ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Wednesday, July 06, 2005

GM, Pensions, and the Governmnet

I doubt you'll see this key piece of information elsewhere related to this story. Thankfully, the Wall Street Journal exists:

GM Wins Ground
In U.S. Pension Suit
A Federal Court Backs Effort
To Recover $253 Million
For an Underfunded Plan

By ELLEN E. SCHULTZ
Staff Reporter of THE WALL STREET JOURNAL
July 6, 2005; Page A3

A federal court has ruled in favor of General Motors Corp. in its bid to recover as much as $253 million from the federal government for one of its underfunded pension plans.

The decision, by Judge Nancy Firestone of the U.S. Court of Federal Claims, is the first of its kind and may precipitate moves by other government contractors to try to recoup some of the underfunding of pension funds that existed when the contractors closed or sold divisions.

GM's suit comes at a time when corporate pension plans, which were robustly overfunded in the 1990s, have become collectively underfunded for a variety of reasons, including stock-market losses, low interest rates and corporate decision-making. Pension plans in the Standard & Poor's 500 had a net underfunding of $159 billion at the end of 2004, compared with net overfunding of $263 billion at the end of 1999. (See related article.)

The U.S. government is likely to appeal the court's decision in the case of GM vs. U.S., and any potential recovery could take years. A spokesman for GM says it wouldn't be appropriate to comment until the matter has been fully resolved.

Still, the decision is significant. When companies have contracts with the government to provide goods or services, the government pays for salaries and pays a portion of the pension costs. When companies subsequently close or sell a unit with an overfunded pension plan, the government generally recovers the portion of the pension surplus attributable to the amounts it contributed to the pension fund.

GM argued that the government was similarly obligated to make contributions to an underfunded pension of a division GM sold in 1993, Allison Gas Turbine, which provided services to the government. In 1996, GM filed a claim for $253 million, and sued the government on Jan. 27, 2000, in the federal court of claims, which handles contract disputes.

Now, I think it's stupid for the federal government to go around bailing out pension funds - the more you subsidize a thing (poor pension fund management in this case) the more you'll get. (The same could be said about foreign economic aid to corrupt dictators.)

But, I have to say that the practice of recovering the portion of an overfunded pension plan seems just as ridiculous.

Your Co-Conspirator,
ARC: St Wendeler