In exchange for this funding, the  Treasury has become part-owner of the two new companies that re- emerged, 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. better communicate to external stakeholders, including Congress, about  its TARP strategies and activities to improve the integrity, accountability,  and transparency of the program. During the bankruptcy process, newly organized companies for both GM  and Chrysler were established in the summer of 2009. Domestic automakers sponsor some of the largest private sector defined  benefit plans. 2). 3). 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. 4). 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. Auto suppliers  experienced a rise in the number of bankruptcies, liquidations, and  pension plan terminations in 2008 and 2009. 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. 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. 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. The estimate for the pension plans of the  former Delphi Corporation alone is over $6.2 billion. 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  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. 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 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 told us they expect both GM and Chrysler to return to  profitability. This, too, is the case for the companies’ pensions. Treasury officials who oversee TARP expect both automakers to return to  profitability. As a result, supplier bankruptcies and  pension plan terminations may continue for the near future. 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,  when the time comes, could shed light on how Treasury’s decision to  divest will impact the companies’ pension plans. Both Treasury and PBGC provided technical comments, which are  incorporated into the report where appropriate. 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. 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.
Why GAO Did This Study

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: (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.

What GAO Found

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. 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.