Mary Williams Walsh Gives Me Something I Did Not Need

Thu, 29 Oct 2009 15:20:01 +0000

Namely, another reason to think that no company has any business offering a defined benefit pension plan or that the government has no capacity for effectively regulating them. Read it and weep, the sad and protracted story of G.M. and Delphi.

The Pension Benefit Guaranty Corporation, which insures pension plans, caps the amount of benefits it will pay, using a formula based on age and the type of benefits an employee earned. But in a side arrangement, G.M. is agreeing to pay special supplements, called top-ups, so that Delphi’s union retirees get everything they were promised.

The automaker is drawing the money from its own pension fund, according to a person familiar with the arrangement. In a sense, the G.M. pension fund is being weakened to help the Delphi union members.

Mr. Gump and others suspect the Treasury Department told G.M. to pay the supplements. The federal government is both the company’s largest shareholder and the financier of its restructuring, through the Troubled Asset Relief Program. Obama administration officials confirmed that they brought the parties together to negotiate a resolution of Delphi’s pension failure but said they did not dictate the outcome.

Of course they didn't dictate the outcome. Bad incentives and political patronage dictated the outcome.