004;
Net income; (Dollars in millions): ($4,818);
Net sales; (Dollars in millions): $24,731;
Stock price (Price per share): $9.02.
Year: 2005;
Net income; (Dollars in millions): ($2,357);
Net sales; (Dollars in millions): $23,394;
Stock price (Price per share): $0.29.
Year: 2006;
Net income; (Dollars in millions): ($5,464);
Net sales; (Dollars in millions): $22,737;
Stock price (Price per share): $3.82.
Year: 2007;
Net income; (Dollars in millions): ($2,997);
Net sales; (Dollars in millions): $19,526;
Stock price (Price per share): $0.14.
Year: 2008;
Net income; (Dollars in millions): $3,066;
Net sales; (Dollars in millions): $16,808;
Stock price (Price per share): $0.03.
Year: 2009;
Net income; (Dollars in millions): $9,347;
Net sales; (Dollars in millions): $8,334;
Stock price (Price per share): $0.04.
Sources: GAO analysis of Delphi annual 10-K filings (net income, net
sales); Dailyfinance.com (stock price).
Note: Net income and net sales figures for 2009 represent the period
from January 1 to October 6, 2009; stock prices are as of end of year,
except for 2009, which is as of October 6, 2009.
[End of table]
[End of section]
Enclosure IV: Funding History for Delphi's Salaried and Hourly Pension
Plans, 1999-2009:
Dollars in millions:
U.S. salaried plan:
Assets[A];
1998: $2,449;
1999: $2,449;
2000: $2,455;
2001: $2,256;
2002: $1,959;
2003: $2,532;
2004: $2,703;
2005: $3,027;
2006: $3,439;
2007: $3,600;
2008: $2,371;
July 2009[C]: $2,456.
Liabilities[B];
1998: $2,251;
1999: $1,996;
2000: $2,260;
2001: $2,704;
2002: $3,131;
2003: $3,562;
2004: $4,087;
2005: $4,463;
2006: $4,346;
2007: $3,924;
2008: $4,419;
July 2009[C]: $4,574.
Net assets;
1998: $198;
1999: $453;
2000: $196;
2001: ($448);
2002: ($1,172);
2003: ($1,030);
2004: ($1,384);
2005: ($1,437);
2006: ($907);
2007: ($324);
2008: ($2,048);
July 2009[C]: ($2,119).
Funded percentage;
1998: 108.8%;
1999: 122.7%;
2000: 108.7%;
2001: 83.4%;
2002: 62.6%;
2003: 71.1%;
2004: 66.1%;
2005: 67.8%;
2006: 79.1%;
2007: 91.7%;
2008: 53.7%;
July 2009[C]: 53.7%.
Company Contributions;
1998: $0;
1999: $0;
2000: $0;
2001: $0;
2002: $0;
2003: $276;
2004: $0;
2005: $140;
2006: $126;
2007: $125;
2008: $105;
July 2009[C]: $0.
U.S. hourly plan:
Assets[A];
1998: [Empty];
1999: $2,806;
2000: $4,247;
2001: $3,780;
2002: $3,627;
2003: $4,854;
2004: $5,763;
2005: $6,621;
2006: $7,214;
2007: $7,015;
2008: $3,732;
July 2009[C]: $3,659.
Liabilities[B];
1998: [Empty];
1999: $4,063;
2000: $4,620;
2001: $5,535;
2002: $6,323;
2003: $7,531;
2004: $8,408;
2005: $8,894;
2006: $10,212;
2007: $9,734;
2008: $6,792;
July 2009[C]: $7,035.
Net assets;
1998: [Empty];
1999: ($1,257);
2000: ($373);
2001: ($1,756);
2002: ($2,695);
2003: ($2,677);
2004: ($2,646);
2005: ($2,273);
2006: ($2,998);
2007: ($2,720);
2008: ($3,060);
July 2009[C]: $(3,376).
Funded percentage;
1998: [Empty];
1999: 69.1%;
2000: 91.9%;
2001: 68.3%;
2002: 57.4%;
2003: 64.5%;
2004: 68.5%;
2005: 74.4%;
2006: 70.6%;
2007: 72.1%;
2008: 54.9%;
July 2009[C]: 52.0%.
Company contributions;
1998: [Empty];
1999: $1,225;
2000: $1,125;
2001: $0;
2002: $400;
2003: $714;
2004: $600;
2005: $485;
2006: $108;
2007: $69;
2008: $157;
July 2009[C]: $0.
Source: GAO analysis of Delphi Corporation data.
[A] Assets are year-end fair market values of plan assets.
[B] Liabilities are the projected benefit obligations, or present
value of benefits projected to be paid. Throughout this report, we
have characterized the value of plan assets and liabilities based on
available documents. It is often the case that the value of assets and
liabilities from these sources is substantially different than their
values at the point of termination. PBGC has reported that, at the
time it was terminated, the Delphi plans were underfunded by
approximately $7 billion on a termination basis.
[C] July 2009 figures are approximate as of July 31, 2009.
[End of table]
[End of section]
Enclosure V: GAO Contact and Staff Acknowledgments:
GAO Contacts:
On PBGC-related issues:
Barbara D. Bovbjerg, (202) 512-7215, or bovbjergb@gao.gov.
On auto or Treasury-related issues:
A. Nicole Clowers, (202) 512-8678, or clowersa@gao.gov; or:
Katherine A. Siggerud, (202) 512-2834, or siggerudk@gao.gov.
Staff Acknowledgments:
In addition to the individuals listed above, Margie K. Shields,
Assistant Director; Raymond Sendejas, Assistant Director; Mark M.
Glickman, Analyst-in-Charge; Heather Krause; Julie DeVault; Sarah A.
Farkas; Edward Leslie; Sheila McCoy; Craig Winslow; Susan Michal-
Smith; and James Bennett made significant contributions to this report.
[End of section]
Footnotes:
[1] Prior to bankruptcy reorganization, GM's legal name was General
Motors Corporation. The legal name of the new entity that was created
through the bankruptcy process is General Motors Company (the entity
that purchased the operating assets of the pre-reorganization
corporation, which we discuss later in this report). As of October 19,
2009, General Motors Company became General Motors LLC. Throughout
this report, in cases where a distinction is important, we refer to
the pre-reorganization corporation as "old GM" and the post-
reorganization company as "new GM."
[2] For a summary of Delphi's six qualified DB plans, insured by PBGC,
see enclosure II.
[3] For the purposes of this report, "Delphi" refers to the company
prior to its emergence from Chapter 11 reorganization. Postbankruptcy
Delphi is DPH Holdings Corporation, a liquidating entity, and Delphi
Automotive LLP is a United Kingdom limited partnership, which was
created in 2009 and purchased most of Delphi's assets.
[4] Effective October 1, 2000, IUE merged with the Communications
Workers of America to become the Industrial Division of CWA (IUE-CWA);
for the purposes of this report, we continue to refer to this entity
as the IUE.
[5] When a plan is terminated without sufficient assets to pay all
promised benefits, PBGC determines the amount of benefit guaranteed
based on certain limits specified under the Employee Retirement Income
Security Act of 1974, 29 U.S.C. §§ 1322-1322b, and related
regulations, 29 C.F.R. §§ 4022.21, 4022.24 and 4022.25 (2010). While
PBGC does not expect to finalize benefit amounts for each participant
in Delphi's plans for several years, it anticipates that the
application of these limits will result in many participants receiving
a lower benefit from PBGC than that promised by their plans. For more
on PBGC guarantees and the benefit determination process, see GAO,
Pension Benefit Guaranty Corporation: More Strategic Approach Needed
for Processing Complex Plans Prone to Delays and Overpayments,
[hyperlink, http://www.gao.gov/products/GAO-09-716], (Washington,
D.C.: Aug. 17, 2009).
[6] The splinter unions include the International Association of
Machinists and Aerospace Workers; International Brotherhood of
Electrical Workers; Michigan Regional Council of Carpenters, Local 687
and Interior Systems, Local 1045; International Brotherhood of
Painters and Allied Trades of the United States and Canada, Sign &
Display Union Local 59; International Brotherhood of Teamsters;
International Brotherhood of Boilermakers; International Union of
Operating Engineers; and United Catering Restaurant Bar & Hotel
Workers.
[7] This indemnification would allow GM to have a claim against Delphi
for any expenses incurred by GM for coverage of guaranteed benefits.
[8] For a summary of Delphi's financial statistics, 1999 to 2009, see
enclosure III. For a summary of the funding history of Delphi's hourly
and salaried plans, see enclosure IV.
[9] Perfecting a lien involves registering it with the proper legal
authority, resulting in it becoming a secured interest and thereby
receiving a higher priority in bankruptcy.
[10] A freeze is an amendment to a DB plan to limit some or all future
pension accruals for some or all participants. For more information on
types of freezes and their effects, see: GAO, Defined Benefit
Pensions: Plan Freezes Affect Millions of Participants and May Pose
Retirement Income Challenges, [hyperlink,
http://www.gao.gov/products/GAO-08-817] (Washington, D.C.: July 21,
2008).
[11] In December 2008, Treasury established AIFP under the Troubled
Asset Relief Program (TARP) to help stabilize the U.S. automotive
industry and avoid disruptions that would pose systemic risk to the
nation's economy. TARP was originally authorized under the Emergency
Economic Stabilization Act of 2008 (EESA), Pub. L. No. 110-343, div.
A, 122 Stat. 3765 (codified as amended at 12 U.S.C. §§ 5201-5261).
EESA originally authorized Treasury to purchase or guarantee up to
$700 billion in troubled assets. The Helping Families Save Their Homes
Act of 2009 amended EESA to reduce the maximum allowable amount of
outstanding troubled assets under EESA by almost $1.3 billion, from
$700 billion to $698.741 billion. Pub. L. No. 111-22, div A, §
402(f),123 Stat. 1658, 1643. EESA requires that the appropriate
committees of Congress be notified in writing when the Secretary of
the Treasury, after consultation with the Chairman of the Board of
Governors of the Federal Reserve System, determines that it is
necessary to purchase other financial instruments to promote financial
market stability. § 3(9)(B), 122 Stat. 3767 (codified at 12 U.S.C. §
5202(9)(B)).
[12] Treasury established an internal working group--referred to as
the auto team--to oversee AIFP and provide analysis in support of the
Auto Task Force.
[13] On June 1, 2009, GM filed a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code (11 U.S.C. §§ 1101-1174)
and conducted a court-supervised asset sale (under 11 U.S.C. § 363),
in which substantially all of the operating assets of the company were
sold to General Motors Company, or "new GM," and most of the company's
debt and liabilities remained in the possession of Motors Liquidation
Company, or "old GM," which is being addressed in bankruptcy court.
New GM emerged from bankruptcy on July 10, 2009.
[14] Deposition of Treasury Official at 185, No. 04-44481 (RDD) (S.D.
N.Y. July 21, 2009) and Motion of Defendants U.S. Department of the
Treasury et al. at 10, No. 2:09-cv-13616 (E.D. Mich. Feb. 16, 2010).
[15] According to the December 19, 2008, pre-bankruptcy loan agreement
between Treasury and GM, Treasury had the right to review and prohibit
any "asset sale, investment, contract, commitment, or other
transaction not in the ordinary course of business proposed to be
entered into with a value in excess of $100 million," referred to as a
"material transaction." Treasury also needed to sign off on the
purchase agreement under which old GM sold substantially all of its
assets to new GM. This agreement established which contracts would be
assumed by new GM. After July 10, 2009, the only approval right,
pursuant to the new loan agreement, was if new GM needed funds from an
escrow account.
[16] The Special Inspector General for the Troubled Asset Relief
Program (SIGTARP) is conducting an audit of Treasury's role in GM's
decision to provide top-ups for hourly workers, including whether the
Administration or Auto Task Force pressured GM to provide additional
funding for the hourly plan. SIGTARP has not announced when it expects
to complete this audit.
[17] Deposition of Treasury Official, No. 04-44481 (RDD) (S.D. N.Y.
July 21, 2009).
[18] In re General Motors Corp, 407 B.R. 463, 481 (Bankr. S.D.N.Y.
2009) (Decision on debtor's motion for approval of (1) sale of assets
to Vehicle Acquisitions Holdings LLC; (2) assumption and assignment of
related executory contracts; and (3) entry into UAW retiree settlement
agreement).
[19] The master sale and purchase agreement outlined, among other
things, the assets being sold by old GM to new GM and the liabilities
being assumed by new GM from old GM.
[20] Objection to Debtors' Motion Pursuant to 11 U.S.C. §§ 105,
363(b), (f), (k) and (m), and 365 and Fed. R. Bankr. P. 2002, 6004,
and 6006, to (I) Approve (A) the Sale Pursuant to the Master Sale and
Purchase Agreement with Vehicle Acquisition Holdings LLC, a U.S.
Treasury-Sponsored Purchaser, Free and Clear of Liens, Claims,
Encumbrances, and Other Interests; (B) the Assumption and Assignment
of Certain Executory Contracts and Unexpired Leases; and (C) Other
Relief; and (II) Schedule Sale Approval Hearing, In re General Motors
Corporation, No. 09-50026(REG) (Bankr. S.D.N.Y. June 19, 2009).
[21] 407 B.R. 512.
[22] Settlement Agreement Between and Among GMCO/MLC-IUE-CWA and USWA
Regarding Retiree Health Care, Life Insurance, Pension Top-Up, and
Modification and GMCO Assumption of MLC-IUE-CWA CBA, dated Sept. 10,
2009.
[23] Preliminary Objection of IUE-CWA to Motion for Order Authorizing
and Approving the Equity Purchase and Commitment Agreement Pursuant to
Sections 105(a), 363(b), 503(b) and 507(a) of the Bankruptcy Code, No.
05-44481 (RDD), (Bankr. S.D.N.Y. July 9, 2009) and Joinder of United
Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied
Industrial and Service Workers International Union to Preliminary
Objection of IOUE Locals and IBEW and IAM to Debtors' Motion for Order
Authorizing and Approving Modified Plan of Reorganization, No. 05-
44481 (RDD), (Bankr. S.D.N.Y. July. 15, 2009). Objection to Debtors'
Proposed Modifications to Debtors' First Amended Plan of
Reorganization (As Modified) at 2, No. 05-44481 (RDD) (Bankr. S.D.N.Y.
July 15, 2009).
[24] Master Disposition Agreement among Delphi Corp.; GM Components
Holdings, LLC; Gen. Motors Co., Motors Liquidation Co.; DIP Holdco3,
LLC; and the Other Sellers and Other Buyers Party Hereto at 96 (July
26, 2009).
[25] Settlement Agreement Between and Among GMCO/MLC-IUE-CWA and USWA
Regarding Retiree Health Care, Life Insurance, Pension Top-Up, and
Modification and GMCO Assumption of MLC-IUE-CWA CBA, dated Sept. 10,
2009.
[26] Complaint for Equitable Relief, No. 2.09-cv-13616 (E.D. Mich.
Sept. 14, 2009).
[27] First Amended Complaint, No 2:09-cv-13616 (E.D. Mich. Nov. 5,
2009). On March 12, 2010, the court dismissed GM as a party to the
DSRA lawsuit. The court stated that if the plaintiffs showed new facts
and circumstances that demonstrated new GM's conduct is not subject to
the release and injunction provisions of the approved Delphi modified
plan and plan modification order, then the plaintiffs could bring a
future claim against new GM. Black v. Pension Benefit Guaranty Corp.,
No. 2:09-cv-13616 (E.D. Mich. March 12, 2010) (Order dismissing
General Motors LLC).
[End of section]
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