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Ontario Finance Minister Dwight Duncan says it could cost the province “billions” if the Detroit Three automakers go bankrupt and cannot make full pension payments to retirees.
There are 49,000 retired auto workers, thousands more retired salaried staff and thousands still working at General Motors, Ford and Chrysler in Canada who stand to see pension benefits cut if the companies go under.
“What people need to realize is that there are very real costs with the demise of one or all or any of the Detroit Three,” Duncan told reporters yesterday. “Those range from pension costs and tax revenues to government.”
GM is the only remaining employer that takes advantage of a 1992 agreement brokered by then-Ontario premier Bob Rae that relieved a handful of large companies deemed “too big to fail” from fully funding their pension plans against the possibility they would go out of business.
Instead, General Motors pays $5 million yearly into the provincial Pension Benefits Guarantee Fund, which promises to cover any shortfall from the first $1,000 a month of an employee’s pension. The fund had a $102 million deficit as of the end of March.
“The valuations could change literally on a daily basis,” said Duncan, who added he has not seen the company’s recent actuarial report.
There is no law that obliges the province to cover a shortfall in the guarantee fund. However, earlier governments lent money to the fund – interest free – after the bankruptcies of Massey Combines and Algoma Steel.
Of the Detroit Three companies, it would be most costly for the government to top up pensions for GM retirees because of the size of its workforce and the poor state of its pension plan.
As the Toronto Star reported Saturday, GM’s actuaries estimated the pension plan for hourly workers would have been short $4.9 billion if the company had gone out of business at the end of November, 2007. But because the pension fund is heavily invested in stocks, the recent fall in stock markets would have left the fund short another $1.5 billion, assuming no other changes in the meantime.
