GM Offering Stock to Ease Pension Debt : Labor: The proposed payment, valued at more than $5 billion, will be closely watched by corporate America.
Amid growing unease about unfunded pension plans, General Motors Corp. proposed Monday to contribute $5.7 billion in shares of its computer data subsidiary to a pension fund for union workers to reduce its ballooning unfunded-pension obligation.
GM’s move comes as the federal government is increasingly concerned about the pension liabilities of U.S. corporations. As the holder of the nation’s largest unfunded-pension liability, GM is likely to be closely watched by the rest of corporate America.
The auto maker said it plans to contribute 185 million shares of Class E GM stock--the separately traded shares of its Electronic Data Systems Corp. subsidiary--to reduce its $24-billion unfunded-pension liability. GM Class E shares representing EDS added 25 cents to $31 on Monday on the New York Stock Exchange.
The plan must be approved by federal regulators, including the Department of Labor and Internal Revenue Service. GM is also seeking a waiver of federal excise taxes on the deal, which would require legislation.
The company is currently conferring with the Pension Benefit Guaranty Board about the liability. The board partially insures corporate pensions and is worried that a major corporate failure could wipe out its fund.
The agency estimated earlier this year that the unfunded liabilities of major U.S. corporations exceeded $50 billion. The Clinton Administration has proposed legislation that would require companies to fully fund pensions more quickly than now required.
GM, the nation’s largest auto maker, said the stock payment would allow the company to further reduce the amount it owes the pension fund through contributions from improving operations.
The company has been battered by auto operation losses the past three years, but its financial performance is improving.
GM earned $1.2 billion in the first nine months of 1993 largely from strong performances at EDS and Hughes Electronics. But officials vowed that North America car operations would make money this year before taxes, interest and health care costs.
The pension proposal was included in financial documents filed with the Securities and Exchange Commission. It comes on the eve of a meeting today with Wall Street analysts in New York.
The company confirmed two weeks ago that its unfunded liability had increased $10 billion in 1993 from $14 billion last year. GM said the increase was largely due to low interest paid on investments.
But it also is related to a new three-year contract GM negotiated with the United Auto Workers union. The agreement provides a 13% increase in pension benefits by 1996. The UAW, which represents 265,000 hourly workers and an equal number of retired employees, was not consulted on the stock plan.
In a conference call with reporters Monday, GM Treasurer Heidi Kunz said the stock plan would accelerate the company’s retirement of the pension obligations. The company hopes to wipe out the debt by the end of the decade.
The stock transfer, which also requires the approval of GM’s board, would put 38% of Class E shares in the pension fund’s hands. There are now 292 million shares outstanding.
The proposal’s biggest obstacle may be the Labor Department. The agency now prohibits pension plans from holding more than 25% of the stock of a company, in order to prevent severe losses to pensioners if a company fails.
GM hopes approval can be obtained in six to nine months, Kunz said.
