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United States Government Accountability Office

GAO

Report to Congressional Committees

April 2010

TROUBLED ASSET
RELIEF PROGRAM
Automaker Pension
Funding and Multiple
Federal Roles Pose
Challenges for the
Future

GAO-10-492

April 2010

TROUBLED ASSET RELIEF PROGRAM
Accountability Integrity Reliability

Highlights

Automaker Pension Funding and Multiple Federal
Roles Pose Challenges for the Future

Highlights of GAO-10-492, a report to
congressional committees

Why GAO Did This Study

What GAO Found

Over $81 billion has been
committed under the Troubled
Asset Relief Program (TARP) to
improve the domestic auto
industry’s competitiveness and
long-term viability. The bulk of this
assistance has gone to General
Motors (GM) and Chrysler, who
sponsor some of the largest defined
benefit pension plans insured by
the federal Pension Benefit
Guaranty Corporation (PBGC). As
part of GAO’s statutorily mandated
oversight of TARP, this report
examines:

The new GM and the new Chrysler that were established during each
company’s bankruptcy process in the summer of 2009 assumed sponsorship
for all the old companies’ U.S. defined benefit plans. Although the pension
plans have been maintained, their future remains uncertain. According to
current company projections, large contributions may be needed to comply
with federal pension funding requirements within the next 5 years.

(1) the impact of restructuring on
GM’s and Chrysler’s pension plans;
(2) the impact of restructuring on
auto supply sector pension plans;
(3) the impacts on PBGC and plan
participants should auto industry
pension plans be terminated; and
(4) how the federal government is
dealing with the potential tensions
of its multiple roles as pension
regulator, shareholder, and
creditor.
To conduct this study, GAO
interviewed officials at GM,
Chrysler, a labor union, a supplier
association, the Departments of the
Treasury and Labor, and PBGC;
and reviewed relevant statutes,
reports, and documents concerning
the automakers’ restructuring and
pension plan funding.
Treasury and PBGC generally
agreed with the report’s findings.
Their technical comments and the
technical comments provided by
GM, Chrysler, and Delphi, were
incorporated as appropriate.
View GAO-10-492 or key components.
For more information, contact Barbara
Bovbjerg at (202) 512-7215
(bovbjergb@gao.gov); or A. Nicole Clowers
at (202) 512-2834 (clowersa@gao.gov).

Projected Contributions Needed to Fund GM and Chrysler Pension Plans (2010-2014)
Projected cash payments (dollars in billions)
8
GM
6.4
5.9
6

Chrysler

4
2
0.40

0
2010

2011

2012

2013

2014

2010

0.04
2011

2012

0.93

1.25

2013

2014

Source: GAO analysis of GM and Chrysler funding projections for all U.S. qualified defined benefit pension plans each sponsors,
based on valuation methods for required contributions defined under the Pension Protection Act.

Officials at the Department of the Treasury, which oversees TARP, expect
both GM and Chrysler to return to profitability. If this is the case, then the
companies will likely be able to make the required payments and prevent their
pension plans from being terminated. However, if GM and Chrysler were not
able to return to profitability and their pension plans were terminated, PBGC
would be hit hard both financially and administratively. In early 2009, prior to
the new companies assuming sponsorship, PBGC estimated that its exposure
to potential losses for GM’s and Chrysler’s plans to be about $14.5 billion.
Meanwhile, automaker downsizing and the credit market crisis have created
significant stress for suppliers and their pensions. During 2009, there was a
rise in the number of supplier bankruptcies, liquidations, and pension plan
terminations. In July, the nation’s largest auto parts supplier, Delphi
Corporation, terminated its pension plans with expected losses to PBGC of
over $6.2 billion. Across the auto sector as a whole, in January 2009, PBGC
estimated that unfunded pension liabilities totaled about $77 billion, with
PBGC’s exposure for potential losses due to unfunded benefits of about $42
billion, leaving plan participants to bear the potential loss of the $35 billion
difference through reduced benefits.
Moreover, until Treasury either sells or liquidates the equity it acquired in
each of the companies in exchange for the TARP assistance, its role as
shareholder creates potential tensions with its role as pension regulator and
overseer of PBGC in its role as pension insurer. In particular, tensions could
arise if decisions must be made between allocating funds to company assets
(thereby protecting shareholders, including taxpayers) or to pension fund
assets (thereby protecting plan participants). As GAO reported previously,
better communication with Congress and others about TARP interests could
help mitigate such tensions.
United States Government Accountability Office

Contents

Letter

1
Background
New GM and New Chrysler Assumed Sponsorship of Pension Plans
in Restructuring, but Face Future Funding Challenges
Economic Stress in Auto Industry Has Endangered Auto Supplier
Pensions
Both PBGC and Plan Participants Incur Losses when Underfunded
Plans Are Terminated
Balancing Multiple Federal Roles May Create Tensions and
Challenges
Concluding Observations
Agency Comments and Our Evaluation

4
12
24
30
42
45
47

Appendix I

The Delphi Story

51

Appendix II

Legal Limits on PBGC Guaranteed Benefits

54

Appendix III

Recent Attrition Programs at GM and Chrysler

55

Appendix IV

Product Lines and Facilities Being Eliminated

58

Appendix V

History of Major Acquisitions and Divestitures

61

Appendix VI

Allocation of Assets to Participant Benefits

63

Appendix VII

PBGC Example Benefit Calculations

65

Appendix VIII

Comments from the Department of the Treasury

67

Page i

GAO-10-492 Troubled Asset Relief Program

Appendix IX

Comments from PBGC

68

Appendix X

GAO Contacts and Staff Acknowledgments

69

Related GAO Products

70

Tables
Table 1: Defined Benefit Plans Sponsored by New GM and New
Chrysler
Table 2: Benefit Restrictions Based on a Plan’s Funded Status
Table 3: Funded Status of Selected Suppliers’ Defined Benefit
Pension Plans (2008)
Table 4: PBGC’s Estimates of Potential Exposure for GM’s and
Chrysler’s Pension Plans in Early 2009
Table 5: Auto Supplier Pension Plans Terminated and Trusteed by
PBGC, May 2009–January 2010
Table 6: Recent Attrition Programs at GM
Table 7: Recent Attrition Programs at Chrysler
Table 8: GM Product Lines and Facilities Being Eliminated
Table 9: Chrysler Product Lines and Facilities Being Eliminated
Table 10: Priority Categories for Allocating Participant Benefits
Table 11: Examples of Participants’ Benefit Reductions If an
Automaker Hourly Plan Were Terminated

8
23
28
33
34
55
57
58
60
63
65

Figures
Figure 1: Trends in the Funded Status of GM’s and Chrysler’s
Pension Plans (2006-2009)
Figure 2: Trends in GM’s Pension Plans’ Liabilities and Assets
Figure 3: Trends in Chrysler’s Pension Plans’ Liabilities and Assets
Figure 4: Projected Calendar Year Contributions to GM’s Pension
Plans (2009-2014)
Figure 5: Projected Calendar Year Contributions to Chrysler’s
Pension Plans (2009-2015)
Figure 6: PBGC’s Estimate of Possible Exposure to Loss by
Industry

Page ii

14
16
17
21
22
32

GAO-10-492 Troubled Asset Relief Program

Figure 7: Size of GM’s and Chrysler’s Plans Compared with Total
PBGC-Trusteed Plans
Figure 8: Determining If a Participant’s Guaranteed Benefit Is
Subject to Legal Limits

36
54

Abbreviations
AIFP
ERISA
GM
IRS
PBGC
PPA
TARP
UAW
VEBA

Automotive Industry Financing Program
Employee Retirement Income Security Act of 1974
General Motors Company
Internal Revenue Service
Pension Benefit Guaranty Corporation
Pension Protection Act of 2006
Troubled Asset Relief Program
International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America
Voluntary Employee Beneficiary Association

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Page iii

GAO-10-492 Troubled Asset Relief Program

United States Government Accountability Office
Washington, DC 20548

April 6, 2010
Congressional Committees
Domestic auto manufacturers remain sponsors of some of the largest
private defined benefit plans in the United States. The fate of these
pension plans affects not only the benefits of current and future auto
company retirees, but also the financial well-being of the Pension Benefit
Guaranty Corporation (PBGC) 1 —the federal corporation that insures
private sector defined benefit plans. During the past year, the U.S.
automotive industry has undergone major restructuring, including the
bankruptcy reorganization of two of the country’s largest auto
manufacturers and re-emergence as new companies—General Motors
Company (GM) and Chrysler Group, LLC (Chrysler)—and the continued
consolidation in the auto supply industry. Since 2008, the federal
government has committed to provide over $81 billion under the Troubled
Asset Relief Program (TARP) to assist the automobile industry. 2 These
funds, along with loans from the Canadian government and concessions
from nearly every stakeholder (including labor unions), were intended to
allow the companies time to restructure to improve their competitiveness
and long-term viability, which is critical to the future of both the
companies and their pension plans. In exchange for this funding, the
federal government acquired partial ownership in and made loans to the
new GM and the new Chrysler that were established during the
bankruptcy process. Treasury’s new role as a shareholder adds an
unprecedented and extraordinary element to the previously established
government responsibilities of regulator and its relationship to PBGC as
insurer.
Under our statutorily mandated responsibilities for providing timely
oversight of TARP, we are continuing to report on the federal

1

29 U.S.C. §1302.

2
The Emergency Economic Stabilization Act of 2008 authorized TARP, Pub. L. No. 110-343,
Div. A, §§ 101-136, 122 Stat. 3765, 3767-3800 (codified at 12 U.S.C. §§ 5201-5241).

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GAO-10-492 Troubled Asset Relief Program

,

government’s assistance to the U.S. automotive industry. 3 4 In this report,
we focused on the impact of the recent restructuring on auto industry
pension plans and the government’s role in overseeing those plans and
PBGC’s role in insuring these plans. Specifically, our review focused on
the following questions:
(1) How has restructuring affected GM’s and Chrysler’s pension plans
and the outlook for the plans going forward?
(2) How has restructuring affected auto supply sector pension plans?
(3) What are the impacts on PBGC and plan participants should auto
industry pension plans be terminated in the next 5 years?
(4) How is the federal government dealing with the potential tensions
between its multiple roles as pension regulator and insurer, and its
new roles as shareholder and creditor?
To describe how restructuring has affected GM’s and Chrysler’s pension
plans and the plans’ funding going forward, 5 we interviewed officials from
each automaker. They provided us with an overview of their pension plans
as well as a number of documents, including detailed actuarial information
about their PBGC-insured pension plans. We interviewed Department of
Treasury (Treasury) officials who are responsible for overseeing the
assistance to GM and Chrysler (referred to as Treasury’s “auto team”) in
Treasury’s program office for TARP, the Office of Financial Stability.

3

GAO is required to report at least every 60 days on findings resulting from, among other
things, oversight of TARP’s performance in meeting the purposes of the act, the financial
condition and internal controls of TARP, the characteristics of both asset purchases and
the disposition of assets acquired, TARP’s efficiency in using the funds appropriated for the
program’s operation, and TARP’s compliance with applicable laws and regulations. 12
U.S.C. § 5226(a).
4

For more information on the restructuring of GM and Chrysler companies overall, see
GAO, Troubled Asset Relief Program: Continued Stewardship Needed as Treasury
Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and
GM, GAO-10-151 (Washington, D.C.: Nov. 2, 2009); GAO, Auto Industry: Summary of
Government Efforts and Automakers’ Restructuring to Date, GAO-09-553 (Washington,
D.C.: Apr. 23, 2009); and GAO, Auto Industry: A Framework for Considering Federal
Financial Assistance, GAO-09-242T (Washington, D.C.: Dec. 4, 2008).
5
While a portion of TARP funds for the auto industry have been used to assist GMAC LLC
and Chrysler Financial, the former financing divisions of GM and Chrysler respectively, we
did not review the effect of restructuring on the pension plans of these finance companies
as they are now separate legal entities.

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GAO-10-492 Troubled Asset Relief Program

These officials provided information on Treasury’s involvement in the
restructurings and how it considered future plan funding when structuring
the financing packages for the companies. We interviewed other Treasury
officials, as well as officials at PBGC, and the Department of Labor
(Labor). We also interviewed the International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW), which
represents a significant number of the participants in the collectively
bargained pension plans, and asked for their views on restructuring efforts
and their effect on pension plans. Additionally, we reviewed materials
related to restructurings, including corporate annual reports and
bankruptcy documents, as well as relevant federal laws and regulations,
and other materials related to defined benefit plans and plan funding, such
as pension consulting briefs.
To describe how restructuring has affected the auto supply sector and its
pensions, we interviewed officials from PBGC, Treasury, and the Motor
and Equipment Manufacturers Association. We also reviewed materials
related to key production parts suppliers in the auto industry, including
corporate annual reports, bankruptcy filings, PBGC press releases, and
industry publications.
To determine the potential consequences of plan termination for PBGC
and plan participants, and to describe the tensions and challenges faced by
the federal agencies responsible for the regulation and oversight of
qualified defined benefit plans, 6 we interviewed officials from GM,
Chrysler, UAW, PBGC, and the board representatives for PBGC’s Board of
Directors, comprised of the Secretaries of Commerce, Labor, and
Treasury, the primary agencies charged with pension regulation and
overseeing PBGC. We requested additional actuarial information from the
automakers in certain instances and reviewed bankruptcy documents
related to the individual automaker restructurings. We also reviewed
relevant federal laws and regulations, and past GAO reports that
addressed the topics of pension plan termination and managing multiple
roles under TARP.

6

To qualify for preferential tax treatment, pension plans must satisfy certain requirements
related, for example, to minimal funding, vesting, and accounting. 26 U.S.C. § 401.
Employers may deduct their contributions to qualified plans. Although such contributions
are a form of compensation to them, employees do not claim such contributions as income
for tax purposes, but the income from pensions is considered taxable when pension
benefits are received.

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GAO-10-492 Troubled Asset Relief Program

To ensure the technical accuracy of the information contained in the
report, we asked representatives of GM, Chrysler, and Delphi to review
portions of a draft of this report. We conducted this performance audit
between September 2009 and April 2010, in accordance with generally
accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.

Background

The domestic auto industry—including automakers, dealerships, and
automotive parts suppliers—contributes substantially to the U.S.
economy, but has faced financial challenges in recent years. According to
the Congressional Research Service, more than 435,000 U.S. automotive
manufacturing jobs have been eliminated since 2000—an amount equal to
about 3.3 percent of all manufacturing jobs in 2008. 7 The employment level
first dipped below 1 million in 2007 and fell to 880,000 workers in 2008.
The Detroit-based automotive manufacturers—GM, Chrysler, and the Ford
Motor Company—have seen their share of the domestic market drop from
64.5 percent in 2001 to 47.5 percent in 2008. Prior to restructuring, GM and
Chrysler reported losses in 2008 totaling $31 billion and $8 billion,
respectively.

TARP Assistance for the
Auto Sector

Concerned that the collapse of a major U.S. automaker could pose a
systemic risk to the nation’s economy, in December 2008, Treasury
established the Automotive Industry Financing Program (AIFP) under
TARP. Through June 2009, $81.1 billion in AIFP funding has been made
available to assist the auto industry. The largest part of the program’s
funding—about $62 billion—was provided to help GM and Chrysler fund
their operations while they restructured. In exchange for this funding, the
Treasury has become part-owner of the two new companies that reemerged, receiving 60.8 percent of the equity in the new GM and 9.85
percent of the equity in the new Chrysler, and has a debt interest of about
$14 billion in loans between the two. 8 Given the large taxpayer

7

Michaela D. Platzer and Glennon J. Harrison, The U.S. Automotive Industry: National and
State Trends in Manufacturing Employment. (Washington, D.C.: Congressional Research
Service, 2009).

8

Treasury also received $2.1 billion in preferred stock in GM.

Page 4

GAO-10-492 Troubled Asset Relief Program

investments in GM and Chrysler, in a recent report, we recommended that
Treasury report to Congress on how it plans to assess and monitor the
companies’ performance to help ensure the companies are on track to
repay their loans and to return to profitability. In response, Treasury said
the agency intends to develop an approach for reporting on its investments
in the auto industry that strikes an appropriate balance between its goal of
transparency and the need to avoid compromising either the competitive
positions of these companies or Treasury’s ability to recover taxpayer
funds. 9 More broadly, we also previously recommended that Treasury
better communicate to external stakeholders, including Congress, about
its TARP strategies and activities to improve the integrity, accountability,
and transparency of the program. In response to this recommendation,
Treasury noted that it was implementing a communication strategy to
provide key congressional stakeholders more current information about
its TARP activities. 10
AIFP also established the Auto Supplier Support Program—a mechanism
to extend credit to auto suppliers. Under this program, Treasury
committed to fund up to $3.5 billion in loans to special purpose entities
created by new GM and new Chrysler for the purpose of ensuring payment
to suppliers. The program was designed to ensure that automakers receive
the parts and components they need to manufacture vehicles and that
suppliers have access to liquidity on their receivables. 11 According to
Treasury officials, the program will terminate in April 2010.

Restructuring in the Auto
Sector

As a condition of receiving federal financial assistance, GM and Chrysler
were also required to develop restructuring plans to identify how the
companies planned to achieve and sustain long-term financial viability. 12

9

GAO-10-151.

10

GAO, Troubled Asset Relief Program: March 2009 Status of Efforts to Address
Transparency and Accountability Issues, GAO-09-504 (Washington, D.C.: Mar. 31, 2009);
and GAO, Troubled Asset Relief Program: June 2009 Status of Efforts to Address
Transparency and Accountability Issues, GAO-09-658 (Washington, D.C.: June 17, 2009).

11
The remaining funds have been used: (1) for the Warranty Commitment Program, which
provided funds to Chrysler and GM, but have been repaid in full; and (2) to provide
assistance to GM’s and Chrysler’s financing divisions, now spun off as separate legal
entities.
12
For a more detailed discussion of Chrysler and GM restructuring efforts, see GAO-09-553
and GAO-10-151.

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GAO-10-492 Troubled Asset Relief Program

GM
Prior to restructuring, GM was a publicly
traded company that employed about
240,000 people worldwide. It had
manufacturing facilities in 34 countries and
sold more than a dozen brands of vehicles in
about 140 countries. GM’s core U.S. brands
are Buick, Cadillac, Chevrolet, and GMC;
other brands included Daewoo, Holden,
Hummer, Opel, Pontiac, Saab, Saturn,
Vauxhall, and Wuling.
GM filed for Chapter 11 bankruptcy protection
on June 1, 2009, and on July 5, 2009, the
bankruptcy court approved the sale of
substantially all of old GM’s assets to a newly
formed company, referred to as “new GM.”
The new GM assumed sponsorship of both of
old GM’s U.S. qualified defined benefit plans.

Chrysler
Prior to restructuring, Chrysler was a privately
held company that employed about 54,000
people worldwide, including manufacturing
facilities in four countries and vehicles
assembled under contract in four others.
Chrysler’s major brands include Dodge,
Chrysler, and Jeep.
Chrysler filed for Chapter 11 bankruptcy
protection on April 30, 2009, and on June 9,
2009, the bankruptcy court approved the sale
of substantially all of old Chrysler’s assets to
a newly formed company, referred to as “new
Chrysler.” The new Chrysler assumed
sponsorship of all Chrysler’s U.S. qualified
defined benefit plans.

Private Sector Pension
Plans

To implement the restructuring plans, both companies filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
During the bankruptcy process, newly organized companies for both GM
and Chrysler were established in the summer of 2009. These new
companies purchased substantially all of the operating assets of the
previous companies, while the old companies, which retained very few
assets but most of the liabilities, continued in bankruptcy. The new
companies also streamlined operations and substantially reduced their
debt. Changes included reductions in the number of brands and models,
closing factories and dealerships, and reducing their hourly and salaried
workforces through early retirements, buyouts, and layoffs.
Automakers are highly dependent on a large motor vehicle parts supply
industry. The auto supply chain consists of networks of suppliers,
transportation carriers, fabrication sites, assembly locations, distribution
centers, and locations by which components, services, information and
products flow. The supply chain starts with suppliers who assemble raw
components into more complex components which are processed or
combined with additional components and eventually brought together by
top-level suppliers to manufacture end products for use by the automaker.
Each level in the supply chain depends on the financial health of the other
for its survival.
The U.S. auto supply sector became unstable as the domestic market share
of the global automotive marketplace declined, prices for raw materials and
petroleum increased, and production cuts ensued. These financial pressures
affected various levels of the supply chain, leading some suppliers to file for
bankruptcy, including the nation’s largest U.S. auto supplier, Delphi
Corporation (a spin off of GM), which filed for bankruptcy in 2005. 13

About one-half of all U.S. workers participate in some form of employersponsored retirement plan, typically classified either as a defined benefit
or as a defined contribution plan. Defined benefit plans generally offer a
fixed level of monthly retirement income based upon a participant’s salary,
years of service, and age at retirement, regardless of how the plan’s
investments perform. In contrast, benefit levels for those with defined
contribution plans depend on the contributions made to individual
accounts (such as 401(k) plans) and the performance of the investments in

13

For further details on Delphi, see appendix I.

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GAO-10-492 Troubled Asset Relief Program

those accounts, which may fluctuate in value. Over the last two decades,
much of the private sector pension coverage has moved away from
traditional defined benefit plans in favor of defined contribution plans and
hybrid defined benefit plans, 14 thereby increasing portability for workers
as they change jobs, but also shifting the risk and burden of financing
retirement from employers to employees.

Delphi
Delphi evolved as part of GM until it was
spun off as a separate entity in 1999. By
2005, the company employed more than
185,000 workers in 38 countries, making it
one of the largest suppliers in the world.
However, on October 8, 2005, Delphi
Corporation and its U.S. subsidiaries filed for
Chapter 11 bankruptcy protection. Four years
later, most of Delphi’s U.S. and foreign
operations were sold to a new entity, known
as “new Delphi,” on October 6, 2009.
The former Delphi Corporation sponsored six
defined benefit plans for its U.S.-based
workers. Despite efforts to keep the pension
plans ongoing, on July 31, 2009, PBGC
terminated all six of Delphi’s U.S. qualified
defined benefit plans.
For more details on Delphi, see appendix I.

Domestic automakers sponsor some of the largest private sector defined
benefit plans. According to a financial publication, as of year-end 2007, GM
sponsored the largest defined benefit plans by a considerable margin, with
nearly 60 percent more benefit obligations than the plan sponsor ranked
second: AT&T, Inc. 15 The Ford Motor Company ranked fifth. At the time,
th
Delphi, the auto supplier that spun off from GM in 1999, ranked 18 .
Chrysler was not included in the publication’s list, but, as of the beginning
of 2008, it had about one-fourth of GM’s benefit obligations, and would
have ranked in the top 10 if its total benefit obligations were included on
this list. Based on data gathered for previous GAO reports, in 2004, the
plans sponsored by GM and Chrysler represented roughly 7 percent of the
liabilities, 7 percent of the assets, and 2.5 percent of the total participants
of the entire defined benefit system. 16 The defined benefit plans that
continue to be sponsored by the new GM and the new Chrysler are
summarized in table 1. Unlike the new GM and new Chrysler, the “new
Delphi” that emerged from Delphi’s bankruptcy reorganization did not
assume sponsorship of the company’s pension plans. After Delphi froze its
hourly pension plan in November 2008, 17 some Delphi hourly employees
began to accrue credited service in the GM hourly pension plan according
to the terms of agreements negotiated with various unions, while other

14

Hybrid plans are legally defined benefit plans, but they contain certain features that
resemble defined contribution plans.
15

Rob Kozlowski, “The List: Funded Status of the Largest Defined Benefit Plans,” Financial
Week, June 16, 2008.

16
See GAO-08-817 and GAO, Defined Benefit Pensions: Survey Results of the Nation’s
Largest Private Defined Benefit Plan Sponsors, GAO-09-291 (Washington, D.C.: Mar. 30,
2009).
17
A plan freeze is a plan amendment that closes the plan to new entrants and may or may
not reduce future benefit accruals for some or all active plan participants. A “hard freeze,”
referenced here, occurs when the plan is closed to new entrants and participants no longer
accrue additional benefits. For other freeze types and a discussion of their effects, see:
GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of Participants and May
Pose Retirement Income Challenges, GAO-08-817 (Washington, D.C.: July 21, 2008).

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GAO-10-492 Troubled Asset Relief Program

Delphi employees did not receive similar treatment. PBGC terminated all
six of Delphi’s U.S. qualified defined benefit plans in July 2009.
Table 1: Defined Benefit Plans Sponsored by New GM and New Chrysler

Short plan name

Number of
a
participants

Full plan name

Collectively
bargained
planb

Plan liabilities
(dollars in millions)c

d

Plan status

GM’s plans
Hourly Plan

General Motors Hourly-Rate
Employees Pension Plan

505,289

Yes

(plan-level data not
publicly available)

Open, but plan
terms modified
for certain new
hires as of
10/15/2007e

Salaried Plan

General Motors Retirement
Program for Salaried
Employees

197,098

No

(plan-level data not
publicly available)

Plan closed
and frozen for
certain
participants
1/1/2007f

702,387

-

$98.1g

134,689

Yes

14,003

Total GM
Chrysler’s plans
UAW Pension
Plan

Pension Agreement between
Chrysler LLC and the UAW

Chrysler Pension
Plan

Chrysler LLC Pension Plan

44,329

No

2,973

Closed
12/31/2003

Salaried
Employees’
Retirement Plan

Chrysler LLC Salaried
Employees’ Retirement Plan

46,217

Yes (for some)

2,567

Closed
12/31/2003

AMC Plan

American Motors Union
Retirement Income Plan

10,693

Yes

809

Closed
12/31/1996

Jeep Plan

Jeep Corporation - UAW
Retirement Income Plan

8,960

Yes

1,288

Chrysler IUE
Pension Plan

Pension Agreement Between
Chrysler LLC and the
International Union of
Electronic, Electrical, Salaried,
Machine and Furniture
Workers

4,011

Yes

205

Executive
Salaried
Employees’
Retirement Plan

Chrysler LLC Executive
Salaried Employee’s
Retirement Plan

2,867

No

1,478

Subsidiaries’
Pension Plan

Chrysler LLC Subsidiaries’
Pension Plan

1,693

No

22

Page 8

Open

Open
Frozen
3/31/2002

Closed
12/31/2003

Open

GAO-10-492 Troubled Asset Relief Program

Number of
a
participants

Collectively
bargained
planb

Plan liabilities
(dollars in millions)c

Short plan name

Full plan name

Chrysler
UPGWA/Guards
Pension Plan

Pension Agreement between
Chrysler LLC and the United
Plant Guard Workers of
America

985

Yes

41

GEMA UAW
Pension Plan

Global Engine Manufacturing
Alliance UAW Pension Plan

220

Yes

1

254,664h

Total Chrysler

-

d

Plan status
Frozen
9/30/2005

Open

$23,387

Source: GM and Chrysler documents.
a

GM participant data are as of September 30, 2008, and Chrysler participant data are as of January 1,
2008, (the most recent data available at the time of our study).

b

A collectively bargained plan is a plan in which contributions to the plan or benefits paid by the plan
(or both) are subject to the collective bargaining process. At least some or all of the employees
covered by the plan are members of a collective bargaining unit that negotiates the contributions or
benefits (or both).

c

Data on plan liabilities are based on “projected benefit obligations” as measured in accordance with
Financial Accounting Standards. GM data are as of December 31, 2008, and Chrysler data are as of
January 1, 2009.
d

“Closed” indicates closed to new hires, but active employees continue to accrue benefits; “frozen”
indicates no employees are actively accruing benefits, sometimes called a “hard freeze”; future
benefit accruals ceased as of the date indicated (unless otherwise noted). In all cases, the plan has
not been terminated.

e

The hourly plan was amended to provide a new cash balance benefit for all hourly new hires (except
skilled trades) after October 15, 2007.
f

Employees hired between January 1, 2001, and December 31, 2006, participated in a cash balance
benefit under the plan, and this benefit was frozen as of December 31, 2006. Employees hired before
January 1, 2001, received accrued defined benefits, and such benefits were frozen as of January 1,
2007, when a new lower defined benefit formula was implemented.

g

Total includes a small amount of obligations (1-2 percent) for GM’s unqualified salaried plan, but are
the only GM data publicly available.

h

Total simply sums participant totals across each plan and does not represent unique participants
within Chrysler plans. For example, according to Chrysler officials, most Chrysler Pension Plan
participants also participate in the Salaried Employees Retirement Plan and, thus, would be counted
twice in the data.

Federal Oversight of
Private Sector Pensions

Three federal agencies are charged with responsibility for overseeing and
regulating tax-qualified private sector pension plans: the Internal Revenue
Service (IRS), an agency within Treasury; the Employee Benefits Security
Administration, an agency within Labor; and PBGC, a government
corporation. 18 Two overlapping statutory sources provide the basis for this

18
PBGC is a wholly-owned government corporation—that is, the federal government does
not share ownership interests with nonfederal entities. As such, PBGC must prepare annual
budgets, produce audited financial statements, and submit a management report to
Congress each year. 31 U.S.C. §§ 9101(3)(J), 9103, 9105 and 9107.

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oversight: the Internal Revenue Code, 19 and the Employee Retirement
Income Security Act of 1974 (ERISA). 20 These laws specify, among other
things, the standards of fiduciary responsibility for managing these plans,
minimum funding requirements, the requirements for reporting
information to the federal government and plan participants, and plan
termination insurance.
PBGC was created by ERISA in 1974 as a federal guarantor of most private
sector defined benefit plans and currently insures the pension income of
nearly 44 million workers in over 29,000 plans. PBGC is a self-financing
entity, funding its operations through insurance premiums paid by the plan
sponsors, money earned from investments, and funds received from
terminated pension plans. It is governed by a three-member board of
directors consisting of the Secretary of Labor as the Chair, and the
Secretaries of Commerce and Treasury as the remaining members. The
board of directors is ultimately responsible for providing policy direction
and oversight of PBGC’s finances and operations, but the board members
often rely on their representatives to conduct much of the work on their
behalf. Currently, the board representatives for the members are the
Assistant Secretary of Labor for the Employee Benefits Security
Administration, the Under Secretary for Economic Affairs at the
Department of Commerce, and the Assistant Secretary of the Treasury for
Financial Institutions.
PBGC administers two separate insurance programs for private sector
defined benefit plans: a single-employer program and a multiemployer
program. 21 The single-employer program covers about 34 million
participants in about 28,000 plans. 22 The multiemployer program covers
about 10 million participants in about 1,500 collectively bargained plans
that are maintained by two or more unrelated employers. If a
multiemployer pension plan is underfunded and unable to pay guaranteed
benefits when due, PBGC will provide financial assistance to the plan,

19
26 U.S.C. §§ 1-9834. The Internal Revenue Code is also referred to sometimes as simply
“the tax code.”
20

Pub. L. No. 93-406, 88 Stat. 829 (codified as amended at 29 U.S.C. §§ 1001- 1461).

21

Unlike defined benefit plans, defined contribution plans are not covered by PBGC
insurance. 29 U.S.C. § 1321(B)(1).
22
A single-employer plan is a plan that is established and maintained only by employers in a
single controlled group. Single-employer plans can be established unilaterally by the
sponsor or through a collective bargaining agreement with a labor union.

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usually a loan, so that retirees continue receiving their benefits. However,
if a single-employer pension plan is underfunded and certain criteria are
met, the plan sponsor may request termination of the plan (referred to as a
“distress” termination), 23 and PBGC will pay retirees’ benefits as they
become due, up to certain limits as prescribed under statute and related
regulations (see appendix II). PBGC may also initiate an “involuntary”
termination under certain circumstances, such as when the possible longrun loss to PBGC is expected to increase unreasonably if the plan is not
terminated. 24 As of the end of fiscal year 2009, PBGC had terminated and
trusteed a total of 4,003 single-employer plans. 25
We designated PBGC’s single-employer pension insurance program as
“high risk” in 2003, including it on our list of major programs that need
urgent attention and transformation. 26 The program remains high risk due
to an ongoing threat of losses from the termination of underfunded plans.
As of September 2009, PBGC had an accumulated deficit that totaled $22
billion, a $10.8 billion increase since September 2008.

23

29 U.S.C. § 1341(c).

24

29 U.S.C. § 1342(a).

25
If a plan has sufficient assets, a plan sponsor may voluntarily terminate the plan without it
being trusteed by PBGC (referred to as a “standard termination”). In such cases, the
sponsor generally purchases a group annuity contract with an insurance company or
makes lump sum payments so that participants are paid all the benefits accrued under the
plan up to the date of termination. 29 U.S.C. § 1341(b). With respect to collectively
bargained plans, there can be no distress or standard termination until the collective
bargaining obligation has been rejected or modified—either through negotiated resolution
or court order authorizing rejection of the agreement through the Bankruptcy Code. 11
U.S.C. § 1113 and 29 U.S.C. § 1341(a)(3).
26

GAO, Pension Benefit Guaranty Corporation Single-Employer Insurance Program:
Long-Term Vulnerabilities Warrant “High Risk” Designation, GAO-03-1050SP
(Washington, D.C.: July 23, 2003).

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New GM and New
Chrysler Assumed
Sponsorship of
Pension Plans in
Restructuring, but
Face Future Funding
Challenges

As new companies, GM and Chrysler have streamlined their operations
and have substantially less debt than their predecessors; nevertheless, the
future viability of the companies and their pension plans is unclear. The
bankruptcy agreements that provided for establishment of the new
companies specified that they would assume sponsorship of the previous
companies’ U.S. qualified defined benefit plans, and made only one
significant change to pension benefits. However, prior to the change in
sponsorship, many of the pension plans had been closed to new hires or
had ceased benefit accruals. 27 Moreover, since 2008, the funded status of
the pension plans has been declining, and within the next 5 years, both
companies project that, based on current estimates, they may need to
make large contributions to their plans to comply with federal minimum
funding requirements.

Restructuring Shifted
Sponsorship of GM and
Chrysler Defined Benefit
Plans with Prior Changes
Mostly Intact

As a result of restructuring, sponsorship for all GM and Chrysler U.S.
defined benefit plans shifted to the new companies. But beyond the shift in
sponsorship, the only significant change to pension benefits that occurred
was the elimination of a future pension benefit increase that was to
compensate UAW retirees for increased required contributions to their
retiree health care plans, beginning in 2010. 28 For the most part, the terms
of the restructuring called for current levels of employee benefits—
including pension benefits—to remain in place for at least 1 year.
Specifically, the master sale agreements for both companies stipulate that,
in general, union employees are to be provided employee benefits that are
“not less favorable in the aggregate” than the benefits provided under the
employee pension and welfare benefit plans, and contracts and
arrangements currently in place; nonunion employees are to receive
current levels of compensation and benefits until at least 1 year after the
date the agreements are signed.

27

See table 1 in the Background section for details.

28
In 2007, both GM and Chrysler had reached agreements with UAW to transfer
responsibility for retiree health care of UAW members to new independent voluntary
employee beneficiary associations (VEBA) that were created to manage retiree health
plans starting on January 1, 2010. As part of the funding arrangement for these new VEBAs,
members would have to pay an additional monthly contribution toward their medical
benefits, but the automakers agreed to increase members’ pension benefits by a
corresponding amount once these added payments were to begin. This pension benefit
increase became known as the VEBA “pension pass-through.” During the restructuring
negotiations with GM and Chrysler, however, this benefit increase was eliminated before it
was ever implemented.

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More significant changes affecting GM’s and Chrysler’s pensions were
made prior to last year’s restructuring. For example, over the past decade,
several of GM’s and Chrysler’s pension plans had been modified or closed
to new hires, or had stopped allowing further benefit accruals. GM’s
salaried plan was closed and benefit accruals ceased for certain
employees, while 4 of Chrysler’s ten plans have been closed to new hires,
and 2 other Chrysler plans have ceased benefit accruals (also referred to
as being “hard frozen”). 29 Nevertheless, new collective bargaining
agreements were put in place in 2007 for both GM’s and Chrysler’s UAWnegotiated plans, calling for annual increases to the pension benefits for
their participants. 30 In addition, both GM and Chrysler had implemented
numerous attrition programs for both union and nonunion employees that
provided various opportunities for early retirement and other types of
added benefits as incentives to help mitigate the effects of downsizing. For
a listing of attrition programs offered by these companies since 2004, see
appendix III.

Funded Status of GM and
Chrysler Pension Plans
Has Been Declining

As illustrated in figure 1, the funded status of GM and Chrysler pension
plans has been declining since 2008. This is due, in part, to the economic
downturn, which has brought significant financial stress to many sectors
of the economy, including the auto industry. The significant decline in the
stock market decreased the value of certain assets (such as equities) and
increased the value of others (such as bonds), while low interest rates
tended to increase liabilities. 31 Fluctuations in liabilities may also be

29

See table 1 in the Background section for details.

30

The 2007 UAW plan benefit increases included a $2.65 or 5.1 percent increase (per month,
per year of credited service) in the active basic benefit, a $2.00 increase in the retiree basic
benefit, and a retiree lump sum payment paid from the pension plan, among other changes.
31
Liability valuations reflect the time value of money—that a dollar in the future is worth
less than a dollar today. Using a lower interest rate would increase the present value of a
stream of payments, while using a higher interest rate would decrease the present value of
a stream of payments.

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GAO-10-492 Troubled Asset Relief Program

caused by changes to actuarial assumptions or other types of gains and
losses. 32 However, in the case of GM and Chrysler, certain other factors
are at play as well.
well.
Figure 1: Trends in the Funded Status of GM’s and Chrysler’s Pension Plans (20062009)
Funded status (dollars in billions)
20

18.8
16.0

15

10
6.2
5

2.9

2.5

0
-1.6
-3.4

-5

-10
-13.6

-15
2006

2007

2008

2009

GM
Chrysler
Source: GAO analysis of documents provided by the automakers for all U.S. qualified defined benefit plans each sponsors.

Note: Funded status reflects measurements in accordance with Financial Accounting Standards. For
each year, the data for GM’s plans are as of December 31 of the preceding year; the data for
Chrysler’s plans are as of January 1 of the year cited. GM’s data include a small amount of
obligations (1-2 percent) for the unqualified salaried plan, but are the only GM data publicly available.

32
Throughout this report, we have characterized the value of plan assets and plan liabilities
based on available information obtained from financial statements and public filings. It is
often the case that the value of assets and liabilities from these sources are substantially
different than the value of assets and liabilities at the point of plan termination. We have
reported previously that there are many factors that can increase plan liabilities
immediately before plan termination, such as economic factors, benefit increases, and
earlier-than-anticipated retirements. See GAO, Pension Plans: Hidden Liabilities Increase
Claims Against Government Insurance Program, GAO/HRD-93-7 (Washington, D.C.: Dec.
30, 1992).

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For example, a reduction in the number of workers is one key factor
affecting the funded status of both companies’ plans. Large numbers of
workers have left employment as product lines are eliminated and plants
are shut down. When workers are forced to leave their jobs before
becoming eligible to retire, the liabilities for their expected future benefits
will usually be less than previously recorded. However, for those workers
who are eligible to retire early and choose to do so under the enhanced
provisions of one of the numerous attrition programs, the liabilities for
their expected future benefits will usually be greater than previously
recorded. In other words, more workers will retire early and with more
benefits than previously anticipated in the company’s valuation of future
benefit obligations.
GM began its downsizing even before its TARP-related restructuring
efforts reduced the number of its North American brands from eight to
four. According to a GM news release, approximately 66,000 U.S. hourly
workers left the company under a special attrition program between 2006
and 2009. 33 Often the lump-sum payments and buyouts offered by these
programs were paid from company assets, but when these benefits are
paid from pension assets, there can be an impact on the plan’s financial
status. 34 GM noted that the attrition programs implemented between 2006
and 2009 contributed to an increase of estimated plan obligations during
this period and—along with other factors, such as discount rate changes—
played a role in the recent increase in GM’s pension liabilities (see fig. 2).

33

For a listing of recent GM attrition programs and their estimated impact on plan liabilities,
see appendix III. For a detailed summary of recent GM plant closings, see appendix IV.

34
From the perspective of the company’s consolidated financial statement, it makes little
difference whether payments are made from plan or company assets; but from the
participant’s perspective, if the level of plan assets has been diminished, it could have a
significant impact on future benefits should the plan be terminated.

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Figure 2: Trends in GM’s Pension Plans’ Liabilities and Assets
Liabilities
2006

Assets

89.1

2007

85.4

2008

95.3

85.3

101.4

104.1

2009 98.1
-100

84.5
-80

-60

-40

-20

0

20

40

60

80

100

Dollars in billions
Source: GAO analysis of GM documents for both U.S. qualified defined benefit plans sponsored by GM.

Note: Plan liabilities (based on “projected benefit obligations”) and assets reflect measurements in
accordance with Financial Accounting Standards. For each year, the data are as of December 31 of
the preceding year. Data include a small amount of obligations (1-2 percent) for GM’s unqualified
salaried plan, but are the only GM data publicly available.

Similarly, Chrysler’s downsizing efforts also predate TARP. For example,
its decision to eliminate four models within its three primary brands dates
back to November 2007, and the company has implemented various
attrition programs to accomplish this. 35 Due in part to these programs,
over the past few years, Chrysler’s pension liabilities have fluctuated while
plan assets have been declining (see fig. 3). For example, Chrysler’s UAW
plan reported a $900 million increase in liabilities from 2007 to 2008, and
the plan’s 2008 valuation report noted that the cost of special termination
benefits during 2008 were nearly $390 million. Total liabilities for the
Chrysler Pension Plan increased by a smaller margin overall from 2007 to
2008, but the plan’s 2008 valuation report noted that nearly $195 million in
additional costs were being recorded due to special early retirements,
added service costs, and curtailment loss.

35
For a listing of recent Chrysler attrition programs and their impact on plan liabilities, see
appendix III. For a detailed summary of recent Chrysler plant closings, see appendix IV.

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Figure 3: Trends in Chrysler’s Pension Plans’ Liabilities and Assets
Liabilities
2006

23.5

21.9

21.7

2007

24.2

22.8

2008

2009

Assets

25.6

19.9

23.4
-25

-20

-15

-10

-5

0

5

10

15

20

25

Dollars in billions
Source: GAO analysis of Chrysler documents for all U.S. qualified defined benefit plans sponsored by Chrysler.

Note: Plan liabilities (based on “projected benefit obligations”) and assets reflect measurements in
accordance with Financial Accounting Standards. For each year, the data are as of January 1 of the
year cited.

Other factors that have affected the funded status of both GM’s and
Chrysler’s plans are the special arrangements made with other companies
in conjunction with acquisitions and divestitures. 36 For example, when an
auto parts supplier, the former Delphi Corporation, was spun off from GM
in 1999, the transaction included a negotiated agreement with various
unions for a benefit guarantee for certain employees in the event that
Delphi’s hourly pension plan would be frozen or terminated. 37 When the
company froze its hourly plan on November 30, 2008, as agreed, GM began
providing covered employees with up to 7 years of credited service in the
GM hourly plan while they continued to work at Delphi. Under this
negotiated benefit guarantee, GM also agreed that upon plan termination,
once PBGC determined the benefit to be paid subject to its guarantee
limits, GM would pay eligible covered employees the difference to “top up”
the benefit to the level provided under Delphi’s hourly plan. Following the
termination of Delphi’s hourly plan in July 2009, GM estimated that the
cost of implementing this benefit guarantee for all covered unions would
be approximately $1.0 billion. In addition to the benefit guarantee for

36
Most GM divestitures have resulted in no future pension benefit accruals for the affected
employees under the GM plan at the time of divestiture, with only limited impact on the GM
plan going forward. See appendix V for a summary of key acquisitions and divestitures
since GM and Chrysler were founded.
37
According to GM officials, Delphi salaried employees were never eligible for any pension
benefit guarantees.

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Delphi employees still in the Delphi hourly plan, in the fall of 2008, GM’s
hourly plan assumed responsibility for $2.7 billion in liabilities and $0.6
billion in assets from Delphi’s plan, thereby increasing the GM plan’s
funding deficit by $2.1 billion. 38
When Chrysler was sold by Daimler in 2007, the transaction included an
agreement with Daimler to help protect the funded status of Chrysler’s
pension plans. 39 As part of this transaction, PBGC negotiated an agreement
whereby Daimler provided a $1 billion termination guarantee and Chrysler
made $200 million in additional pension contributions. Subsequently, in
April 2009, this agreement was replaced by a new arrangement requiring
Daimler to begin making annual contributions, even though the plans had
not terminated. Under this arrangement, Daimler agreed to make
payments totaling $600 million to Chrysler’s pension plans over a 3-year
period, with $200 million due in June 2009, 2010, and 2011. In addition, if
the Chrysler pension plans were to terminate before August 2012 and are
trusteed by PBGC, Daimler is to pay an additional $200 million to the
PBGC insurance program.

Both Automakers Project
Large Contributions to
Plans Will Be Required
within the Next Five Years

Although projections of plan funding are inherently sensitive to underlying
assumptions, GM and Chrysler currently estimate that they may need to
make large contributions to their pension plans within the next 5 years in
order to meet minimum funding requirements. 40 They also may need to
manage the funded status of their plans in order to avoid certain plan
benefit restrictions and potential additional liabilities that may occur if the
plans are determined to be “at risk.” 41

38

In exchange for GM’s agreement to assume this liability from the Delphi hourly plan,
Delphi and its creditors released GM from all potential litigation arising out of the original
1999 Delphi spin off. For further details on the Delphi story, see appendix I.

39
Chrysler merged with Daimler-Benz AG in 1998 and was operated as a separate business
unit called “Chrysler Group” until it was sold in 2007.
40
Statutorily prescribed pension funding requirements for single-employer plans specify
how much a sponsor must contribute to its defined benefit plans each year. 26 U.S.C. §§
412 and 430. In general, the minimum required contribution reflects the value of the plan’s
assets compared with the plan’s benefit obligations, as measured by the present value of all
benefits accrued or earned as of the beginning of the plan year (the plan’s funding target)
and the present value of all benefits that are expected to accrue or be earned under the
plan during the plan year (the target normal cost).
41

26 U.S.C. §§ 430 and 436.

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While useful as indicators of the financial pressures that could lie ahead,
the funding projections provided by GM and Chrysler are subject to much
uncertainty because of factors that could result in changes in the size or
timing of needed contributions to meet future years’ funding requirements.
For example, projections are particularly sensitive to the future economic
environment, especially with respect to future interest rates and asset
returns. Also, GM or Chrysler could make additional voluntary
contributions to their plans, or funding rules could be affected by changes
in legislation.
To strengthen pension funding, the Pension Protection Act of 2006 (PPA)
made sweeping changes to plan funding requirements, effective for plan
years beginning in 2008. 42 For example, the act included provisions that
raised the funding targets for defined benefit plans, reduced the period for
“smoothing” assets and liabilities, and restricted sponsors’ ability to
substitute credit balances for cash contributions. At the same time, as we
have reported previously, the act did not fully close potential plan funding
gaps, and it provided funding relief to plan sponsors in troubled
industries. 43 In addition, in the face of a weakened economy, the Worker,
Retiree, and Employer Recovery Act of 2008 provided plan sponsors with
further relief from the changes, 44 as did IRS guidance in 2009 concerning
interest rates that could be used to value plan liabilities in some cases. 45

42

Pub. L. No. 109-280, §§ 101-107, 120 Stat. 780, 784-820.

43

GAO, High Risk Series: An Update, GAO-07-310 (Washington, D.C.: Jan. 31, 2007), 85.

44

Pub. L. No. 110-458, 122 Stat. 5092.

45

In March 2009, the IRS issued guidance clarifying that under Notice 2008-21, for a calendar
year plan with a January 1, 2009, valuation date, the IRS would not challenge the use of the
monthly yield curve for January 2009, or any one of the four months immediately preceding
January 2009. Since interest rates were much higher on October 1, 2008, than on January 1,
2009, using the October 1, 2008, yield curve for the discount rate would significantly reduce
required contributions for the 2009 plan year. Also, in September 2009, the IRS issued
guidance providing automatic approval for a new choice of interest rates for 2010,
regardless of what choices were made for earlier plan years (as codified in new regulations
effective October 15, 2009).

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Legislative proposals that would make additional changes to funding
requirements are currently being considered. 46
Nevertheless, according to GM’s projections utilizing valuation methods
defined under PPA, large cash contributions may be needed to meet its
funding obligations to its U.S. pension plans beginning in 2013 (see fig. 4).
GM officials told us that cash contributions are not expected to be needed
for the next few years because it has a relatively large “credit balance”
based on contributions made in prior years that can be used to offset cash
contribution requirements that would otherwise be required until that
time. 47 As of October 1, 2008, GM had about $36 billion of credit balance in
its hourly plan and about $10 billion in its salaried plan. However, once
these credit balances are exhausted, GM projects that the contributions
needed to meet its defined benefit plan funding requirements will total
about $12.3 billion for the years 2013 and 2014, and additional
contributions may be required thereafter. In its 2008 year-end report, GM
noted that due to significant declines in financial markets and
deterioration in the value of its plans’ assets, as well as the coverage of
additional retirees, including Delphi employees, it may need to make
significant contributions to its U.S. plans in 2013 and beyond. 48

46
401(k) Fair Disclosure and Pension Security Act of 2009, H.R. 2989, 111th Cong. tit. III (as
reported by H.R. Comm. on Ways and Means, July 31, 2009) and American Workers, State,
and Business Relief Act of 2010, H. R. 4213, 111th Cong. tit. III (as passed by Senate, March
10, 2010). Yet another factor that could affect funding projections is future labor
negotiations. Both GM and Chrysler have plans that are collectively bargained with UAW,
and the result of future negotiations could increase or decrease projected liabilities.
47

26 U.S.C. § 430(f). Credit balances can be earned when a sponsor contributes more to its
pension plans than required. Under certain conditions, sponsors can use these balances to
offset required contributions until the balances are exhausted. Prior to PPA, credit
balances could be augmented because they accrued interest at a rate determined by the
plan to reflect the time value of money. PPA delineated two types of credit balances: socalled “carryover balances,” generated under prior law, and “prefunding balances,”
generated after passage of the act. PPA also established certain standards on the use of
credit balances, such as a requirement that balances be adjusted based on market
conditions. Further, if a plan’s funded ratio (determined with a reduction of assets in the
amount of any carryover balance) is at least 80%, the plan sponsor may generally use its
credit balance to offset any required contribution. The credit balances we refer to with
respect to GM and Chrysler are specifically “carryover balances.”

48
The 2008 data on projected cash contributions are the latest publicly available data. GM
was to file quarterly and annual financial reports for the period ending December 31, 2009,
with the Securities and Exchange Commission by March 31, 2010. However, GM submitted
a “notification of late filing” with the Commission and officials told us they plan to file the
reports sometime in April 2010.

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GAO-10-492 Troubled Asset Relief Program

Figure 4: Projected Calendar Year Contributions to GM’s Pension Plans (2009-2014)
Projected cash payments (dollars in billions)
7
5.9

6

6.4
5.2

5

4

3

2

1.4

1

0
2009

2010

2011

2012

2013

2014

Source: GAO analysis of GM planned funding projections for both U.S. qualified defined benefit plans sponsored by GM.

Note: Funding projections reflect audited data as of December 31, 2008 (the most recent publicly
available at the time of our study). Projections utilize valuation methods for required contributions
defined under PPA, and include any temporary funding relief as provided by the Worker, Retiree, and
Employer Recovery Act of 2008.

Similarly, Chrysler’s management expects that contributions to meet
minimum funding requirements may begin to increase significantly in 2013,
but are projected to be relatively minimal until then (see fig. 5). Chrysler,
like GM, intends to use credit balances to offset the contribution
requirements for some of its plans. As of end-of-year 2009, Chrysler had
credit balances of about $3.5 billion for its UAW Pension Plan and about
$1.9 billion across the other eight plans for which it provided funding
information. In addition, Chrysler also has $600 million in payments from
Daimler to help meet its funding requirements over the next few years. 49
Nevertheless, Chrysler’s funding projections reveal that about $3.4 billion

49
As noted earlier, Daimler agreed to make installment payments of $200 million in 2009,
2010, and 2011 (for a total of $600 million).

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in contributions may be needed to meet its funding requirements over the
2009 to 2015 period. 50
Figure 5: Projected Calendar Year Contributions to Chrysler’s Pension Plans (20092015)
Projected cash payments (dollars in billions)
1.5
1.25
1.2

0.93
0.9

0.6

0.54
0.40

0.3

0.20
0.04

0.0
2009

2010

2011

2012

2013

2014

2015

Source: GAO analysis of Chrysler planned funding projections for all U.S. qualified defined benefit plans sponsored
by Chrysler.

Note: Funding projections include unaudited data for nine of Chrysler’s ten plans provided to GAO in
February 2010 (no information was provided for one plan). Projections utilize valuation methods for
required contributions defined under PPA. For six of the nine plans with data, the projections explicitly
included any temporary funding relief as provided by the Worker, Retiree, and Employer Act of 2008,
except for a provision relating to adjustments, or “smoothing,” to the value of plan assets.

In addition, both GM and Chrysler may need to manage the funded status
of their plans in order to avoid incurring an “at-risk” status or triggering
certain benefit restrictions. If a plan’s funding level falls below certain
specified thresholds, then it must use special “at-risk” actuarial
assumptions to determine its minimum funding requirements and, in most

50
Chrysler expected to provide its 2009 audited annual financial statement to Treasury and
its other shareholders by April 2010. Chrysler plans to file quarterly and annual financial
reports with the Securities and Exchange Commission beginning with its 2010 audited
annual financial statements, which will be publicly available.

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cases, increase its contributions. 51 For example, the most recent annual
funding notice for the GM hourly plan reveals that the plan is in at-risk
status for plan year 2008. 52,53
Also, if a plan’s funding level falls below certain specified thresholds, then
certain restrictions may be placed on the benefits provided by the plan,
such as lump sum withdrawals and plant shutdown benefits (see table 2). 54
Table 2: Benefit Restrictions Based on a Plan’s Funded Status
If a plan’s funded status is:a

Then, there is a restriction against:

At least 80 percent, but would be less
than 80 percent taking the amendment
into account

•

plan amendments to increase benefits

At least 60 percent, but less than 80
percent

•

50 percent benefits paid in a lump sum
(i.e., accelerated benefit payments)

At least 60 percent, but would be less
than 60 percent, taking the unpredictable
contingent event benefit into account

•

unpredictable contingent event benefits
(i.e., shutdown benefits)

Less than 60 percent

•

future benefit accruals (i.e., accruals are
frozen)
all lump sum payments (i.e., accelerated
benefit payments)
unpredictable contingent event benefits
(i.e., shutdown benefits)

•

•

Source: GAO analysis.

51
26 U.S.C. § 430(i). Once it is fully phased in, the test for determining if a plan is at risk will
be whether its funding target attainment percentage for the preceding year, not applying atrisk requirements, is less than 80 percent and its funding target attainment percentage for
the preceding year, applying at-risk requirements, was less than 70 percent. 26 U.S.C. §
430(i)(4).
52
Plans determined to be “at risk” are required to use actuarial assumptions that result in a
higher value of plan liabilities and, thus, require additional funding by the plan sponsor. 26
U.S.C. § 430(i)(1)(A)(i) and (i)(1)(B). For example, plans in “at-risk” status are required to
assume that all workers eligible to retire in the next 10 years will do so as soon as they can,
and that they will take their distribution in whatever form would create the highest cost to
the plan, without regard to whether those workers actually do so.
53

The notice for the GM’s hourly plan covers the plan year beginning October 1, 2008, and
ending September 30, 2009. GM’s estimated plan funding requirements of $12.3 billion for
the years 2013 and 2014 reflect funding needs for both its hourly and its salaried pension
plans combined, including consideration of its hourly pension plan being in “at-risk” status.
GM’s salaried pension plan is not “at risk.”

54

26 U.S.C. §§ 436(b) and (d).

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GAO-10-492 Troubled Asset Relief Program

a

Funded status described here is based on the “adjusted funding target attainment percentage.” This
percentage is the ratio of a plan’s assets, reduced by any credit balances, to the value of the plan’s
liabilities (referred to as the “funding target attainment percentage”) adjusted by adding the value of
certain annuities. Special rules apply in bankruptcy.

Economic Stress in
Auto Industry Has
Endangered Auto
Supplier Pensions

Automaker restructuring, the credit market crisis, and the global recession
have created significant economic stress across the auto supply industry.
Federal efforts to aid the supply sector through a program that provided
GM and Chrysler with funding to guarantee supplier payments benefited
the automakers’ top-level direct suppliers, but did little to support
component and raw material suppliers. The restructuring of GM and
Chrysler amid this difficult economic environment has had a ripple effect
throughout the auto supply sector, likely contributing to the recent wave
of supplier bankruptcies and pension plan terminations.

Automaker Restructuring
and Current Economic
Conditions Have Created
Significant Financial Stress
for Suppliers

The auto supply sector is highly dependent on the success of the
automakers that it supplies. For years, the auto supply sector has felt the
impact of the problems facing the domestic auto market, including
declining vehicle sales, and deep production cuts—resulting in
overcapacity within the industry. In 2004, the Department of Commerce
reported that the possibility of relying on increased auto sales that
automatically translate into increased orders and components for U.S.
suppliers no longer existed because U.S. automobile manufacturers had
shifted from providing a ready market for many domestic suppliers of
parts and components to operating on a global basis. The result of this
shift was that automotive parts suppliers had to find niches in the global
supply chains of U.S. auto companies or their foreign competitors to
succeed.
Many auto suppliers broadened their sales base to remain competitive.
With the domestic share of the market in decline, these suppliers
diversified their business models to include just-in-time manufacturing
capacity or sold their products to multiple automakers in North America,
Europe, and Asia. For example, at the time it filed for bankruptcy, the U.S.
auto parts supplier, Delphi Corporation, employed more than 185,000
workers in 38 countries in 2004, making it one of the largest suppliers in
the world. 55 Still, according to a 2009 industry report, just 7 of the 29 U.S.based suppliers listed among the top 100 global suppliers sold the majority
of their products in North America. Suppliers serving the large U.S.

55

For further details on Delphi, see appendix I.

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GAO-10-492 Troubled Asset Relief Program

automakers also have considerable overlap, with as many as 80 percent
supplying parts to one or more automaker. For example, Chrysler reported
that 96 percent of its top 100 suppliers also served either GM or Ford.
Similarly, 27 of GM’s top 39 suppliers also served as major suppliers for
Chrysler. While this crossover allowed suppliers to spread their risk
among domestic automakers, the impact of the global economic downturn
affected many suppliers, and left suppliers that sold primarily to GM and
Chrysler particularly vulnerable when the automakers filed for
bankruptcy.
The recent global credit crisis and the rapid decline in auto sales left many
of the nation’s auto parts suppliers under significant stress with limited
access to credit and facing growing uncertainty about their future business
prospects. For example, GM’s and Chrysler’s decision to slow production
by temporarily shutting down some U.S. operations in late 2008 led to
interruptions in suppliers’ operations and cash flow. As a result, many
suppliers were left with excess inventory, were not paid for products they
had shipped to automakers, and lacked the liquidity needed to settle their
debts with their raw material and component suppliers. Concerns over the
ability of the organizations to continue operations and, among other
things, collect their receivables and pay their bills when due, led some
suppliers to receive a “going concern” qualification from their auditors. 56
Lenders restricted credit and cash flow to suppliers, limiting their liquidity
at the time when it was needed most. With limited cash flow, the suppliers
experienced increasing pressure from their raw material and component
suppliers. According to Chrysler, 43 percent of its suppliers had received
requests from their suppliers for some form of payment term compression.
Chrysler recognized the liquidity shortfall in the supplier network as a
significant threat to its successful restructuring, and identified supplier
insolvencies and supply chain disruptions as key risks to the critical
assumptions in its restructuring plan. Another industry report indicated
that at least 500 suppliers in North America (or 30 percent of the estimated
1,700 direct suppliers in the U.S.) may be at high risk of insolvency due to
the effect of reduced volumes and the lack of credit availability. This
credit crunch also affected bankrupt companies, which found securing
financing to restructure their companies increasingly difficult.

56

A “going concern” qualification is a reflection of the auditor’s substantial doubt of the
audited company’s ability to remain in operation. Organizational weaknesses including
overcapacity and high wage agreements, when combined with questions about their ability
to continue as a going concern may have the effect of triggering loan and bond defaults and
making it difficult for suppliers to raise new capital.

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Federal Assistance
Program Helped Avert
Catastrophe, but Provided
Limited Support to Smaller
Suppliers

In an effort to help stabilize the auto supply base, in March 2009, also
under TARP, Treasury established the Auto Supplier Support Program,
which initially dedicated up to $5 billion in government-backed guarantees
to GM and Chrysler for supplier payments in order to give suppliers the
confidence they needed to keep shipping parts, paying their employees,
and continuing operations. Treasury had rejected appeals from the auto
supply sector for direct aid to assist a broader portion of the supplier
industry because, according to Treasury officials, it had become clear that
the vast network of suppliers had to engage in a substantial restructuring
and capacity reduction to achieve long-term viability. The program was to
ensure that GM and Chrysler received the parts and components they
needed to manufacture vehicles and suppliers had access to credit from
lenders. Under the program, any supplier that shipped directly to GM or
Chrysler on qualifying commercial terms could be eligible to participate.
Treasury left it up to the automakers to determine which suppliers
qualified for the assistance. According to GM, 74 percent of its 1,300
suppliers were eligible for the program, but only 28 percent of its suppliers
(38 percent of its eligible suppliers) received funds under the program. 57
Nearly half of the $947.8 million in program funds that GM dispersed went
to 31 of its top 40 suppliers. 58 Shortly after the program began, Treasury
reduced the amount of funding available under this program to $3.5 billion,
at the request of the automakers. According to Treasury officials, the
automakers made this request because conditions had changed: they no
longer needed to maintain their prebankruptcy supply capacity, credit
markets had opened up, and suppliers’ access to capital had improved.
The program, as administered, helped a portion of the industry survive the
downturn in production and vehicle sales, but did little to improve
supplier access to traditional sources of capital, according to a leading
auto supply industry group. The group noted that the program supported
suppliers by making funds available to purchase receivables for parts

57
In a hearing before the Senate Committee on Banking, Housing, and Urban Affairs in
October 2009, a representative of nearly 700 parts suppliers testified that administrative
obstacles, bank restrictions, and limitations on the types of receivables eligible for
assistance had created a significant gap between those suppliers eligible to participate and
those suppliers able to participate in the program. Restoring Credit to Manufacturers:
Hearing Before the S. Comm. on Banking, Housing and Urban Affairs, 110th Cong. (2009)
(statement of David Andrea, Vice President, Industry Analysis and Economics, Motor and
Equipment Manufacturers Association).
58
According to GM, the 31 top suppliers that participated in the Treasury program
accounted for less than 2 percent of GM’s North American 2009 adjusted present value.

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GAO-10-492 Troubled Asset Relief Program

already shipped by participating suppliers, but that many troubled
suppliers who had no outstanding debts to the automakers were excluded.
According to Treasury officials, the program was not designed to address
liquidity for troubled suppliers who were unable to move their inventory
and had no receivables, including from GM and Chrysler, due to the
extended shutdowns at the manufacturing plants. However, the group also
noted that the suppliers who participated in the program were generally
satisfied with the outcome, and that the supply sector as a whole believed
that without the government’s action, the effect of automakers’
restructuring would have been catastrophic for suppliers.

Suppliers Have
Experienced a Wave of
Bankruptcies and Pension
Plan Terminations

Bankruptcy reorganizations and liquidations occur frequently in the
volatile automotive supply sector, but the number of bankruptcies has
recently increased. Some suppliers have gone bankrupt multiple times in a
decade, while other suppliers have remained in bankruptcy proceedings
for years before successfully emerging as a new entity. For example, the
“new Delphi” (Delphi Automotive, LLP) emerged in 2009 after the former
Delphi had been in bankruptcy proceedings for 4 years. Auto suppliers
experienced a rise in the number of bankruptcies, liquidations, and
pension plan terminations in 2008 and 2009. In November 2009, a survey
by the Original Equipment Suppliers Association (Association)—a leading
auto supply industry group—found that a majority of suppliers anticipated
a 20 percent decline in their revenue and operating profits on a year-toyear basis. The Association also reported that at least 43 U.S. based auto
suppliers had filed for Chapter 11 bankruptcy protection between January
and December 2009. Moreover, it was reported that an additional 200 U.S.
suppliers had begun the liquidation process by selling off their assets to
other suppliers or private equity companies. Chrysler reported that the
proportion of its suppliers that were financially troubled had more than
doubled, from 10 percent in October 2008 to 22 percent in February 2009,
with the troubled suppliers accounting for $6.6 billion of the company’s
annual business. In addition, in the summer of 2009, a consultant group
estimated that as many as 30 percent of North American suppliers were at
high risk of failure. According to Treasury officials, many of Chrysler’s
troubled suppliers had difficulty accessing credit because of their
concentrated exposure to Chrysler.
In the summer of 2009, the auto supply sector was also expected to shrink
significantly through mergers and consolidation in order to survive.
According to the Association’s survey of its membership in June 2009, auto
suppliers were operating at 46.4 percent capacity. In its restructuring plan,
Chrysler stated that industry conditions required substantial and
coordinated restructuring of the supply base, and that automakers must

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GAO-10-492 Troubled Asset Relief Program

concentrate their business in “surviving” suppliers. GM projected a 30
percent reduction in the number of suppliers, stating that such
compression would allow GM to build and manage a competitive supply
base. Several industry consultants noted that the path to long-term
viability would require suppliers to reduce their number by 30 to 40
percent and secure more business from Asian and European transplant
automakers. However, by early 2010, there were signs that the economic
conditions for suppliers may have begun to stabilize. The Association’s
January 2010 and March 2010 surveys of its membership reported
increased optimism across the sector, especially among larger companies.
Many U.S.-based auto suppliers sponsor defined benefit plans that are
insured by PBGC. Each company failure could potentially result in PBGC
having to assume responsibility for its pension plans, and PBGC officials
told us that they are monitoring about 35 large auto suppliers. Even before
last year’s restructuring of GM and Chrysler, suppliers (like many other
employers) were experiencing significant underfunding of their defined
benefit plans. Table 3 shows 18 auto suppliers we identified that reported
a combined $14.9 billion in unfunded pension liabilities in 2008.
Table 3: Funded Status of Selected Suppliers’ Defined Benefit Pension Plans (2008)
Dollars in millions

Supplier name
Delphi Corporation

In bankruptcy
proceedings
in 2009
Xa

Unfunded pension
liabilities
$5,264.0

Honeywell International

3,526.0

Goodyear Tire & Rubber

2,129.0

Eaton Corporation

1,614.0

Johnson Controls, Inc.

402.0

TRW Automotive Holdings

361.0

Visteon

X

326.0

Lear Corporation

X

254.7

American Axle and Manufacturing
Holdings, Inc.

254.5

Tenneco, Inc.

169.0

Dana Holding Corporation

149.0

Cooper-Standard Holdings

X

89.1

Xa

70.8

BorgWarner, Inc.
Hayes Lemmerz International

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GAO-10-492 Troubled Asset Relief Program

Dollars in millions

Supplier name

In bankruptcy
proceedings
in 2009

Unfunded pension
liabilities

Dura Automotive Systems, Inc.

65.3

ArvinMeritor, Inc.

42.0

Modine Manufacturing Company

35.3

Accuride

X

Total

26.8
$14,865.6

Source: GAO analysis of recent corporate annual reports and filings. Data are for fiscal years ending in 2008 or 2009.
a

Suppliers with pension plans that have been terminated and trusteed by PBGC.

In 2009, several of GM and Chrysler’s suppliers filed for bankruptcy, and in
some cases, PBGC intervened and assumed trusteeship of the companies’
defined benefit plans. For example, in July 2009, PBGC terminated and
assumed responsibility for the pension plans of 70,000 workers and
retirees of the former Delphi Corporation, citing Delphi’s inability to afford
to maintain the plans. More specifically, according to PBGC officials, the
key factors that led to this action were Delphi’s failure to fund its pensions
during bankruptcy, and the company’s imminent sale and liquidation of its
assets as it left bankruptcy protection. Other suppliers avoided
bankruptcy, but still felt the effects of the slumping auto industry. For
example, American Axle and Manufacturing Holdings, Inc., an auto part
supplier that narrowly averted bankruptcy in 2009, estimated that the GM
and Chrysler factory shutdowns had cost the company $100.6 million in
sales and $29.3 million in operating income.
While some recent reports have indicated that the outlook for the
automakers and suppliers may be improving, the ability of suppliers to
fund their defined benefit plans in the future will rest, in part, on the
continued viability of the automakers. Moreover, any revival in the auto
supply sector may come too late for workers who have already had their
pension plans terminated and their benefits reduced to the PBGC benefit
guarantee levels. 59

59

For further details on PBGC’s guaranteed benefit limits, see appendix II.

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GAO-10-492 Troubled Asset Relief Program

Both PBGC and Plan
Participants Incur
Losses when
Underfunded Plans
Are Terminated

When an underfunded defined benefit plan is terminated, the PBGC bears
the costs of any unfunded liabilities up to the guaranteed benefit amounts
defined by ERISA, while plan participants bear the loss of benefits beyond
these guaranteed amounts that would go unpaid. 60 According to Treasury
officials, there is no indication that any of GM’s or Chrysler’s defined
benefit plans will be terminated. Nevertheless, to hypothetically examine
the potential impact if their plans were to be terminated, we explored how
PBGC and plan participants would have been affected had the plans been
terminated when these companies filed for bankruptcy in 2009, and the
factors at play that could change that picture if the plans were to be
terminated 5 years later.

PBGC’s Exposure Signals
Potential Impacts on Both
its Deficit and its
Resources

Following the termination of an underfunded defined benefit plan, PBGC
generally incurs losses that affect its deficit, as well as its resources. With
respect to its deficit, the amount of loss to the single-employer fund is
equal to the value of the unfunded guaranteed benefits required to be paid
under ERISA. 61 Although this is generally considerably less than the total
value of unfunded liabilities in a large auto sector pension plan, the loss
can still be substantial. With respect to its resources, PBGC must assume
responsibility for administering the terminated plan, including continuing
benefit payments to retirees, determining the assets and liabilities of the
plan as of the date of termination, calculating the guaranteed and
nonguaranteed benefit amounts owed each participant in the plan, and
keeping participants informed. When plans are large and complex, this can
be an enormous task, requiring years to complete.

60
This describes the situation when an underfunded defined benefit plan covered by PBGC’s
single-employer insurance program is terminated and benefits are paid subject to certain
limits. 29 U.S.C. § 1322. If a plan is covered by PBGC’s multiemployer insurance program,
PBGC will provide financial assistance, but it will not trustee the plan or pay unfunded
guaranteed benefits. 29 U.S.C. § 1341a. Also, while PBGC insures most defined benefit
plans, it does not insure some categories, such as defined benefit plans sponsored by
governments or churches. In addition, PBGC does not insure defined contribution plans. 29
U.S.C. § 1321(b)(1)-(3).
61

29 U.S.C. § 1361.

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PBGC’s Deficit-Related
Exposure

Each year, PBGC assesses its exposure to losses from underfunded
pension plans sponsored by financially weak companies. Its estimates of
exposure are based on companies with credit ratings below investment
grade or that meet one or more of the criteria for financial distress. PBGC
classifies the plans sponsored by these companies as “reasonably
possible” terminations. 62 At the end of fiscal year 2009, PBGC estimated
that its exposure from reasonably possible terminations was
approximately $168 billion, up from $47 billion a year earlier. 63 A
significant part of this increase was due to the dramatic increase in
exposure related to manufacturing, which PBGC attributed primarily to
changes in the auto industry, as well as primary and fabricated metals (see
fig. 6).

62
For PBGC to classify a plan as a “reasonably possible” termination, it must have $5 million
or more of underfunding, as well as meet additional criteria, such as that it has filed for
bankruptcy, has requested a funding waiver, has missed a minimum funding contribution,
or has a bond rating that is below-investment grade for Standard & Poor’s or Moody’s. At
even higher risk are those companies PBGC classifies as “probables,” which are those that
PBGC deems likely to terminate in the future. For more information on this topic, see GAO,
Private Pensions: Questions Concerning the Pension Benefit Guaranty Corporation’s
Practices Regarding Single-Employer Probable Claims, GAO-05-991R (Washington, D.C.:
Sept. 9, 2005).
63
PBGC’s exposure to loss ultimately may be less than these amounts because of the limits
on guaranteed benefits, as specified under ERISA and related regulations (see appendix II).
However, calculations taking into account these limits are not specifically factored into
PBGC’s estimates of exposure, per se, because it is difficult to prospectively determine the
precise extent and effect of the limits prior to a plan’s actual termination.

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GAO-10-492 Troubled Asset Relief Program

Figure 6: PBGC’s Estimate of Possible Exposure to Loss by Industry
Manufacturing a

21.0
101.3

Transportation,
communication,
and utilitiesb

16.2
30.6

Services

2.4
13.3

Wholesale
and retail
trade

4.5
13.0

Health
care

1.5
5.0

Agriculture,
mining, and
construction

0.7

Finance,
insurance, and
real estate

0.4

2.5

2.1

0

20

40

60

80

100

Dollars in billions
FY 2008
FY 2009
Source: PBGC 2009 Annual Report.

a

For fiscal years 2008 and 2009, manufacturing exposure was primarily from automobiles, auto parts,
and primary and fabricated metals.
b

For fiscal years 2008 and 2009, transportation exposure was primarily from airlines.

In May 2009, PBGC reported that unfunded pension liabilities across the
auto industry as a whole totaled about $77 billion as of January 31, 2009,
and accounted for about $42 billion of PBGC’s total exposure of $168
billion. 64 This means that, should all the auto industry’s underfunded plans
insured by PBGC be terminated and trusteed, PBGC would be required to
cover about $42 billion of the benefit amounts promised, adding to its
deficit. Between the end of fiscal years 2008 and 2009, the deficit in

64
PBGC calculates estimates of exposure by using information such as the reports
submitted to IRS and corporate annual reports. Although guaranteed benefit limit
calculations are not part of PBGC’s estimate of its exposure, per se, its estimate
nevertheless attempts to approximate the losses it would incur under ERISA upon a plan’s
termination. 29 U.S.C. § 1361. Also, PBGC officials noted that these estimates can change
substantially over time due to volatility in discount rates and plan asset values.

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GAO-10-492 Troubled Asset Relief Program

PBGC’s single-employer insurance program doubled in size from $10.7
billion to $21.1 billion. 65 Should all the underfunded auto industry plans
fail, PBGC’s January 2009 estimate indicated that its end of fiscal year 2009
deficit could triple in size. An increase of this magnitude would have
implications not just for PBGC’s accumulated deficit, but for its overall
funding going forward, as the auto industry is responsible for contributing
a significant portion of PBGC’s premiums each year. According to PBGC’s
most recent data book, the motor vehicle equipment industry accounted
for about 1.2 percent of all insured plans under the single-employer
insurance program in 2007, but 6.1 percent of all insured participants and
7.3 percent of all premiums.
With respect to PBGC’s exposure for GM’s and Chrysler’s pension plans in
particular, PBGC calculated its potential exposure prior to when the new
companies assumed sponsorship of the plans. Before the change in
sponsorship, PBGC estimated that its exposure for GM’s unfunded
guaranteed benefits would be about $9.0 billion, and that its exposure for
Chrysler’s unfunded guaranteed benefits would be about $5.5 billion (see
table 4).
Table 4: PBGC’s Estimates of Potential Exposure for GM’s and Chrysler’s Pension Plans in Early 2009
(Dollars in billions)
Estimated unfunded
benefit liabilities
GM
Chrysler
Total

Estimated unfunded
guaranteed benefit
liabilities

Estimated unfunded
nonguaranteed benefit
liabilities

$27.3

$9.0

$18.3

673,286

10.4

5.5

4.9

249,251

$37.7

$14.5

$23.2

922,537

Estimated number of
participants

Source: PBGC estimates, calculated on a termination liability basis.

Notes: GM estimates are as of January 31, 2009; Chrysler estimates are as of April 30, 2009—the
most recent PBGC estimates available. Totals exclude pension plans that are fully funded. PBGC
officials note that volatility in plan asset returns and valuation discount rates may cause significant
changes in these estimates over time.

65
PBGC holds assets in two categories of funds: the trust funds and the revolving funds. The
trust funds hold assets acquired from terminated plans; the revolving funds consist of
premium receipts. Separate funds are maintained for the single-employer and the
multiemployer programs. 29 U.S.C. § 1305.

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GAO-10-492 Troubled Asset Relief Program

Even without the change in sponsorship, actual losses to PBGC could be
substantially different, as estimates of exposure are inherently difficult to
calculate. For example, the significant volatility in plan underfunding and
sponsor creditworthiness over time makes long-term estimates of PBGC’s
expected claims difficult. Moreover, there is a time lag in making these
estimates. Estimates of exposure are generally based on company reports
filed as of December 31 of the previous year. Thus, the dramatic increase
in PBGC’s aggregate reasonably possible exposure between fiscal years
2008 and 2009 depicted in figure 6 was primarily due to the deterioration
of credit quality and poor asset returns that occurred during calendar year
2008. Subsequent changes in economic conditions (such as the steady rise
in equity returns since March 2009) were not yet reflected in these
estimates. In addition, actual losses due to terminated plans depend on
PBGC’s liability only for unfunded guaranteed benefits, but this is not
factored into the estimates because it is difficult to determine the extent
and effect of the limits on guaranteed benefits prior to actual termination. 66
However, PBGC’s exposure for unfunded guaranteed benefits in the auto
supply sector has already begun to materialize. Over the past year, the
plans of several large suppliers were terminated and trusteed by PBGC,
and PBGC estimates that the unfunded guaranteed benefits that it will be
required to pay to participants in the plans of these large suppliers will
exceed $6.6 billion (see table 5). The estimate for the pension plans of the
former Delphi Corporation alone is over $6.2 billion.
Table 5: Auto Supplier Pension Plans Terminated and Trusteed by PBGC, May 2009–January 2010
(Dollars in millions)

Supplier

Estimated unfunded
benefit liabilities

Estimated unfunded
guaranteed benefit
liabilities

Estimated unfunded
nonguaranteed benefit
liabilities

Estimated number of
participants

$4,500.0

$3,800.0

$700.0

47,176

2,700.0

2,200.0

500.0

20,203

65.0

60.0

5.0

2,229

Delphi Corporation
•

Hourly Plan

•

Salaried Plan

•

Other plans

66
Following termination of a plan insured under the single-employer program, the net
liability assumed by PBGC is equal to the present value of the future guaranteed benefits
payable by PBGC less amounts provided by the plan’s assets and amounts recoverable by
PBGC from the plan sponsor and members of the plan sponsor’s controlled group, as
defined by ERISA. 29 U.S.C. § 1301(a)(14).

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GAO-10-492 Troubled Asset Relief Program

Estimated unfunded
benefit liabilities

Estimated unfunded
guaranteed benefit
liabilities

Estimated unfunded
nonguaranteed benefit
liabilities

Estimated number of
participants

157.0

153.0

4.0

10,771

Hayes-Lemmerz
International

94.4

93.7

0.7

4,786

Foamex LP

79.0

76.0

3.0

5,504

Supplier
Metaldyne Corporation

Fluid Routing Solutions Inc.

29.7

24.9

4.8

2,400

Proliance International, Inc.

17.0

17.0

0.0

1,620

Contech U.S., LLC

13.6

12.0

1.6

532

Stant Manufacturing, Inc.
Total

9.0

8.9

0.1

900

$7,664.7

$6,445.5

$1,219.2

96,121

Source: GAO analysis of PBGC estimated data for each plan as of February 2010.

To help protect against further exposure, according to PBGC’s 2009 annual
report, the agency was continuing to monitor the auto industry and
negotiate settlements for additional pension protections in several autorelated corporate downsizing cases. For example, in the case of Visteon
Corporation, a large automotive supplier, PBGC negotiated an agreement
in January 2009 that required Visteon to provide over $55 million in
additional protections to workers at closed facilities by making cash
contributions to the plan, a letter of credit to PBGC, and a guaranty by
certain affiliates of certain contingent pension obligations. Similarly, in the
case of Cooper Tire & Rubber Company, PBGC negotiated a deal in August
2009 that required the plan sponsor to strengthen the plan by $62 million,
in connection with a plant closing in Albany, Georgia. According to PBGC,
such protections can help prevent plan termination or, in the event that
the plan does terminate, reduce the losses to the insurance program and
participants. 67

67

29 U.S.C. § 1362(e), which authorizes PBGC to assess plan liability when there is a
substantial cessation of operations by an employer.

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PBGC’s Resource-Related
Exposure

If PBGC were to become trustee of GM’s and Chrysler’s auto plans, the
impact on its resources would be unprecedented. As illustrated in figure 7,
the number of participants and trust fund assets that PBGC is responsible
for managing would increase dramatically. Moreover, in addition to their
sheer size, these plans have many of the characteristics that contribute to
complexity and delays in processing, such as a history of mergers,
complicated benefit formulas, movement of participants and assets across
plans, and large numbers of participants subject to one or more of the
legal limits on guaranteed benefits. 68
Figure 7: Size of GM’s and Chrysler’s Plans Compared with Total PBGC-Trusteed
Plans
Participantsa

Plan assets

Millions

Dollars in billions
1.48

1.5

104.4
84.5

GM

19.9

100

Chrysler

1.27
1.2
80
68.7

.96
.70

0.9

64.6
GM
60

0.6

40

0.3

20
.25

0

2008

Chrysler

2009

Total PBGC
participants b

0
Total
GM and
Chrysler c

2008

2009

Total PBGC
plan assets d

Total
GM and
Chrysler c

Source: GAO analysis of PBGC and automakers’ documents.
a

Participant data for PBGC and the automakers is summed by plan; therefore, employees who
participate in more than one plan are counted multiple times.

b

PBGC data includes participants in all plans terminated and trusteed under the single-employer
insurance program. (A very small number of payees—fewer than 200—are from multiemployer plans
that were terminated and trusteed prior to October 1980. Since October 1980, PBGC no longer
assumes trusteeship or pays benefits to participants of terminated multiemployer plans.)

68
See GAO, Pension Benefit Guaranty Corporation: More Strategic Approach Needed for
Processing Complex Plans Prone to Delays and Overpayments, GAO-09-716 (Washington,
D.C.: Aug. 17, 2009).

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GAO-10-492 Troubled Asset Relief Program

c

Automaker data include all U.S.-based defined benefit plans under each company’s sponsorship.
GM’s participant data are as of September 30, 2008, and Chrysler’s participant data are as of
January 1, 2008 (most recent data available). Data on plan assets reflect measurements in
accordance with Financial Accounting Standards. GM data are as of December 31, 2008; Chrysler
data are as of January 1, 2009.

d

PBGC data includes assets for all plans terminated and trusteed under the single-employer
insurance program.

Among plans terminated and trusteed by PBGC, the average number of
participants per plan is just under 1,000, 69 but most of GM’s and Chrysler’s
plans far exceed this average. For example, as of the end of September
2008, GM’s hourly plan had over 500,000 participants, and its salaried plan
had nearly 200,000. Based on counts as of the beginning of 2008 (the most
recent available), Chrysler’s UAW Plan had about 135,000 participants, and
the Chrysler Pension Plan had about 44,000 participants. Only two of
Chrysler’s ten plans had less than 1,000 participants. Taken together, the
number of participants in these two companies’ pension plans is equal to
about 40 percent of all the participants in all the plans terminated and
trusteed by PBGC since the agency was established in 1974. Even more
striking, taken together, the amount of assets in these two companies’
pension plans exceeds—by a considerable margin—the total amount of
assets that PBGC is currently managing for all the plans it has trusteed
combined (see fig. 6).
In addition to their large size, GM’s and Chrysler’s plans have many of the
characteristics that, as delineated in a previous report, 70 contribute to
complexity and delay in processing. For example, both GM and Chrysler
have long histories of acquisitions, mergers, and divestitures, stretching
over the past century (see appendix V). To determine the potential impact
on any current or future retirees or beneficiaries of the plan,
documentation concerning each change must be obtained, along with data
about any affected employees. An employee’s movement from one plan to
another also can cause complexity in benefit calculations. Even within a
plan, tiers can be created that treat some employees differently and make
benefit calculations more complicated. For example, at both GM and
Chrysler, different formulas were created for employees based on such
things as the date employees began participating in their plans or whether
or not they contributed to their plans.

69

GAO-09-716.

70

GAO-09-716.

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GAO-10-492 Troubled Asset Relief Program

Delays also result when PBGC must adjust participants’ benefits to comply
with legal requirements. PBGC guarantees participants’ benefits only up to
certain limits, specified under ERISA and related regulations. 71 Among
GM’s and Chrysler’s plans, certain provisions and characteristics of
participants suggest that many would likely be subject to one or more of
these limits should the plans be terminated, as discussed further in the
next section. Recent changes in the law added new provisions concerning
the treatment of certain events, such as plant shutdowns and attrition
programs (referred to as “unpredictable contingent events”). 72 PBGC has
begun to grapple with some of these complexities following the
termination of the Delphi plans, as many of the benefits provided by the
Delphi plans reflect negotiations with UAW and are similar to benefits
provided by UAW plans across the auto sector.
In its 2009 annual report, PBGC noted that it has been taking steps to
prepare for the possible trusteeship of large auto industry plans by
defining the changes to its infrastructure that would be needed to handle
the increase in workload. The types of changes examined as part of this
effort included expanded contracts, additional staff, and increased
capacity in its information technology system.

High Earners and Early
Retirees Are Most At Risk
for Reduced Benefits

When ERISA’s guarantees do not cover all pension benefits promised by
an underfunded plan that is terminated, those participants whose benefits
are reduced share in the losses from the plan’s termination. In many cases
involving terminated and trusteed plans, participants’ full benefit amounts
are guaranteed and their benefits are not reduced as a result of the
termination. But in cases involving complex plans with generous benefit
structures such as GM’s and Chrysler’s, large numbers of participants are
likely to have benefits subject to the guarantee limits and, depending on
the extent of plan underfunding at termination, these participants would
be at risk of having their benefits reduced as a result. When PBGC
calculated its exposure across the auto sector as a whole in January
2009—prior to the shift in sponsorship of GM’s and Chrysler’s plans to the

71

29 U.S.C. § 1322(b)(1), (3) and (7), and 29 C.F.R. §§ 4022.21, 4022.24 and 4022.25 (2009).
These guarantee limits are commonly referred to as the maximum limit, the “accrued-atnormal” limit, and the phase-in limit. For further details, see appendix II.

72
PPA amended ERISA to provide a special phase-in rule for shutdown benefits and other
unpredictable contingent event benefits. 29 U.S.C. § 1322(b)(8). PBGC intends to issue a
separate rule to implement this section of the law, but the proposed rule has not yet been
published.

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new companies—PBGC estimated that about $35 billion in unfunded
liabilities would be nonguaranteed benefits; that is, plan participants
would bear losses for about $35 billion in benefits not funded by the
company and not guaranteed by PBGC if all the at-risk underfunded plans
across the sector were terminated. Of this $35 billion, about half ($18
billion) was attributable to GM’s plans, and another $5 billion was
attributable to Chrysler’s plans.
Participants most often affected by the application of guaranteed benefit
limits are high earners whose benefits exceed the maximum limit, 73 those
who take early retirement, and those whose benefits increased due to
recent plan amendments. We were unable to obtain precise data on the
number of GM and Chrysler plan participants whose benefits might be
reduced due to these limits; however, GM and Chrysler pension plans
provide several options for early retirement, with supplemental benefits to
those who retire before age 62 as a bridge to Social Security benefits.
Under one type of guarantee limit (the accrued-at-normal limit), 74 any
supplements being provided to retirees as of the date of plan termination,
and any supplements to be provided to future retirees, would not be
guaranteed. According to PBGC officials, a significant number of GM and
Chrysler participants could be vulnerable to having their benefits reduced
due to this limit should the pension plans be terminated. In addition,
retirees whose benefits reflect increases in the 5 years prior to the date of
plan termination could be subject to another type of guarantee limit (the
phase-in limit). 75 For example, if GM’s and Chrysler’s plans had been
terminated in 2009, this limit would have affected the increases in benefits
provided in the 2007 UAW contracts negotiated with both GM and
Chrysler, causing only a part of those increases to be guaranteed. 76 The

73
In 2009, the maximum monthly guarantee limit for those age 65 with no survivor benefit
was $4,500, or $54,000 annually. Retirees who are under age 65 as of the date of plan
termination could be subject to a maximum limit on their monthly benefit that is
considerably lower. For example, in 2009, the monthly maximum limit for a retiree age 60
was $2,925, and for a retiree age 50, just $1,575.
74

For more details about the accrued-at-normal limit, see appendix II.

75

For more details about the phase-in limit, see appendix II.

76

In addition, this limit would have eliminated the additional $300 monthly benefit provided
to certain post-65 retirees and surviving spouses in GM’s salaried plan in exchange for
elimination of their company-sponsored retiree health care.

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GAO-10-492 Troubled Asset Relief Program

increases included as benefit enhancements offered as part of recent
attrition programs would be subject to the phase-in limit, as well. 77
Although many participants would likely lose some portion of their
nonguaranteed benefits if the automakers’ plans were terminated, not all
would be at equal risk. This is because when a pension plan is terminated
and trusteed by PBGC, ERISA specifies that the remaining assets of the
plan and any funds recovered for the plan from company assets be
allocated to participant benefits according to a certain priority order (see
appendix VI). 78 Due to this allocation process, if GM and Chrysler plans
were terminated, participants who were retired (or eligible to retire) for at
least 3 years would be most likely to have some or all of their
nonguaranteed benefits paid, while those participants who retired early—
especially those who retired under one of the special attrition programs—
would be most at risk for having their benefits reduced. 79

Passage of Time Would
Shift Termination Losses
for PBGC and Plan
Participants

The exposure to loss from plan termination would shift over time, but it is
unclear whether PBGC or plan participants would be better off as a result.
Hypothetically, if plans were to terminate 5 years into the future—in 2014
instead of 2009—overall losses could either increase or decrease, and how
those losses would be shared between PBGC and plan participants would
likely shift as well. For example, plan assets could grow or diminish over
time, depending on investment returns and employer contributions. Plan
liabilities could also grow or diminish over time, depending on interest
rates, ages of participants, and whether benefits are revised in future
years. In addition, more participants could acquire vested benefits over
time, increasing liabilities; while more benefits would have been paid over
time, decreasing liabilities.
How the losses due to unfunded benefits would be shared between PBGC
(for guaranteed benefits) and plan participants (for nonguaranteed

77

For a list of recent GM and Chrysler attrition programs, see appendix III.

78

29 U.S.C. §§ 1322(c) and 1344.

79

After benefits derived from employee contributions are paid, benefits of those retired (or
eligible to retire) for at least 3 years are given priority status in this allocation process
(priority category 3). In terminations of large complex plans, plan assets typically are
depleted with the payment of benefits in this priority category. (See GAO-09-716, table 4.)
For PBGC’s example benefit calculations that illustrate how termination of the automaker
pension plans might impact participant benefits, see appendix VII.

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GAO-10-492 Troubled Asset Relief Program

benefits) could also shift over time. For example, participants’ monthly
amount of guaranteed benefits would increase over time for three main
reasons: (1) more workers would be eligible to retire with more generous
benefits, based on years of service; (2) the maximum limits are updated
each year and thus would increase, and people would grow older, so the
cutbacks due to this limit would grow smaller; and (3) the benefit
reductions due to the phase-in limit would be phased out. This increase in
the monthly amount of guaranteed benefits would tend to shift costs from
participants to PBGC. Meanwhile, over time, more participants will have
been retired (or eligible to retire) for 3 years or more, and thus have
benefits eligible for higher priority status in the asset allocation process. 80
In addition to shifting the distribution of benefits to be paid among
different groups of participants, this could also cause more of the plan’s
remaining assets to be allocated to guaranteed benefits within this priority
category, with less available to cover nonguaranteed benefits, resulting in
a shift in costs from PBGC to plan participants.
Taking all these factors into account, it is unclear whether the passage of time
would increase or decrease the overall cost of unfunded guaranteed benefits
to be paid by PBGC compared with the loss of unfunded nonguaranteed
benefits to be borne by plan participants. Clearly, improvements in the
financial well-being of the companies and their pension plans would serve the
best interests of both PBGC and plan participants.

80

For examples of this impact on participant benefits, see appendix VII.

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GAO-10-492 Troubled Asset Relief Program

Balancing Multiple
Federal Roles May
Create Tensions and
Challenges

As a result of GM’s and Chrysler’s restructuring, the federal government
has assumed new roles vis-à-vis the automakers as part-owner and lender,
in addition to its traditional role as pension regulator. 81 On behalf of the
U.S. taxpayer, Treasury has an interest, as a shareholder, in the financial
well-being of the companies, as well as the viability of their pension
plans. 82 These interests may diverge at times. Although Treasury has
established policies designed to separate these interests, the perception of
a conflict could arise, for example, should choices need to be made
regarding the allocation of funds from the companies to their pension
plans.

Treasury Has Established
Various Structures to
Mitigate Any Risk Related
to Conflicts

Under normal circumstances, transparency and disclosures to the public
related to agency actions can often mitigate risks related to conflicts of
interest. But, in this case, because this involves private companies and
business sensitive information, Treasury is less able to rely on transparency
and disclosure in its dealings with the automakers to mitigate any potential
conflicts of interest. Nevertheless, as we have previously reported, what
Treasury’s goals are for its investment in Chrysler and GM, among other
things, is important information for Congress and the public to have. 83
Although Treasury provides public information on TARP activities,
including AIFP, through its legally mandated monthly reports to Congress,
transaction reports, and others, these reports do not provide information on
the indicators Treasury may use in assessing the goals for its auto
investments and the status of the automakers’ pensions. Identifying these
indicators for Congress, and sharing as much of this information as possible,
while still respecting the sensitivity of certain business information, could
help Congress and the public better understand whether the investment in

81
The IRS oversees the tax qualified status of pension plans and the Secretary of the
Treasury serves as one of the three members on PBGC’s board of directors. 26 U.S.C. §
401(a) and 29 U.S.C. § 1302(d). In addition, PBGC provides insurance for most private
defined benefit plans. 29 U.S.C. § 1321.
82
Previous reports have discussed the conflicts of interest that could be created by having
the government both regulate and hold an ownership interest in an institution or company.
See GAO, Troubled Asset Relief Program: The U.S. Government Role as Shareholder in
AIG, Citigroup, Chrysler, and General Motors and Preliminary Views on its Investment
Management Activities, GAO-10-325T (Washington, D.C.: Dec. 16, 2009); GAO, Troubled
Asset Relief Program: Status of Efforts to Address Transparency and Accountability
Issues, GAO-09-296 (Washington, D.C.: Jan. 30, 2009); and GAO, Troubled Asset Relief
Program: Additional Actions Needed to Better Ensure Accountability, Integrity, and
Transparency, GAO-09-161 (Washington, D.C.: Dec. 2, 2008).
83

GAO-10-151.

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the auto companies has been successful and help mitigate potential or
perceived conflicts of interest.
Recognizing the potential for interested parties to perceive conflicts,
Treasury has taken several other steps to mitigate its risk. First, to guide
its oversight of the investments going forward and limit its involvement in
the day-to-day operations of the companies, Treasury developed four core
principles: (1) acting as a reluctant shareholder, for example, by not
owning equity stakes in companies any longer than necessary; (2) not
interfering in the day-to-day management decisions; (3) ensuring a strong
board of directors; and (4) exercising limited voting rights. According to
Treasury officials, use of these core principles defines the operating
boundaries of the federal role within its ownership context by limiting the
reach and ability of the government to exert its powerful influence on the
business and operational matters of these companies. Officials noted that
the core principle of not interfering in day-to-day decisions has been
particularly helpful in dealing with political pressures related to business
operations. For example, officials said that Treasury’s auto team received
about 300 congressional letters in 2009 regarding day-to-day management
issues involving GM and Chrysler. Several of these letters asked about
company decisions and strategies, or called on Treasury to exert influence
on the companies’ business decisions. Some letters lobbied either in favor
of or against a certain practice or activity. Other letters have been passed
along on behalf of a particular constituent concern. Treasury officials said
that, because of their core principle, most of the time they can simply
reply to such letters by reiterating their policy of not getting involved with
the companies’ business decisions, and as a result, they have been able to
avoid having to respond to these pressures.
Second, to implement these core principles, Treasury established a
protective barrier between the Treasury officials (beneath the Secretary
level) who make policy-related decisions with respect to investments in
the automakers and the Treasury officials who are responsible for
regulating pensions or overseeing the operations of PBGC. In theory, this
barrier prevents Treasury in its role as owner from interacting with
Treasury in its role as pension regulator or overseer of PBGC. Treasury
officials stated that, in the management of its investment in GM and
Chrysler, the Treasury auto team does not communicate with the IRS or
PBGC.
Given the importance of balancing its competing interests as regulator and
part-owner, and mitigating the appearance of conflicts between these
interests, it is essential that Treasury ensure that it has an adequate

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GAO-10-492 Troubled Asset Relief Program

number of staff with the appropriate skills and expertise to carry out its
various tasks. Because of earlier reductions in the number of Treasury
staff working on the AIFP and Treasury’s stated plans to disband the team
focused exclusively on managing Treasury’s stake in the auto industry, we
recently recommended that Treasury ensure it has the expertise needed to
adequately monitor and divest the government’s investments in Chrysler
and GM. 84 We believe that ensuring sufficient staffing continues to be
essential, particularly in light of the circumstances discussed here.
Subsequent to our making this recommendation, Treasury officials said
they hired two additional analysts dedicated solely to monitoring
Treasury’s investments in Chrysler and GM, and planned to hire one more.

Despite These Efforts,
Tensions May Remain

The steps taken to mitigate any risks likely to result should conflicts of
interest arise—adoption of the core principles and establishment of a
protective barrier—may help, but the tensions inherent in Treasury’s
multiple roles remain. This can be illustrated by the conflicting pressures
that would likely be brought to bear in two critical and interrelated
contexts: (1) how to respond to a decline in pension funding; and (2) how
to decide when to sell the government’s shares of stock.
Treasury officials told us they expect both GM and Chrysler to return to
profitability. If this is the case, and the companies are able to make the
required contributions to their pension plans as they become due, then
Treasury’s multiple roles are less likely to result in any perceived conflicts.
However, if the funding of any of GM’s or Chrysler’s defined benefit plans
declines below certain funding levels set out in statute, 85 the company may
request a waiver—that is, request permission from IRS (within Treasury) to
reduce its required contributions to its plans over an extended period.
Despite Treasury’s protective barrier and the autonomy of IRS to grant or
refuse such a waiver request apart from any influence from other units
within Treasury, some may still perceive a possible tension between
Treasury’s interest in the value of its shareholder investment and Treasury’s
interest, through its oversight of PBGC, in ensuring the viability of the
pension plans.
In addition, Treasury has been clear that it wants to divest its shares as soon
as practicable, but it must weigh a variety of factors when making the

84

GAO-10-151.

85

26 U.S.C. §§ 412 and 430.

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GAO-10-492 Troubled Asset Relief Program

decision about when and how this should happen. Treasury officials said that
on the basis of their analysis of the companies’ future profitability, they
believe that both GM and Chrysler will be able to attract sufficient investor
interest for Treasury to sell its equity. However, circumstances that may
appear advisable as to the best time to sell from a shareholder perspective—
that is, which would maximize the return on the taxpayer’s investment—
could be at odds with the best interests of plan participants and beneficiaries.
For example, Treasury could decide to sell its equity stake at a time when it
would maximize its return on investment, but when the companies’ pension
plans were still at risk.
Finally, in the event that the companies do not return to profitability in a
reasonable time frame, Treasury officials said that they will consider all
commercial options for disposing of Treasury’s equity, including forcing the
companies into liquidation, which would likely mean that the companies’
pension plans would be terminated and decisions would need to be made
about the allocation of remaining company assets. In such circumstances,
although there is a protective barrier preventing Treasury in its role as
shareholder from interacting with Treasury in its role overseeing the PBGC,
it may be difficult for the agency to make certain decisions without some
perceiving a tension between these two separate roles.

Concluding
Observations

Treasury’s substantial investment and other assistance, as well as loans
from the Canadian government and concessions from nearly every
stakeholder, including the unions, have made it possible for Chrysler and
GM to stabilize and survive years of declining market share and the
deepest recession since the Great Depression. However, because of the
ongoing challenges facing the auto industry—including the still recovering
economy and weak demand for new vehicles—the ultimate impact that the
assistance will have on the companies’ profitability and long-term viability
remains uncertain. This, too, is the case for the companies’ pensions. The
companies’ ability to make the large contributions that would be required
based on current projections is mostly dependent on their profitability.
Treasury officials who oversee TARP expect both automakers to return to
profitability. Ultimately, much of the automaker recovery is not only
dependent on how well the automakers turn their companies around but
also how well the overall economy and employment levels improve.
The suppliers’ future is even more complex. GM and Chrysler are expected
to continue to reduce the number of suppliers that they use going forward.
Suppliers have diversified their client base to include many other domestic
and international automakers to minimize the impact of such cuts, but this

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GAO-10-492 Troubled Asset Relief Program

has caused their viability to be more dependent on a global economic
recovery, which has been slow. As a result, supplier bankruptcies and
pension plan terminations may continue for the near future.
In light of these conditions, the risks to PBGC and participants in auto sector
pension plans remain significant. PBGC estimated its exposure for unfunded
guaranteed benefits across the sector to be about $42 billion as of January 31,
2009, and the exposure for plan participants for unfunded nonguaranteed
benefits to be about $35 billion. The federal government and its institutions,
the automakers, and the unions have all made a concerted effort to ensure
that GM and Chrysler do not fail. But, should the automakers not return to
profitability, interests may no longer be aligned. Treasury officials said that
they will consider all commercial options for disposing of Treasury’s equity,
including liquidation; this would likely mean terminating the companies’
pension plans, and allocating remaining company assets. In such
circumstances, it would be difficult for Treasury to make any decisions that
would trade off the value of its investment against the expense of the pension
funds, potentially exposing the government either to loss of its TARP
investment or to significant worsening of PBGC’s financial condition. This is
not a choice the government wants to face, but this risk and its attendant
challenges remain real.
We recently recommended that Treasury should regularly communicate to
Congress about TARP activities, including the financial health of GM and
Chrysler. 86 This would include information on the companies’ pensions as
an integral part of the companies’ financial health. Treasury already
provides some information on its investments in the automakers through
its monthly reports to Congress. In response to our previous
recommendations, Treasury said that it intended to develop an approach
for reporting on its investments in the auto industry that strikes an
appropriate balance between transparency and the need to avoid
compromising the competitive positions of the companies, and that it was
implementing a communication strategy to provide key congressional
stakeholders more current information about its TARP activities. These
reports could provide a vehicle to report publicly available information on
the financial status of the automakers’ pensions. Such disclosure could
help mitigate the potential or perceived tensions that could arise with the
federal government’s multiple roles with respect to the automakers and,

86

GAO-10-151.

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when the time comes, could shed light on how Treasury’s decision to
divest will impact the companies’ pension plans.

Agency Comments
and Our Evaluation

We obtained written comments on a draft of this report from the
Department of the Treasury (see appendix VIII) and from PBGC (see
appendix IX). Treasury generally agreed with our findings, but reiterated
the importance of striking an appropriate balance in its public reporting
between its goal of transparency and the need to avoid compromising the
competitive positions of the companies or its ability to recover funds for
taxpayers. Treasury noted that it already provides “a wealth of
information” about AIFP on its Web site, and also provides periodic
updates to oversight bodies, including GAO. It further noted that it will
provide additional reports on its investments in Chrysler and GM as
circumstances warrant, but that it will not communicate confidential
business information due to the potential to negatively affect the value of
the investments. Treasury concluded that, given its role as a shareholder, it
would be inappropriate for it to report separately on the assets and
liabilities in the automakers’ pension plans to Congress and the public.
We understand the importance of protecting the automakers’ proprietary
interests. However, as we pointed out in our report, Treasury’s role is
multifaceted, serving not only as a shareholder and creditor for Chrysler
and GM, but also as a regulator of pensions. As a creditor of these
companies, Treasury should know and disclose the pension commitments,
which represent liabilities for these companies. These liabilities must be
taken into account when evaluating the financial status of these
companies. GM and Chrysler are already required to disclose certain
information about the status of their pensions in publicly available reports.
By including this publicly available information on the status of the
automakers’ pension plans in its reports to Congress, Treasury could
provide a more complete picture of the companies’ financial health and
help mitigate any perceived tensions between the various roles that the
Treasury currently plays as shareholder, creditor, and pension regulator
without compromising the companies’ competitive positions.
Both Treasury and PBGC provided technical comments, which are
incorporated into the report where appropriate. In addition, we received
technical comments on certain segments of the draft report from GM,
Chrysler, and Delphi, and have incorporated their comments where
appropriate, as well.

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GAO-10-492 Troubled Asset Relief Program

We are sending copies of this report to other interested congressional
committees and members, the Acting Director of PBGC, the Secretary of
Labor, the Secretary of the Treasury, and other interested parties. In
addition, the report is available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staff have any questions concerning this report, please
contact Barbara Bovbjerg at (202) 512-7215 (bovbjergb@gao.gov) or A.
Nicole Clowers at (202) 512-2843 (clowersa@gao.gov). Contact points for
our offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to this
report are listed in appendix X.

Gene L. Dodaro
Acting Comptroller General
of the United States

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GAO-10-492 Troubled Asset Relief Program

List of Committees
The Honorable Daniel K. Inouye
Chairman
The Honorable Thad Cochran
Vice Chairman
Committee on Appropriations
United States Senate
The Honorable Christopher J. Dodd
Chairman
The Honorable Richard C. Shelby
Ranking Member
Committee on Banking, Housing,
and Urban Affairs
United States Senate
The Honorable Kent Conrad
Chairman
The Honorable Judd Gregg
Ranking Member
Committee on the Budget
United States Senate
The Honorable Max Baucus
Chairman
The Honorable Charles E. Grassley
Ranking Member
Committee on Finance
United States Senate
The Honorable David R. Obey
Chairman
The Honorable Jerry Lewis
Ranking Member
Committee on Appropriations
House of Representatives

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The Honorable John M. Spratt, Jr.
Chairman
The Honorable Paul Ryan
Ranking Member
Committee on the Budget
House of Representatives
The Honorable Barney Frank
Chairman
The Honorable Spencer Bachus
Ranking Member
Committee on Financial Services
House of Representatives
The Honorable Sander M. Levin
Acting Chairman
The Honorable Dave Camp
Ranking Member
Committee on Ways and Means
House of Representatives

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Appendix I: The Delphi Story

Appendix I: The Delphi Story

Both as the former Delphi, prior to bankruptcy, and now as the “new
Delphi,” postbankruptcy, the Delphi Corporation has been a leading global
supplier of mobile electronics and transportation systems, including
powertrain, safety, thermal, controls and security systems,
electrical/electronic architecture, and in-car entertainment technologies.
Delphi evolved as part of General Motors (GM) until it was spun off as a
separate entity in 1999. At the time it filed for Chapter 11 bankruptcy in
2005, the company employed more than 185,000 workers in 38 countries,
making it one of the largest suppliers in the world.
The former Delphi Corporation sponsored six defined benefit plans for its
U.S.-based workers:
•

the Delphi Hourly-Rate Employees Pension Plan;

•

the Delphi Retirement Program For Salaried Employees;

•

the Packard-Hughes Interconnect Bargaining Retirement Plan;

•

the Packard-Hughes Interconnect Non-Bargaining Retirement Plan;

•

the ASEC Manufacturing Retirement Program; and

•

the Delphi Mechatronic Systems Retirement Program.
Following Delphi’s spin off from GM in 1999, GM agreed with its unions,
including the International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW), to offer pension
protections for certain employees in the event that Delphi’s pension plans
would be frozen or terminated. Specifically, under the agreement, GM
agreed with three unions to provide certain former GM employees retired
from Delphi certain pension benefits that would otherwise not be paid by
Delphi or by the Pension Benefit Guaranty Corporation (PBGC) upon plan
termination. Salaried and certain other union-represented employees did
not receive similar contractual commitments from GM with respect to
their pensions or other postemployment benefits, and they are suffering
the full impact of their Delphi plans having been frozen and terminated.
In addition, GM agreed to provide transfer rights for certain Delphi hourly
UAW-represented employees in the United States. Specifically, it provided
these employees with “flowback” opportunities to transfer to GM as
appropriate job openings became available at GM. GM employees in the U.S.
had similar opportunities to transfer to Delphi. The original flowback

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Appendix I: The Delphi Story

agreement provided that, when an employee transferred, the employee
would be eligible for pension benefits which reflected the transferring
employee’s combined years of credited service. The parties did not transfer
pension assets or liabilities in order to accomplish this. Rather, pension
responsibility between Delphi and GM was allocated on a pro-rata basis
based upon the employee’s credited service at each company.
After Delphi and its U.S. subsidiaries filed for bankruptcy in 2005, there
were extensive efforts involving negotiations between Delphi, GM, and
other stakeholders to keep the pension plans ongoing. On September 30,
2008, the company froze its salaried plan, the ASEC Manufacturing
Retirement Program, the Delphi Mechatronic Systems Retirement Program
and the Packard Hughes Interconnect Non-Bargaining Retirement Plan.
The company also reached agreement with its labor unions allowing it to
freeze the accrual of traditional benefits under its hourly plan, effective as
of November 30, 2008.
Delphi received the consent of its labor unions and approval from the
court to transfer certain assets and liabilities of Delphi’s hourly plan to
GM’s hourly plan. The first transfer involved liabilities of approximately
$2.6 billion and assets of approximately $486 million (about 90 percent of
the estimated $540 million of assets initially scheduled to be transferred).
It was anticipated that the remaining assets would be transferred by March
29, 2009, upon finalizing the related valuations. In exchange for the first
transfer, Delphi’s reorganization plan released GM from all claims that
could be brought by its creditors with respect to, among other things, the
spin off of Delphi, any collective bargaining agreements to which the
former Delphi was a party, and any obligations to former Delphi
employees.
Although the first transfer had the effect that no contributions were due
under the hourly plan for the plan year ended September 30, 2008, Delphi
still had a funding deficiency of $56 million for the salaried plan and an
approximate $13 million funding deficiency for its other pension plans for
the plan year ending September 30, 2008. Delphi applied to the Internal
Revenue Service (IRS) for a waiver of the obligation to make the minimum
funding contribution to the salaried plan by June 15, 2009, and requested
permission, instead, to pay the amount due in installments over the
following 5 years. However, Delphi abandoned the waiver request when it
became clear that it could not afford to maintain the salaried plan and that
GM was not going to assume it.

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Appendix I: The Delphi Story

In the second phase of the transfer, Delphi expected to transfer
substantially all of the remaining assets and liabilities of the hourly plan to
GM. In exchange for the second transfer, GM was to receive a $2 billion
administrative claim when Delphi emerged from bankruptcy. In its 2008
annual report, Delphi was cognizant that the second pension transfer to
GM was contingent upon its emergence from Chapter 11 under a modified
plan of reorganization. If these conditions were not satisfied and the
second transfer did not take place, it would likely be unable to fund its
U.S. pension obligations. Specifically, Delphi stated that
“ . . . due to the impact of the global economic recession, including reduced global
automotive production, capital markets volatility that has adversely affected our
pension asset return expectations, a declining interest rate environment, or other
reasons, our funding requirements have substantially increased since September 30,
2008. Should we be unable to obtain funding from some other source to resolve these
pension funding obligations, either Delphi or the Pension Benefit Guaranty
Corporation (the “PBGC”) may initiate plan terminations.”

Delphi’s financial difficulties continued, and when the second transfer of
pension assets and liabilities to GM was not implemented on July 31, 2009,
PBGC terminated all six of Delphi’s U.S. qualified defined benefit plans.
PBGC assumed responsibility for the plans on August 10, 2009. According
to PBGC, this step was necessary because Delphi had stated that it could
not afford to maintain its pension plans and GM, which itself had
reorganized in bankruptcy earlier in the year, had stated that it was unable
to afford the additional financial burden of the Delphi pensions. PBGC
stated that the Delphi pension plans were $7 billion underfunded when
they terminated the plans. PBGC estimates that it will make up about $6
billion of that shortfall using PBGC funds. Following PBGC’s takeover of
the plans, on October 6, 2009, in accordance with Delphi’s plan of
reorganization, the former company sold its U.S. and foreign operations to
a new entity, Delphi Automotive LLP, with the exception of four UAW
sites in the United States and its steering business, which were sold to GM.
PBGC has acknowledged that the calculation of benefits for former Delphi
plan participants will be a difficult, lengthy process due to the plans’
complex benefit structures and the availability of documentation for all
the mergers and acquisitions that have taken place throughout the life of
the plans. On its Web site, PBGC stated that it could take 6 to 9 months
from Delphi’s date of trusteeship before it adjusted benefits to estimated
PBGC benefit amounts. Moreover, PBGC noted that it could take several
years to fully review the plan and finally determine all benefit amounts.

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Appendix II: Legal Limits on PBGC
Guaranteed Benefits

Appendix II: Legal Limits on PBGC
Guaranteed Benefits
To help protect the retirement income of U.S. workers with private sector
defined benefit plans, PBGC guarantees participant benefits up to certain
limits specified under the Employee Retirement Income Security Act of
1974 (ERISA) and related regulations. These limits include the phase-in
limit, the accrued-at-normal limit, and the maximum limit, as illustrated
below in figure 8.
Figure 8: Determining If a Participant’s Guaranteed Benefit Is Subject to Legal Limits

Summary of legal provisions

Is the full amount of my benefit guaranteed?

Was your benefit
increased in the
last 5 years?

The “phase-in” limit
will likely reduce your
guaranteed benefit.a

Phase-in limit: The guaranteed benefit cannot
include any benefit increase implemented through
a plan amendment that was made within 1 year
of the date of the plan termination. For benefit
improvements that became effective more than
1 year but less than 5 years prior to the plan’s
termination, the guaranteed amount is the larger
of 20 percent of the benefit increase or $20 per
month of the increase for each full year the
increase was in effect. 29 U.S.C. § 1322(b)(1)
and (7); 29 C.F.R. § 4022.25 (2009).

The “accrued-at-normal”
limit will likely reduce your
guaranteed benefit.

Yes

The portion of
a benefit increase
that is guaranteed
is reduced for
each year it
was not in effect
during the last
5 years.

Supplemental
benefits that
exceed the
retirement benefit
provided at normal
retirement age are
not guaranteed.

Accrued-at-normal limit: The monthly
guaranteed benefit cannot be greater than the
monthly benefit provided as a straight-life annuity
(that is, a periodic payment for the life of the
retiree, with no additional payments to survivors)
available at the plan’s normal retirement age. The
portion of any combined early retirement benefit
and supplemental benefit that exceeds the normal
retirement age straight-life annuity is eliminated
by this provision. 29 C.F.R. § 4022.21 (2009).

The “maximum”
limit will likely
reduce your
guaranteed
benefit.

The level of
guaranteed benefits
is limited by an
amount set by law.
It is also lower for
those retiring before
age 65 or those
with a survivor benefit.

No

Did you
receive any
supplemental
benefits?

Yes

No

Is your benefit
amount greater
than the maximum
set by law for your
age at retirement
and type of benefit?

Yes

Maximum limit: The guaranteed benefit
cannot exceed the statutory maximum,
adjusted annually, at the time the plan
terminates. In 2010, the maximum is $54,000
per year for a person retiring at age 65 and
with no survivor benefit (that is, a single-life
annuity). The maximum is lower for those
retiring under age 65 or with a survivor benefit.
29 U.S.C. § 1322(b)(3); and 29 C.F.R.
§ 4022.23 (2009).

No

Your benefit is likely to be fully guaranteed.

Source: GAO analysis of ERISA, PBGC’s implementing regulations and related documents.
a

Benefit increases subject to phase-in limits also include “unpredictable contingent event benefits”
(such as shutdown benefits). In addition, in cases involving bankruptcy, the date the bankruptcy
petition was filed is treated as the termination date of the plan.

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Appendix III: Recent Attrition Programs at
GM and Chrysler

Appendix III: Recent Attrition Programs at
GM and Chrysler

Table 6: Recent Attrition Programs at GM
Plan/program

Estimated impact on pension
a
obligations

Description

Hourly Plan
2006 Special Attrition
Program

Hourly UAW employees and select Delphi UAW employees were $1.2 billion decrease in obligations
(34,400 acceptances)
offered the following:
•
Lump-sum payment of $35,000 for normal or early voluntary
retirement (paid from company assets).
•
“Mutually satisfactory retirement” for age 50 and 10 years of
service and preretirement leave for select employees,
depending on plant location.
•
Buyout of $140,000 for employees with 10 or more years of
service and $70,000 for employees with less than 10 years
of service (paid from company assets).

2008 Special Attrition
Program

$0.8 billion increase in obligations
About 74,000 UAW-represented employees and 2,300 other
(18,700 acceptances)
union-represented employees were offered the following:
•
Lump sum payment for retirement-eligible employees
($45,000 for production and $62,500 for skilled trade) funded
from plan assets. Lump sum payable as an annuity, if
elected.
•
“Mutually satisfactory retirement” for age 50 and 10 or more
years of service.
•
Preretirement leave for employees with 26-29 years of
service.
•
Buyout of $140,000 for employees with 10 or more years of
service, and $70,000 for employees with less than 10 years
of service (paid from company assets).

Special Attrition Program
3.0 (February 2009)

About 57,000 hourly UAW employees were offered the following:
•
$45,000 incentive value offered to production and skilled
employees for normal/voluntary retirement and buyout.
Incentive included $25,000 vehicle voucher plus $20,000
cash.
•
“Mutually satisfactory retirement” for age 55 with 10 or more
years of service, and age 50 with 10 or more years of service
for select closed or closing plants.
All cash payments were funded from company assets.

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$1.2 billion increase in obligations
(February and June programs
combined)
(7,000 acceptances in February
program)

GAO-10-492 Troubled Asset Relief Program

Appendix III: Recent Attrition Programs at
GM and Chrysler

Estimated impact on pension
a
obligations

Plan/program

Description

Special Attrition Program
3.1 (June 2009)

About 50,000 hourly UAW employees were offered the following: (6,000 acceptances in June program)
•
Normal/voluntary retirement incentive value of $45,000
(production) and $70,000 (skilled). Incentive included
$25,000 vehicle voucher.
•
Buyout incentive value of $70,000 for those with less than 10
years of service; $105,000 for those with 10 to 20 years of
service; and $140,000 for those with 20 or more years of
service. Incentive included $25,000 vehicle voucher.
•
Preretirement leave offered to employees with 28 and 29
years seniority.
•
“Mutually satisfactory retirement” for age 50 and 10 or more
years of service.
All cash payments were funded from company assets.

Salaried Plan
2008 Salaried Window
Retirement Program

Voluntary retirement offers were extended to certain U.S. salaried $0.3 billion increase in obligations
(3,700 acceptances)
employees, as follows:
•
6-month cash lump sum payment from the pension plan for
all retirement-eligible employees (age 62 and older) who
elect to retire or for employees under age 55 who will receive
reduced benefits. Lump sum payable as an annuity, if
elected.
•
Enhanced window retirement factors for employees ages 55
to 61 who are eligible but do not elect the lump sum
payment.

$0.5 billion increase in obligations
2009 Salaried Window
Offers were extended to about 5,700 salaried employees for
Retirement and Involuntary retirements targeted for October 1, 2009, as follows:
(3,000 acceptances)
Severance Program (June •
Unreduced pension benefits for participants age 58 and older
2009)
as of October 1, 2009; participants ages 53-57 would receive
enhanced window retirement benefits.
•
Severance program provides monthly base salary payments
up to 6 months (if classified) or 12 months (if executive).
Severance payments to be paid from company assets.
Source: GM documents.
a

Estimated impact is based on measurements of pension obligations in accordance with Financial
Accounting Standards. The measurements reflect remeasurements performed around the time of the
respective attrition programs and changes in a number of variables that are incorporated into the
remeasurement calculations, such as changes in present-value discount rates. All data included in
this column are approximations.

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Appendix III: Recent Attrition Programs at
GM and Chrysler

Table 7: Recent Attrition Programs at Chrysler
Plan/program
Incentive Program for
Retirement (2006-2009)

•

Estimated impact a

Description

•

Special Early Retirement
(2006-2009)

•
•

•

Enhanced Voluntary
Termination of Employment
(2007-2009)

•

Normal retirement eligibility (that is, 30 or more years of
service, or combination of age and years of service = 85), or
age 60 with 10 or more years of service, or age 65 with one
or more year of service.
$50,000 lump sum payment plus $25,000 vehicle purchase
voucher.b

$1,067 million increase in obligations
c
(10,956 acceptances)

Age 55-62 with 10 or more years of service and not otherwise
eligible for IPR.d
Normal retirement benefit with no age reduction factor
applied (in certain labor markets, nonviable age reduced to
50).
No lump sum.
$75,000 lump sum payment plus $25,000 vehicle purchase
voucher (per “Plant Closure Agreements” - $100,000 plus
$25,000 vehicle purchase voucher).b

$401 million increase in obligations
(3,141 acceptances)

Other miscellaneous
programs (2006-2008)

$57 million decrease in obligations
(7,636 acceptances)
$184 million increase in obligations
(438 acceptances)

Source: Chrysler documents.
a

Estimated impact is based on measurements of pension obligations in accordance with Financial
Accounting Standards. The measurements reflect remeasurements performed around the time of the
respective attrition programs and changes in a number of variables that are incorporated into the
remeasurement calculations, such as changes in present-value discount rates. Data for 2006-2008
are based on actual numbers; data for 2009 are based on projected numbers, across all ten U.S.
qualified defined benefit plans, as appropriate.
b

Lump sum payments during 2008 paid with pension plan assets; payments before 2008 and after
2008 paid with company assets.

c

Also includes data for the Separation Incentive Program.

d

In 2008, the retirement age was 53 instead of 55 for certain salaried nonunion employees.

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Appendix IV: Product Lines and Facilities
Being Eliminated

Appendix IV: Product Lines and Facilities
Being Eliminated

Table 8: GM Product Lines and Facilities Being Eliminated
Product line

Current status

Location of plant shutdowns

Pontiac Vibe

Production ceased at the
end of August 2009.

The New United Motor Manufacturing
Incorporated facility (known as “Nummi”)
jointly operated by GM and Toyota in
Fremont, CA, to close.

Pontiac

Production of the last
Pontiac model will cease
by the end of December
2010.

None identified to date.

Hummer

None identified to date.
In February 2010, GM
announced that the sale
of Hummer to Sichuan
Tengzhong Heavy
Industrial Machinery Co.,
Ltd. could not be
completed and there
would be an orderly winddown of Hummer
operations. Currently
approximately 850 units
of the H3 model are
being produced for a fleet
customer. H3 production
will cease at the end of
June 2010. All other
Hummer production
ceased at the end of
September 2009.

Chevy Kodiak and Production ceased at the
GMC Topkick
end of July 2009.

None identified to date.

Saturn

Following Penske
Automotive Group’s
decision to terminate
discussions to acquire
Saturn in September
2009, GM announced
that it would be winding
down the Saturn brand
and dealership network.
Production ceased at the
end of December 2009.

None identified to date.

Saab

Purchased by Spyker
Cars, NV, on February
23, 2010.

The previously announced wind down of
Saab operations has ended. Saab and
Spyker will operate under the Spyker
(AMS:SPYKR) umbrella, and Spyker will
assume responsibility for Saab
operations.

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Appendix IV: Product Lines and Facilities
Being Eliminated

Product line

Current status

Manufacturing
plants

Total number of
assembly, powertrain,
and stamping facilities in
the United States to be
reduced from 47 in 2008
to 34 by the end of 2010
and 33 by 2012.

Parts

Three parts distribution
centers closed.

Location of plant shutdowns
•
Powertrain castings plant in
Massena, NY, closed in May 2009.
•
Stamping plant in Grand Rapids, MI,
closed in May 2009.
•
Assembly plant in Wilmington, DE,
closed in July 2009.
•
Assembly plant in Pontiac, MI,
closed in September 2009.
•
Stamping plant in Mansfield, OH,
closed in January 2010.
•
Powertrain engine plant in Livonia,
MI, to close by July 2010.
•
Powertrain components plant in
Fredericksburg, VA, to close by
August 2010.
•
Powertrain plants: Flint North
components plant and Willow Run
Site, MI; and Parma, OH,
components plant to close by
August 2010.
•
Stamping plant in Indianapolis, IN,
to close by December 2011.
•
Stamping plant and assembly plant
in Shreveport, LA, to close by June
2012.
•
Parts distribution centers in Boston,
MA; Columbus, OH; and
Jacksonville, FL, closed on
December 31, 2009.

Source: GM documents.

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Appendix IV: Product Lines and Facilities
Being Eliminated

Table 9: Chrysler Product Lines and Facilities Being Eliminated
Product line

Current status

Location of plant shutdowns

Dodge Magnum
and the Chrysler
Pacifica,
Crossfire, and PT
Cruiser
convertible.

Announced in November
2007 that these four
models were to be
eliminated from the
product portfolio through
2008. Subsequently
announced that the PT
Cruiser would remain in
production.

Production at several North American
assembly and powertrain plants to be
cut, which combined with other actions,
was expected to reduce the number of
hourly jobs by 8,500 to 10,000 people
through 2008. See May 2009 updated
list of plant closings provided below in
last row of this table.

Dodge Ram pick- Announced in June 2009
up truck
that production would end
effective July 10, 2009.

•

St. Louis Assembly Plant North in
Fenton, MO. See also below.

Service and parts List of plants scheduled for
operations
closing, as of May 2009.

•

St. Louis Assembly Plant South in
Fenton, MO, closed October 2008.
Assembly plant in Newark, DE,
closed in December 2008.
St. Louis Assembly Plant North in
Fenton, MO, was to close by the
end of September 2009. Production
to be moved to Warren Truck
Assembly plant.
Conner Avenue Assembly Plant in
Detroit, MI, was to close in
December 2009.
Stamping plant in Twinsburg, OH,
was to close in March 2010. Existing
volume to be transferred to Warren
Stamping and Sterling Stamping
plants.
Assembly plant in Sterling Heights,
MI; engine plant in Kenosha, WI;
and axle plant in Detroit, MI, to close
at the end of December 2010.

•
•

•

•

•

Source: Chrysler documents.

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Appendix V: History of Major Acquisitions
and Divestitures

Appendix V: History of Major Acquisitions
and Divestitures

GM

Chrysler

1900s

Founded September 16, 1908.
1908: Acquired Oldsmobile and Reliance Motor Truck
Company.
1909: Acquired Cadillac; Oakland Motor Car Company;
Rapid Motor Vehicle Company (later renamed GMC
Truck); and Champion (later renamed AC Spark Plug
Company).

1910s

1918: Acquired McLaughlin Motor Company (later
renamed General Motors of Canada) and United Motor
Corporation.
1919: Acquired Fisher Body; Dayton Wright Company;
Guardian Frigerator (later renamed Frigidaire); and
Saginaw Malleable Iron Company (renamed Saginaw
Products Company).

1920s

1925: Acquired Vauxhall Motors, Ltd., based in Luton,
England.
1929: Acquired Adam Opel Corporation, located in
Rüsselsheim, Germany; and Allison Engineering
Company.

1930s

1930: Acquired Electro-Motive Engineering Corporation.
1931: Acquired Holden’s Motor Body Builders Limited;
merged with GM’s Australia Proprietary, Limited, to form
Holden’s Limited, located in Melbourne, Australia.
1933: Acquired a controlling interest in North American
Aviation; merged with GM’s General Aviation division.

Founded June 6, 1925.
1928: Acquired Dodge.

1940s
1950s

1953: Acquired Euclid, Inc.

1957: Acquired Ensamblaje Venezolana, soon renamed
Chrysler de Venezuela S. A.
1959: Acquired Chrysler South Africa Ltd.

1960s

1968: Sold most of Euclid; renamed remaining facilities the 1963: Acquired Chrysler Hellas S. A., Greece.
Terex Division.
1965: Acquired the outboard engine business of West
Bend Company of Hartford, Wisconsin and the Lone Star
Boat Company of Plano, Texas, forming the Chrysler Boat
Corporation.
1967: Acquired Redisco, Inc., from American Motors
Corporation and integrated it with Chrysler Credit to form
Chrysler Financial Corporation. Also acquired 77 percent
of Barreiros Diesel S. A. (Spain), and increased interest in
Chrysler do Brasil (Brazil) to 92 percent.

1970s

1973: Merged Allison Engineering with Detroit Diesel.

Page 61

1970: Control of Rootes Group equity reached 73 percent;
the company renamed Chrysler United Kingdom Ltd.
1976: Sold the Airtemp Division to Fedders Corporation.
1978: Sold the Chrysler Europe Division.

GAO-10-492 Troubled Asset Relief Program

Appendix V: History of Major Acquisitions
and Divestitures

GM

Chrysler

1980s

1981: Sold Terex Division.
1984: Acquired Electronic Data Systems Corporation.
1985: Acquired Hughes Aircraft Company; merged with
Delco Electronics to form a new subsidiary called Hughes
Electronics.
1988: Spin off of Detroit Diesel.
1989: Purchased 50 percent equity in Saab Automobile
AB of Sweden; later purchased the remaining 50 percent
to become sole owner in 2000.

1980: Sold the Marine Division.
1981: Sold the Defense Division to General Dynamics.
1984: Reorganized into a holding company that included
Chrysler Motors, Chrysler Financial, Gulfstream
Aerospace and Chrysler Technologies.
1987: Acquired American Motors Corporation (and Jeep)
for $800 million.

1990s

1993: Sold Allison Gas Turbine.
1996: Sold Electronic Data Systems Corporation.
1997: Sold Hughes Aircraft to Raytheon.
1999: Spin off of Delphi; acquired exclusive rights to the
Hummer brand name from AM General Corporation.

1998: Merged with Daimler-Benz AG; operated as
“Chrysler Group,” a business unit of DaimlerChrysler AG.

2000s

2002: Acquired the bulk of Korean automaker Daewoo
Motor’s automotive assets and created a new company
called GM Daewoo Auto & Technology.
2003: Sold Hughes Electronics.
2005: Sold Electro-Motive Diesel.
2006: Divested majority ownership in its financing unit,
General Motors Acceptance Corporation (now known as
GMAC).
2007: Sold Allison Transmission.
2009: Acquired five U.S.-based components plants from
Delphi.

2007: Just over 80 percent of Chrysler and its related
financial services business sold to Cerberus Capital
Management for $7.4 billion.
2008: Spin off of Chrysler Financial Corporation.

Source: GM’s and Chrysler’s Web sites.

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Appendix VI: Allocation of Assets to
Participant Benefits

Appendix VI: Allocation of Assets to
Participant Benefits
When a pension plan is terminated and trusteed by PBGC, ERISA specifies
that the remaining assets of the plan and any funds recovered for the plan
during the bankruptcy proceedings be allocated to participant benefits
according to six priority categories (see table 10). 1
Table 10: Priority Categories for Allocating Participant Benefits
Priority category 1

Accrued benefits derived from voluntary employee contributions.

Priority category 2

Accrued benefits derived from mandatory employee
contributions.

Priority category 3

Annuity benefits that have been in pay status for at least 3 years
before the plan’s termination date, or could have been in pay
status for at least 3 years before the plan’s termination date had
the participant chosen to retire at his or her earliest possible
retirement date; however, benefits subject to the phase-in
limitation (that is, benefit increases made within the last 5 years)
are excluded. These benefits can be either guaranteed or
nonguaranteed.

Priority category 4

Other guaranteed benefits, and certain nonguaranteed benefits.a

Priority category 5

Other vested nonguaranteed benefits that a participant is entitled
to under the plan; however, benefits that result solely due to the
termination of the plan—which are deemed “forfeitable”—are
excluded.

Priority category 6

All other benefits under the plan. This category includes
nonvested benefits and “grow-in” benefits, which are benefits
that are provided in some situations where the company
continues to operate after the plan is terminated.

Source: GAO analysis of PBGC documents.

Note: The distribution of plan assets is based on type of benefit, not retirement status, and many
participants have benefits in more than one category.
a

Specifically, the nonguaranteed benefits included in priority category 4 are those that are
nonguaranteed because they are subject to the aggregate benefits limitation for participants in more
than one plan that has been terminated with insufficient funds, or because they are subject to special
provisions applicable to substantial owners (that is, those owning more than 10 percent of the
company).

Funds recovered from bankruptcy proceedings are also allocated using
these priority categories, but unlike plan assets, recoveries are required to
be shared between participants’ unfunded nonguaranteed benefits and

1

29 U.S.C. §§ 1322(c) and 1344.

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Appendix VI: Allocation of Assets to
Participant Benefits

PBGC’s costs for unfunded guaranteed benefits. 2 As a result, recoveries
are often more advantageous for participants than residual plan assets.
PBGC allocates the participants’ portion of the recoveries beginning with
the highest priority category in which there are unfunded nonguaranteed
benefits, and then to each lower priority category, in succession. 3

2

In cases when a plan’s unfunded nonguaranteed benefits exceed $20 million, the total
amount to be shared depends on the actual amount recovered. In all other cases, the
amount to be shared is determined by an average of PBGC’s recoveries over a 5-year
period. ERISA section 4022(c).

3
If the assets are not sufficient to pay for all benefits in a category, the assets are
distributed among the participants according to the ratio that the value of each
participant’s benefit in that priority category bears to the total value of all benefits in that
category. Within each priority category (except priority category 5), assets are allocated
first to the participant’s “basic-type” benefits (which include benefits that are guaranteed
by PBGC, or that would be guaranteed but for the maximum and phase-in limits), and then
to the participant’s “nonbasic-type” benefits (which include all other benefits). If the plan
assets available for allocation to priority category 5, which includes benefits subject to the
phase-in limit, are insufficient to pay for all benefits in that category, the assets are
allocated by date of plan amendment, oldest to newest, until all plan assets available for
allocation have been exhausted.

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Appendix VII: PBGC Example Benefit
Calculations

Appendix VII: PBGC Example Benefit
Calculations
PBGC prepared example benefit calculations to illustrate how termination
of the automaker pension plans might impact participant benefits,
depending on the participant’s situation (see table 11). The calculations
assume that plan assets and recoveries are not sufficient to fund
nonguaranteed benefits beyond a portion of those benefits in priority
category 3 (that is, of those retired or eligible to retire for at least 3 years),
and they focus on those who would lose the most under such situations.
Although an early retiree eligible for priority 3 status would lose the least,
all early retirees under age 62 as of the date of plan termination would lose
a sizeable portion of their benefits until age 62 because their supplements
are not guaranteed. The person who retired early under a special attrition
program or plant shutdown benefit would lose even more, as the enhanced
benefits under the special program would also not be guaranteed, reducing
the person’s lifetime benefit by more than half. Finally, the person not yet
eligible to retire would lose the most. Compared to the benefits promised
under the plan, he would not be able to retire for 5 more years and his
payment would be less than a quarter of the amount promised. Over time,
in general, more employees will be eligible to retire and qualify for priority
3 status, and the amount of retirees’ monthly guaranteed benefits will
increase.
Table 11: Examples of Participants’ Benefit Reductions If an Automaker Hourly Plan Were Terminated
PBGC benefit if plan
a
terminates in 2009

Plan benefit

Example 1: Employee retires early in 2009
Age 53 with 33 years of service (eligible for priority category 3)
Benefit until age 62

$3,200

$1,750b

Benefit after age 62

1,750

1,750

Example 2: Employee retires early in 2009
Age 50 with 30 years of service (not eligible for priority category 3)

Changes to PBGC benefit if plan terminates 5
years later (in 2014)
Employee retires early in 2014
Age 58 with 38 years of service (eligible for
priority category 3)
Incremental increase in PBGC benefit
Incremental increase in PBGC benefit
Employee retires early in 2014
Age 55 with 35 years of service (eligible for
priority category 3)

Benefit until age 62

3,200

1,500

Incremental increase in PBGC benefit

Benefit after age 62

1,500

1,500

Incremental increase in PBGC benefit

Example 3: Employee retires early under special attrition program (or plant
shutdown) in 2009 (0 percent phase-in)
Age 55 with 25 years of service (not eligible for priority category 3)

Employee retires early under special attrition
program (or plant shutdown) in 2009 (100
percent phase-in)
Age 55 with 25 years of service (eligible for
priority category 3)

Benefit until age 62

No loss of benefit enhancements due to phase in,
substantial increase in PBGC benefit

2,600

600

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Appendix VII: PBGC Example Benefit
Calculations

PBGC benefit if plan
a
terminates in 2009

Plan benefit
Benefit after age 62

1,400

600

Changes to PBGC benefit if plan terminates 5
years later (in 2014)
No loss of benefit enhancements due to phase in,
substantial increase in PBGC benefit

Example 4: Employee not yet retired when plan terminates in 2009
Age 49 with 29 years of service (not eligible for priority category 3)

Employee retires early in 2014
Age 54 with 34 years of service (eligible for
priority category 3)

Benefit until age 62

Eligible to retire, benefits not deferred, substantial
increase in PBGC benefit

Benefit after age 62

3,200
(beginning at age 50 with
30 years of service)
1,600

700
(beginning at age 55)
700

Substantial increase in PBGC benefit

Source: GAO analysis of PBGC documents.
a

PBGC example calculations, assuming plan assets and recoveries are not sufficient to pay
nonguaranteed benefits beyond a portion of priority category 3.

b

PBGC benefit if priority category 3 is 70 percent funded. If more than 70 percent funded, part of the
temporary supplement is payable, and could increase up to $2,750 if 100 percent funded.

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Appendix VIII: Comments from the
Department of the Treasury

Appendix VIII: Comments from the
Department of the Treasury

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GAO-10-492 Troubled Asset Relief Program

Appendix IX: Comments from PBGC

Appendix IX: Comments from PBGC

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GAO-10-492 Troubled Asset Relief Program

Appendix X: GAO Contacts and Staff
Acknowledgments

Appendix X: GAO Contacts and Staff
Acknowledgments
GAO Contacts

Barbara D. Bovbjerg, (202) 512-7215 or bovbjergb@gao.gov
A. Nicole Clowers, (202) 512-2834 or clowersa@gao.gov

Staff
Acknowledgments

In addition to the contacts named above, Kimberley M. Granger and
Raymond Sendejas, Assistant Directors; Charles J. Ford, Jonathan
McMurray, Margie K. Shields, Sarah A. Farkas, Heather Halliwell, and
Joseph A. Applebaum made significant contributions to this report. James
Bennett, Jessica A. Botsford, Orice Williams Brown, Susannah L.
Compton, Shannon K. Groff, Cheryl M. Harris, Susan J. Irving, Charles A.
Jeszeck, Gene G. Kuehneman, Christopher D. Morehouse, Michael P.
Morris, Robert Owens, Roger J. Thomas, and Craig H. Winslow also made
important contributions.

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GAO-10-492 Troubled Asset Relief Program

Related GAO Products

Related GAO Products

Troubled Asset Relief Program: The U.S. Government Role as Shareholder
in AIG, Citigroup, Chrysler, and General Motors and Preliminary Views
on its Investment Management Activities. GAO-10-325T. Washington,
D.C.: December 16, 2009.
Troubled Asset Relief Program: Continued Stewardship Needed as
Treasury Develops Strategies for Monitoring and Divesting Financial
Interests in Chrysler and GM. GAO-10-151. Washington, D.C.: November
2, 2009.
Pension Benefit Guaranty Corporation: Workers and Retirees
Experience Delays and Uncertainty when Underfunded Plans Are
Terminated. GAO-10-181T. Washington, D.C.: October 29, 2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. GAO-09-1048T. Washington,
D.C.: September 24, 2009.
Pension Benefit Guaranty Corporation: More Strategic Approach Needed
for Processing Complex Plans Prone to Delays and Overpayments.
GAO-09-716. Washington, D.C.: August 17, 2009.
Troubled Asset Relief Program: June 2009 Status of Efforts to Address
Transparency and Accountability Issues. GAO-08-658. Washington, D.C.:
June 17, 2009.
Pension Benefit Guaranty Corporation: Financial Challenges Highlight
Need for Improved Governance and Management. GAO-09-702T.
Washington, D.C.: May 20, 2009.
Auto Industry: Summary of Government Efforts and Automakers’
Restructuring to Date. GAO-09-553. Washington, D.C.: April 23, 2009.
Troubled Asset Relief Program: March 2009 Status of Efforts to Address
Transparency and Accountability Issues. GAO-09-504. Washington, D.C.:
March 31, 2009.
Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues. GAO-09-296. Washington, D.C.:
January 30, 2009.
Auto Industry: A Framework for Considering Federal Financial
Assistance. GAO-09-242T. Washington, D.C.: December 4, 2008.

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GAO-10-492 Troubled Asset Relief Program

Related GAO Products

Troubled Asset Relief Program: Additional Actions Needed to Better
Ensure Integrity, Accountability, and Transparency. GAO-09-161.
Washington, D.C.: December 2, 2008.
Pension Benefit Guaranty Corporation: Improvements Needed to
Address Financial and Management Challenges. GAO-08-1162T.
Washington, D.C.: September 24, 2008.
Defined Benefit Pensions: Plan Freezes Affect Millions of Participants
and May Pose Retirement Income Challenges. GAO-08-817. Washington,
D.C.: July 21, 2008.
PBGC Assets: Implementation of New Investment Policy Will Need
Stronger Board Oversight. GAO-08-667. Washington, D.C.: July 17, 2008.
Pension Benefit Guaranty Corporation Single-Employer Insurance
Program: Long-Term Vulnerabilities Warrant “High Risk” Designation.
GAO-03-1050SP. Washington, D.C.: July 23, 2003.

(130956)

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GAO-10-492 Troubled Asset Relief Program

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