Agency: Delphi Owes Pension Funds $10.8B

Pensions at bankrupt auto parts supplier Delphi Corp. (search) are under funded by an estimated $10.8 billion, the federal agency that insures corporate retirement accounts said Tuesday.

Should Delphi decide to terminate its pension obligations during Chapter 11, the Pension Benefit Guaranty Corp. (search) said it would cover less than half of the shortfall, $4.1 billion.

Underfunding is the difference between plan assets and what a company has promised in benefits. Delphi pension assets are roughly $9 billion, the agency said.

The deficit cited by the PBGC is sharply higher than the Delphi's latest figure of $4.3 billion at the end of 2004 because the government calculates what it would cost the company to cover the difference with private insurance.

The pension agency insures defined benefit plans, a dying feature of old-economy companies that usually promises a generous, fixed monthly payment. More than 40 million people participate in these plans.

Delphi, the largest domestic parts supplier, filed the biggest bankruptcy petition in U.S. automotive history Saturday in New York. The company has been hurt by high wage and benefit costs and market share losses at GM that lowered demand for its parts.

It was the latest blockbuster insolvency in the transportation sector this fall, following bankruptcy filings by Delta Air Lines Inc. (search) and Northwest Airlines Corp. (search) in September. Both of those companies have multibillion-dollar pension shortfalls as well.

Analysts believe that Delphi, based in Troy, Mich., will push its pension deficit on to the deficit-ridden federal insurance programs like big steel companies and major airlines -- including bankrupt United Airlines, a unit of UAL Corp. -- have done in recent years.

Delphi's pension picture is complicated by its close relationship with its biggest customer, General Motors Corp. (GM). GM spun off Delphi in 1999 and may be called to back some benefits. GM says its range of exposure under guarantees it made to Delphi extends from "no material impact" to $11 billion.

A spokeswoman for Delphi, Claudia Baucus, said the future of its pensions is unresolved. The company considers the matter on the table in bankruptcy and could negotiate an agreement with labor. Delphi could also choose to default to the PBGC.

"It still needs to be addressed with unions and GM," Baucus said. "We're going to be discussing this issue in the coming months."

Baucus said Delphi is current on its contribution schedule, having invested $625 million in its pensions last June. The payment deadline for 2006 is next June. While many companies with pension plan troubles continue to make contributions, retirement accounts lost billions of dollars when stocks and other market-based returns weakened earlier this decade.

What remains unclear is whether legislation working its way through both houses of Congress to overhaul pension funding rules and hold companies more accountable for keeping their promises would impact Delphi.

One proposal would help Delta and Northwest put off contributions but so far there is nothing in either House or Senate bills to help any other industry.