DETROIT -- Delphi Corp.'s filing for Chapter 11 bankruptcy protection could prove to be the tipping point that leads to a string of pension plan terminations in the U.S. automotive industry -- a sector that has a base of defined benefit plans underfunded by more than $55 billion combined.
The Pension Benefit Guaranty Corp., the federal agency that insures private pensions, beset by pension deficits from the steel and airline industries, might be staring at another major industry that has the potential to increase the agency's already staggering deficit significantly. Since the agency's inception in 1974, more than 70 percent of the terminated pension plans it has taken over have come from the metals and airline industries, according to the agency's 2004 data book.
"With the steel and airline industries, one domino fell after the other," said Sylvester Schieber, U.S. benefits practice director at Watson Wyatt Worldwide in Washington. "Sometimes, all it takes is one domino to fall to start a chain reaction, and this could be that domino."
Delphi, which filed for bankruptcy protection in New York on Oct. 8, has not moved to terminate its plans. A spokesman for Pension Benefit Guaranty said that if it does, the amount the pension agency assumes could be second only to that being covered for United Airlines Inc.
Pension Benefit Guaranty estimates that its overall deficit was $23.3 billion as of Dec. 31, triggered mostly by a number of major bankruptcies in the steel and airline industries over the past several years.
The agency estimates that the pension plans of automotive-related companies were underfunded by $55 billion to $60 billion as of June 30, a deficit that could be more burdensome than the airline industry's roughly $31 billion pension underfunding.
Bradley Belt, Pension Benefit Guaranty's executive director, testified before the U.S. Senate Budget Committee in June that the agency faces "substantial" exposure from other industries, "the largest of which is the automotive sector."