Benefit Reductions to Participants in Delphi Pension Plans

Benefit Reductions to Participants in Delphi Pension Plans

Updated December 22, 2022
Benefit Reductions to Participants in Delphi Pension Plans
Introduction
terminated in 2009, who retire at 65 years old, and chose a
Delphi Technologies is a parts and components supplier to
joint and 50% survivor annuity benefit was $4,050 per
auto makers that was spun off from General Motors (GM)
month ($48,600 per year). For retirees who chose to receive
in 1999. In May 2009, Delphi’s pension plans were
single life annuity benefits at 55 years old, the maximum
terminated and responsibility for the payment of plan
benefit was $2,025 per month ($24,300 per year). PBGC
participants’ benefits was turned over to the Pension
reported in 2019 that 84% of retirees who receive benefits
Benefit Guaranty Corporation (PBGC), which is a
from PBGC are paid the full benefit amounts they earned
government-run corporation that insures benefits for
under their retirement plans (i.e., do not have their benefits
workers in private-sector defined benefit (DB) pension
reduced to the maximum benefit guarantee).
plans. PBGC operates separate insurance programs for
single-employer and multiemployer DB plans. Delphi
Background on Delphi Pension Plans
sponsored six single-employer pension plans. Although
In 1999, GM and some unions representing Delphi workers
most workers in pension plans that are taken over by PBGC
negotiated an agreement as part of the spin-off. Delphi’s
receive all of their promised benefits, some workers may
workforce consisted of hourly employees and salaried
receive less than their full benefit. This is because PBGC
employees. In general, the hourly workers were union
may not pay an individual more than a statutory maximum
members whereas the salaried workers were not. The two
benefit. Some participants in Delphi pension plans whose
groups of workers had separate benefit plans. To receive the
benefits were reduced by PBGC claimed that their pension
unions’ approval for the spin-off, GM agreed to protect
plan was wrongly terminated and have sought relief via
certain post-retirement health and pension benefits for
both judicial and legislative processes.
hourly workers. These Benefit Guarantee Agreements
obligated GM, in the event of the termination of the Delphi
Defined Benefit Pensions and PBGC
hourly pension plans, to supplement the benefits for
DB pensions are employer-funded pension plans in which
workers whose benefits were reduced due to PBGC’s
retirees are typically paid a monthly dollar amount in
statutory maximum guarantee. GM agreed to pay (or top
retirement. The benefit is calculated using a formula
up) each covered employee the difference between the
typically based on a combination of the number of years of
benefit received from PBGC and the benefit the individual
service and salary. For example, a plan might offer a benefit
would have received had the plan not been terminated.
of 1.5% multiplied by the number of years of an
employee’s service multiplied by the average of the
Six DB pension plans covered Delphi workers, of which the
employee’s highest five years of salary. A worker who was
two largest were the Delphi Hourly-Rate Employees
employed for 30 years and averaged a salary of $50,000 for
Pension Plan, with 47,176 participants in 2009, and the
the final five years of employment would receive a benefit
Delphi Retirement Program For Salaried Employees, with
of $22,500 per year or $1,875 per month. Employers are
20,203 participants in 2009. The four other DB plans had a
responsible for ensuring that there is sufficient funding for
total of 2,229 participants in 2009.
their DB pension plans to pay for current and future benefit
payments. PBGC typically becomes the trustee of a single-
Because they were non-union and therefore not subject to
employer DB plan when the employer that sponsors the
collective bargaining procedures, GM did not need the
plan declares bankruptcy and the plan has insufficient assets
salaried workers’ approval for the spin-off and salaried
from which to pay all of its promised benefits.
workers did not receive any benefit guarantees.
When PBGC becomes the trustee of a single-employer DB
Termination of Delphi Pension Plans
pension plan, plan participants receive their full benefits up
Delphi filed for bankruptcy in October 2005. As part of the
to a statutory maximum benefit. Benefits that are higher
bankruptcy reorganization plan, GM agreed to the transfer
than the maximum guarantee are reduced to the guarantee
of up to $3.4 billion of liabilities from the Delphi Hourly
amount. The maximum guarantee for a single-employer
Plan to the GM Hourly-Rate Employees Pension Plan. GM
pension that was terminated in 2009, the year of Delphi’s
initially transferred approximately $2.6 billion of liability
bankruptcy, was $4,500 per month ($54,000 per year) for
from the Delphi Hourly Plan to the GM plan. On June 1,
retirees who began receiving pensions for their remainder
2009, GM filed for bankruptcy and subsequently received
of their lives (a straight-life annuity) at the age of 65. The
U.S. government financial assistance to assist with its
maximum benefit amounts are reduced so that retirees
reorganization. In July 2009, GM advised Delphi that it
receive actuarially neutral pension benefits if they choose
would not assume the Hourly Plan and would not transfer
benefits in a form other a straight-life annuity or if they
additional liabilities from Delphi to the GM pension plan.
begin receiving benefits before or after the age of 65. For
Because GM declined to assume the additional liabilities
example, the maximum benefit for individuals in plans
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Benefit Reductions to Participants in Delphi Pension Plans
from the Delphi pension plans, PBGC terminated the
Recent Executive and Legislative Actions
Delphi pension plans, effective July 31, 2009.
In October 2020, President Donald J. Trump issued a
memorandum directing the Secretaries of the Treasury,
Under Title 29, Section 1342(a), of the U.S. Code, PBGC
Commerce, and Labor to review Delphi’s benefit reductions
may initiate involuntary termination proceedings of a
and report back within 90 days with actions that could be
single-employer DB pension plan if one of several criteria
taken. In response to Congressional inquiries about the
is met. PBGC indicated that the Delphi plans met several of
status of the Administration’s report, in August 2022, the
the criteria for termination. For example, Delphi had not
Deputy Assistant Secretary for Banking and Finance Office
made required contributions to the pension plans in the
of Legislative Affairs in the U.S. Treasury indicated that
previous four years and the plan had assets to pay for only
“the Departments of Treasury, Labor, and Commerce
half of its benefit obligations.
concluded that Congressional action would be required to
restore these lost pension benefits. Therefore, we have not
Some contend that GM honored the top-up agreement under
taken further steps on this issue.”
pressure from the Presidential Task Force on the Auto
Industry and that the Delphi pension plans were terminated
The Susan Muffley Act of 2022, introduced as H.R. 6929,
to facilitate restructuring in the auto industry. The Office of
by Representative Daniel Kildee on March 3, 2022, and as
the Special Inspector General for the Troubled Asset Relief
S. 3766, by Senator Sherrod Brown on March 7, 2022, are
Program (SIGTARP) issued a report on August 15, 2013,
nearly identical bills that would require PBGC to
which noted that the decision to honor the top-up agreement
recalculate and restore the monthly benefits of participants
was a joint decision by the U.S. Treasury and GM. The top-
who are not covered by the top-up agreements in the six
up agreement was honored because of the need to have the
Delphi plans terminated by PBGC. In addition, participants
United Auto Workers (UAW) approve GM’s bankruptcy.
not covered by the top-up agreements in these plans would
The report also noted that GM did not top up the pensions
receive lump-sum payments with interest for the benefits
of other former employees at Delphi because they did not
that had been reduced as a result of PBGC’s maximum
have active employees at GM and had no leverage to hold
guarantee. The additional benefits to participants would be
up GM’s bankruptcy.
taxable. The taxes on the lump-sum payments could be
spread out over three years (in 2023, 2024, and 2025). The
Lawsuit by Delphi Salaried Employee
Congressional Budget Office (CBO) and the Joint
Association
Committee on Taxation (JCT) estimated that H.R. 6929
In 2009, the Delphi Salaried Retiree Association (DSRA)
would result in an increase in spending of $912 million in
and others filed a lawsuit against, among others, PBGC, the
FY2023-FY2032. The bill would accelerate the single-
U.S. Treasury Department, and the Presidential Task Force
employer, variable-rate premium due date by one month
on the Auto Industry. Some of the DSRA’s claims included
(from FY2033 to FY2032), which CBO and JCT estimated
the following:
would increase revenues by $1.2 billion from FY2023 to
FY2032. H.R. 6929 passed the House on July 27, 2022.
 The termination of the Delphi Retirement Program for
Salaried Employees violated the Due Process Clause of
For Further Information
the Fifth Amendment to the U.S. Constitution;
CRS Report R42076, Delphi Corporation: Pension Plans
and Bankruptcy
 The termination of the Delphi Retirement Program for
Salaried Employees violated the Employee Retirement
Dennis Black, et al. v. The Pension Benefit Guaranty
Income Security Act of 1974 (ERISA, P.L. 93-406), a
Corporation, et al., Case No. 2:09-cv-13616, (E.D. Mich.)
federal law that governs private-sector pension plans;
Delphi Pensions: Key Events Leading to Plan Terminations,
 The agreement between GM and the unions representing GAO-13-854T, https://www.gao.gov/assets/gao-13-
hourly employees to top-up the hourly employees’
854t.pdf
pensions violated the Equal Protection Clause of the
Fifth Amendment to the U.S. Constitution. The DSRA
Treasury’s Role in the Decision for GM to Provide Pension
said that GM, acting as a government actor owing to the
Payments to Delphi Employees, https://www.sigtarp.gov/
U.S. Treasury’s role in the GM bankruptcy, unfairly
sites/sigtarp/files/Audit_Reports/
discriminated against the salaried employees “solely on
SIGTARP_Delphi_Report.pdf
the basis of their choice not to associate with a union.”
The DSRA claimed that GM’s bankruptcy in June 2009
Estimated Budgetary Effects of H.R. 6929, the Susan
voided the 1999 top-up agreements and that GM
Muffley Act of 2022, Cost Estimate, as Posted on the
renegotiated and provided the top-up to the unions’
Website of the House Committee on Rules on July 20,
pension plans for political motivations.
2022, https://www.cbo.gov/system/files/2022-07/
hr6929table.pdf
Federal district and appellate courts rejected the plaintiffs’
claims, and in January 2022 the Supreme Court declined to
John J. Topoleski, Specialist in Income Security
hear the case.
IF12171

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Benefit Reductions to Participants in Delphi Pension Plans

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https://crsreports.congress.gov | IF12171 · VERSION 4 · UPDATED