United States Government Accountability Office

GAO Testimony 

Before the Committee on Oversight and 

Government Reform, House of 

Representatives

DELPHI CORPORATION

Key Events Leading to 

Termination of the Delphi 

Defined Benefit Plans 

Statement of Barbara D. Bovbjerg, Managing Director 

Education, Workforce, and Income Security Issues 

For Release on Delivery 

Expected at 9:00 a.m. EST 

Monday, November 14, 2011 

GAO-12-234T 
 United States Government Accountability Office 

Highlights of GAO-12-234T, a testimony 

before the Committee on Oversight and 

Government Reform, House of 

Representatives 

November 14, 2011 

DELPHI CORPORATION 

Key Events Leading to Termination of the Delphi 

Defined Benefit Plans 

Why GAO Prepared This 

Testimony 

The Delphi Corporation (Delphi) was a 

global supplier of mobile electronics 

and transportation systems that began 

as part of the General Motors 

Corporation (GM) and was spun off as 

an independent company in 1999. 

Delphi filed for bankruptcy in 2005, and 

in July 2009, Delphi's six defined 

benefit pension plans were terminated 

and trusteed by the Pension Benefit 

Guaranty Corporation (PBGC). 

In March 2011, GAO issued a report 

providing a timeline of key events 

leading to the plans’ termination 

(GAO-11-373R). This report focused, 

in particular, on events related to the 

reasons for GM providing retirement 

benefit supplements to certain Delphi 

employees, but not to others, and the 

role of the U.S. Department of the 

Treasury (Treasury) in those events. 

GAO was asked to testify on the 

information gathered on the 

termination of Delphi’s pension plans 

for this previous report. In preparing 

that report, GAO relied on publicly 

available documents—such as 

bankruptcy filings by GM and Delphi, 

company reports to the Securities and 

Exchange Commission, and press 

releases—and on documents received 

from groups with whom we have 

talked, including Delphi, GM, the 

Delphi Salaried Retiree Association, 

PBGC, and Treasury. 

What GAO Found 

The termination of the six defined benefit plans sponsored by Delphi, and the 

provision of benefit protections to some Delphi employees but not others, 

culminated from a complex series of events involving Delphi, GM, various unions, 

Treasury, and PBGC. 

When Delphi spun off from GM in 1999, three unions secured an agreement that 

GM would provide a retirement benefit supplement (referred to as “top-ups”) for 

their members should their pension plans be frozen or terminated and they were 

to suffer a resulting loss in pension benefits. These three unions were: 

• the International Union, United Automobile, Aerospace, and Agricultural 

Implement Workers of America (UAW); 

• the International Union of Electronic, Electrical, Salaried, Machine and 

Furniture Workers, AFL-CIO (IUE); and 

• the United Steelworkers of America (USWA). 

After Delphi filed for bankruptcy in 2005, GM agreed to extend the top-up 

agreements with these three unions in 2007, as well as to assume some of the 

liabilities in Delphi’s hourly-employee pension plan. In 2008, GM agreed to take 

responsibility for approximately $3.4 billion of Delphi’s hourly plan net liabilities, 

to be transferred to GM in two phases. The first transfer—involving $2.1 billion—

took place in September 2008. However, in fall 2008, losses throughout the auto 

industry pushed Delphi near liquidation and caused GM to seek assistance from 

Treasury. In April and May 2009, Treasury worked with GM to develop a 

restructuring plan, and helped GM to determine the “best resolution” of the Delphi 

bankruptcy from GM’s perspective. 

In June 2009, Delphi stated publicly that it was unable to fund its plans. In July 

2009, the “new GM,” which began operations following GM’s bankruptcy, 

maintained the top-up agreements with UAW, which represented GM’s largest 

employee group. However, GM concluded that the Delphi hourly plan was a “$3 

billion liability that [GM] could not afford,” and Treasury agreed. The second 

transfer of Delphi’s hourly plan net liabilities never took place. On July 22, 2009, 

PBGC announced the termination of all six of Delphi’s defined benefit plans. 

Because the plans were terminated with insufficient assets, and because PBGC 

must adhere to statutory limits, many Delphi employees will receive a reduced 

benefit from PBGC. 

GM was not required to provide the top-ups to IUE and USWA under its own 

bankruptcy settlement, but Delphi remained a significant—if not the largest—

supplier for GM, and GM was motivated to help resolve Delphi’s bankruptcy. In 

September 2009, new GM agreed to provide top-ups for IUE and USWA 

members as well, pursuant to the 1999 agreements. 

None of these agreements provided for top-ups to members of other unions or to 

any other noncovered employees, including all members of Delphi’s salaried 

plan. As a result, Delphi employees covered by the GM top-up agreements are 

protected from losses in pension benefits due to PBGC’s benefit limits, while 

other employees are not. 

View GAO-12-234T. For more information, 

contact Barbara D. Bovbjerg at (202) 512-

7215 or bovbjergb@gao.gov. 
 

Page 1 GAO-12-234T 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to present information about the key events 

leading to the termination of the defined benefit plans sponsored by the 

Delphi Corporation (Delphi), a global supplier of mobile electronics and 

transportation systems. Delphi began as part of the General Motors 

Corporation (GM), 1 but was spun off as an independent company in 

1999. In 2005, Delphi filed for bankruptcy, 2 and in 2009, Delphi’s six 

qualified defined benefit plans were terminated and trusteed by the 

Pension Benefit Guaranty Corporation (PBGC). The termination of 

Delphi’s plans culminated from a complex series of events involving 

Delphi, GM, various unions, the U.S. Department of the Treasury 

(Treasury), and PBGC. 

Delphi’s Six Defined Benefit Plans, 

Terminated as of July 31, 2009

• Delphi Hourly-Rate Employees Pension

 Plan (hourly plan): 47,176 participants

• Delphi Retirement Program For Salaried

 Employees (salaried plan): 

20,203 participants

• Packard-Hughes Interconnect Non-

 Bargaining Retirement Plan: 

1,383 participants

• ASEC Manufacturing Retirement Program:

533 participants

• Packard-Hughes Interconnect Bargaining

 Retirement Plan: 165 participants

• Delphi Mechatronic Systems Retirement

 Program: 148 participants

Source: Pension Benefit Guaranty Corporation (PBGC). 

This testimony presents information from a report we issued in March 

2011. 3 In that report, we provided a timeline of key events leading to the 

termination of Delphi’s plans, focusing, in particular, on events related to 

the reasons for GM providing retirement benefit supplements to certain 

Delphi employees, but not to others, and Treasury’s role in those events. 

To construct this timeline, we relied on publicly available documents, such 

as bankruptcy filings by GM and Delphi, company reports to the 

Securities and Exchange Commission, press releases; and on documents 

received from groups with whom we have talked, including Delphi, GM, 

the Delphi Salaried Retiree Association (DSRA), PBGC, and Treasury. 

We conducted our work from October 2010 to March 2011 in accordance 

with all sections of GAO’s Quality Assurance Framework that are relevant 

to our objectives. The framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our 

stated objectives and to discuss any limitations in our work. We believe 

 

1

Prior to bankruptcy reorganization, GM’s legal name was General Motors Corporation. 

The legal name of the new entity that was created through the bankruptcy process is 

General Motors Company (the entity that purchased the operating assets of the prereorganization corporation, which we discuss later in this report). As of October 19, 2009, 

General Motors Company became General Motors LLC. Throughout this report, in cases 

where a distinction is important, we refer to the pre-reorganization corporation as “old GM” 

and the post-reorganization company as “new GM.” 

2

Voluntary Petition of Delphi Corporation, No. 05-44481 (RDD) (Bankr. S.D.N.Y. Oct. 8, 

2005). 

3

GAO, Key Events Leading to the Termination of the Delphi Defined Benefit Plans,

GAO-11-373R (Washington, D.C.: Mar. 30, 2011). 

 Delphi Corporation 
 

that the information and data obtained, and the analysis conducted, 

provided a reasonable basis for any findings and conclusions in that 

product. We are continuing to conduct work on this topic, and plan to 

issue another report that will compare PBGC’s process for terminating 

Delphi’s pension plans with its process for terminating other large, 

complex plans. We expect to issue this report in December 2011. 

During the 1999 spin-off negotiations between GM and Delphi, 4 three 

unions secured benefit guarantees for their members: International Union, 

United Automobile, Aerospace, and Agricultural Implement Workers of 

America (UAW); the International Union of Electronic, Electrical, Salaried, 

Machine and Furniture Workers, AFL-CIO (IUE); 5 and the United 

Steelworkers of America (USWA). The benefit guarantees included an 

agreement that GM would provide a retirement benefit supplement 

(referred to as “top-ups”) to certain Delphi employees who were members 

of these unions should their pension plans be frozen or terminated and 

they were to suffer a resulting loss in pension benefits. No other Delphi 

employees had a similar agreement to receive a top-up, including salaried 

workers and hourly workers belonging to other unions. Over the course of 

events that followed, summarized in figure 1 and described in more detail 

below, the agreements with these three unions were ultimately preserved 

through the resolution of the bankruptcies of both GM and Delphi. 

Because Delphi’s pension plans were terminated with insufficient assets 

to pay all accrued benefits, and because PBGC must adhere to statutory 

Summary 

 

4

For the purposes of this report, “Delphi” refers to the company prior to its emergence from 

Chapter 11 reorganization. Postbankruptcy Delphi is DPH Holdings Corporation, a 

liquidating entity, and Delphi Automotive LLP is a United Kingdom limited partnership, 

which was created in 2009 and purchased most of Delphi’s assets. 

5

Effective October 1, 2000, IUE merged with the Communications Workers of America to 

become the Industrial Division of CWA (IUE-CWA); for the purposes of this report, we 

continue to refer to this entity as the IUE. 

Page 2 GAO-12-234T Delphi Corporation
 

limits on the benefits it guarantees, 6 many Delphi employees will receive 

a reduced pension benefit from PBGC compared with the benefits 

promised by their defined benefit plans. Those Delphi employees 

receiving the top-ups will have their reduced PBGC benefit supplemented 

by GM while others will not. 

 

6

When a plan is terminated without sufficient assets to pay all promised benefits, PBGC 

determines the amount of benefit guaranteed based on certain limits specified under the 

Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1322-1322b, and related 

regulations, 29 C.F.R. §§ 4022.21, 4022.24 and 4022.25 (2010). While PBGC does not 

expect to finalize benefit amounts for each participant in Delphi’s plans for several years, it 

anticipates that the application of these limits will result in many participants receiving a 

lower benefit from PBGC than that promised by their plans. For more on PBGC 

guarantees and the benefit determination process, see GAO, Pension Benefit Guaranty 

Corporation: More Strategic Approach Needed for Processing Complex Plans Prone to 

Delays and Overpayments, GAO-09-716, (Washington, D.C.: Aug. 17, 2009). 

Page 3 GAO-12-234T Delphi Corporation
 

Figure 1: Overview of Key Events Leading to Termination of Delphi’s Pension Plans 

Sources: GM, Delphi, and Treasury documents. 

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Delphi suffers losses; files for bankruptcy

• Funding of pension plans deteriorates. 

• Delphi files for bankruptcy protection.

Sept. 1998

-Dec. 2000

Jan. 2001

-Feb. 2006

Mar. 2006

-Nov. 2008

Nov. 2008

-Nov. 2009

Delphi attempts restructuring and sale; negotiates agreements with GM

• Missed pension contributions by Delphi trigger liens on behalf of plans and the Internal 

Revenue Service grants Delphi funding waivers.

• GM, Delphi, and unions extend GM top-up agreements.

• Delphi files reorganization plan that includes settlement agreement with GM to transfer part of 

Delphi hourly plan to GM hourly plan.

• Proposed Delphi reorganization falls through when investors refuse to fund Delphi’s 

reorganization plan.

• Delphi and GM amend their settlement agreement to transfer part of Delphi’s hourly plan to GM. 

• Delphi freezes all but one of its six defined benefit plans.

Economic downturn contributes to GM bankruptcy and termination of Delphi plans

• Delphi nears liquidation following expiration of agreement with debtor-in-possession lenders.

• Delphi states publicly it is unable to continue funding its pension plans.

• GM enters bankruptcy and sells its assets to a new entity (“new GM”) with assistance from Treasury.

• New GM agrees to honor the Delphi UAW top-ups based on UAW’s continued relationship with GM.

• PBGC negotiates agreements concerning liens on foreign assets, and terminates Delphi’s plans with the agreement of Delphi. 

• New GM negotiates settlement agreements that include top-ups for IUE and USWA to help resolve the Delphi bankruptcy.

• Delphi reorganization complete with sale of assets.

• Delphi Salaried Retiree Association files and amends complaint on termination of Delphi’s salaried plan.

Delphi spins off from GM

• Delphi becomes a separate corporate entity and sponsor of its employees’ pension plans.

• Certain unions (UAW, IUE, and USWA) secure benefit guarantees from GM for their 

members, including a pension benefit “top-up” should the hourly plan be frozen or terminated.

• Delphi’s pension plan for salaried retirees is fully funded and its plan for hourly retirees is not 

fully funded.

Page 4 GAO-12-234T Delphi Corporation
 

As part of Delphi’s spin-off from GM in 1999, GM was required to 

collectively bargain with the unions affected by the spin-off—including 

UAW, IUE, and USWA, as well as other “splinter” unions. 7 As a result of 

these negotiations, GM agreed to provide top-ups to “covered employees” 

with UAW, IUE, or USWA if the Delphi pension plans were terminated or 

frozen at a later date, covering any shortfall of benefits below the level 

promised by the Delphi plans. “Covered employees” were generally 

defined as those who had been represented by these unions as GM 

workers and now as Delphi workers with no break in employment or 

seniority as of May 28, 1999. The top-up benefits were part of separate 

benefit guarantee agreements, signed between September and 

December 1999, between GM and certain unions representing Delphi 

workers—specifically, the UAW, IUE, and USWA. Also, on December 22, 

1999, Delphi agreed to indemnify GM for all benefits provided by GM 

under the UAW benefit guarantee. 8 At the time GM entered into these 

agreements, Delphi’s salaried plan was fully funded while Delphi’s hourly 

plan was not fully funded (see table 1). 

Three Unions Secured 

Top-Up Agreements in 

Negotiations 

Following Delphi’s 

Spin-Off from GM 

Table 1: Funding History for Delphi’s Salaried and Hourly Pension Plans, 1999-2009 

Dollars in millions 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 July 

2009c

Salaried plan 

Assetsa $2,449 $2,449 $2,455 $2,256 $1,959 $2,532 $2,703 $3,027 $3,439 $3,600 $2,371 $2,456 

Liabilitiesb 2,251 1,996 2,260 2,704 3,131 3,562 4,087 4,463 4,346 3,924 4,419 4,574 

Net assets 198 453 196 (448) (1,172) (1,030) (1,384) (1,437) (907) (324) (2,048) (2,119) 

Funded 

percentage 

108.8% 122.7% 108.7% 83.4% 62.6% 71.1% 66.1% 67.8% 79.1% 91.7% 53.7% 53.7% 

Company 

Contributions 

$0 $0 $0 $0 $0 $276 $0 $140 $126 $125 $105 $0 

 

7

The splinter unions include the International Association of Machinists and Aerospace 

Workers; International Brotherhood of Electrical Workers; Michigan Regional Council of 

Carpenters, Local 687 and Interior Systems, Local 1045; International Brotherhood of 

Painters and Allied Trades of the United States and Canada, Sign & Display Union Local 

59; International Brotherhood of Teamsters; International Brotherhood of Boilermakers; 

International Union of Operating Engineers; and United Catering Restaurant Bar & Hotel 

Workers. 

8

This indemnification would allow GM to have a claim against Delphi for any expenses 

incurred by GM for coverage of guaranteed benefits. 

Page 5 GAO-12-234T Delphi Corporation
 

Hourly plan 

Assetsa $2,806 $4,247 $3,780 $3,627 $4,854 $5,763 $6,621 $7,214 $7,015 $3,732 $3,659 

Liabilitiesb 4,063 4,620 5,535 6,323 7,531 8,408 8,894 10,212 9,734 6,792 7,035 

Net assets (1,257) (373) (1,756) (2,695) (2,677) (2,646) (2,273) (2,998) (2,720) (3,060) (3,376) 

Funded 

percentage 

69.1% 91.9% 68.3% 57.4% 64.5% 68.5% 74.4% 70.6% 72.1% 54.9% 52.0% 

Company 

contributions 

$1,225 $1,125 $0 $400 $714 $600 $485 $108 $69 $157 $0 

Source: GAO analysis of Delphi Corporation data. 

a

Assets are year-end fair market values of plan assets. 

b

Liabilities are the projected benefit obligations, or present value of benefits projected to be paid. 

Throughout this report, we have characterized the value of plan assets and liabilities based on 

available documents. It is often the case that the value of assets and liabilities from these sources is 

substantially different than their values at the point of termination. PBGC has reported that, at the 

time they were terminated, the Delphi plans were underfunded by approximately $7 billion on a 

termination basis. 

c

July 2009 figures are approximate as of July 31, 2009. 

Over the period 2001 to 2005, Delphi suffered large losses, and the 

company filed for bankruptcy in October 2005. During the bankruptcy, 

Delphi failed to make required minimum contributions to the plans and, as 

a result, liens were triggered by federal statute on behalf of the plans. 

Beginning in March 2006, PBGC took steps to perfect these liens in 

accordance with law. 9 While Delphi was in bankruptcy and attempting to 

restructure, in May 2007, the Internal Revenue Service (IRS) granted 

Delphi waivers that temporarily allowed Delphi to forego making minimum 

contributions to its plans and to provide letters of credit as collateral for 

the waivers. 

After Delphi Filed for 

Bankruptcy, Delphi 

and GM Agreed to 

Extend the Top-Up 

Agreements with the 

Three Unions 

Shortly thereafter, Delphi and GM agreed to extend the top-up 

agreements with UAW, IUE, and USWA. In June 2007, GM, Delphi, and 

UAW entered into a memorandum of understanding (MOU) extending the 

GM benefit guarantee for Delphi UAW workers, which would be 

enforceable if benefit accruals for future credited service in the Delphi 

hourly plan were frozen and if the plan were terminated. On August 5, 

2007, GM and Delphi entered into a MOU with Delphi IUE, and on August 

16, 2007, with Delphi USWA, providing the same top-up guarantee as the 

Delphi UAW MOU. The splinter unions negotiated for other benefits at 

 

9

Perfecting a lien involves registering it with the proper legal authority, resulting in it 

becoming a secured interest and thereby receiving a higher priority in bankruptcy. 

Page 6 GAO-12-234T Delphi Corporation
 

this time, but were not guaranteed top-ups; nor were any agreements 

reached regarding top-ups for salaried workers. 

In September 2007, GM and Delphi entered into a global settlement 

agreement that included a plan to transfer assets and liabilities from 

Delphi’s hourly pension plan to the GM hourly pension plan, and for 

Delphi to freeze new accruals to its hourly plan. The agreement did not 

establish a specific effective date, but listed various conditions that had to 

be met in order for it to become effective. Before becoming effective, the 

agreement was modified in September 2008, based on further 

negotiations described below. 

Under Delphi’s initial reorganization plan, the company planned to 

emerge from bankruptcy without terminating its pension plans. However, 

in April 2008, the deal with investors that would have made this possible 

fell through. Five months later, in September 2008, Delphi and GM 

amended their September 2007 global settlement agreement to specify 

that GM would take responsibility for approximately $3.4 billion of net 

liabilities in Delphi’s hourly plan in two phases. In phase 1, GM would 

assume a portion of Delphi’s hourly plan with net liabilities of $2.1 billion. 

This transfer took place on September 29, 2008. In phase 2, upon 

“substantial consummation” of Delphi’s reorganization, the remaining 

assets and liabilities in Delphi’s hourly plan were to be transferred to GM. 

No comparable arrangements were made concerning a transfer of assets 

and liabilities for Delphi’s salaried plan or other smaller plans. 

In September 2008, Delphi froze its salaried plan and three of its smaller 

plans, and in November 2008, Delphi froze its hourly plan as well. 10

 

10A freeze is an amendment to a defined benefit plan to limit some or all future pension 

accruals for some or all participants. For more information on types of freezes and their 

effects, see: GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of Participants 

and May Pose Retirement Income Challenges, GAO-08-817 (Washington, D.C.: July 21, 

2008). 

Page 7 GAO-12-234T Delphi Corporation
 

Beginning in the fall of 2008, economic conditions deteriorated throughout 

the auto industry. Delphi experienced declining revenues as GM and 

other manufacturers sharply reduced production in light of rapidly falling 

sales. According to documents provided by PBGC, when Delphi’s 

financing agreement with its debtor-in-possession (DIP) lenders expired 

on April 21, 2009, Delphi’s operations were threatened by the prospect of 

imminent liquidation. On April 21, PBGC determined that it would seek 

termination of the Delphi salaried and hourly pension plans to avoid the 

losses that would result if the DIP lenders were to foreclose on their 

collateral and break up Delphi’s controlled group. However, at the request 

of Delphi and the DIP lenders, PBGC agreed not to proceed with the 

termination in order to allow the parties to continue negotiating. In 

exchange, the DIP lenders agreed to give PBGC advance notice of any 

decision to foreclose so that PBGC could commence termination of the 

Delphi pension plans in time to protect PBGC’s claims. 

Losses throughout the 

Auto Industry Pushed 

Delphi Near 

Liquidation and GM to 

Seek Assistance from 

Treasury 

GM’s losses in the fall of 2008 led the company to seek assistance from 

Treasury through the Automotive Industry Financing Program (AIFP). 11

As a condition of receiving this assistance, GM was required to develop a 

restructuring plan to identify how the company planned to achieve and 

sustain long-term financial viability. In April and May 2009, Treasury 

worked with GM to develop a restructuring plan through the Presidential 

Task Force on the Auto Industry (Auto Task Force) and its staff (auto 

team). 12 On June 1, 2009, GM filed for bankruptcy and sought the 

approval of the bankruptcy court for the sale of substantially all of the 

 

11In December 2008, Treasury established AIFP under the Troubled Asset Relief Program 

(TARP) to help stabilize the U.S. automotive industry and avoid disruptions that would 

pose systemic risk to the nation’s economy. TARP was originally authorized under the 

Emergency Economic Stabilization Act of 2008 (EESA), Pub. L. No. 110-343, div. A, 122 

Stat. 3765 (codified as amended at 12 U.S.C. §§ 5201-5261). EESA originally authorized 

Treasury to purchase or guarantee up to $700 billion in troubled assets. § 115(a), 122 

Stat. 3780. The Public-Private Investment Program Improvement and Oversight Act of 

2009 amended EESA to reduce the maximum allowable amount of outstanding troubled 

assets under EESA by almost $1.3 billion, from $700 billion to $698.741 billion. Pub. L. 

No. 111-22, div A, § 402, 402(f),123 Stat. 1656, 1658. EESA requires that the appropriate 

committees of Congress be notified in writing when the Secretary of the Treasury, after 

consultation with the Chairman of the Board of Governors of the Federal Reserve System, 

determines that it is necessary to purchase other financial instruments to promote financial 

market stability. § 3(9)(B), 122 Stat. 3767 (codified at 12 U.S.C. § 5202(9)(B)). 

12Treasury established an internal working group—referred to as the auto team—to 

oversee AIFP and provide analysis in support of the Auto Task Force. 

Page 8 GAO-12-234T Delphi Corporation
 

company’s assets to a new entity (“new GM”). 13 In court documents, a 

Treasury official stated that Treasury was mandated by the President to 

act in a “commercially reasonable manner” as it related to GM’s 

restructuring and ensure that the new GM assumed only those liabilities 

of the old company that were thought to be “commercially necessary” for 

the new company to operate. 14 As GM’s primary lender, Treasury was 

concerned about GM’s overall exposure to risks related to distressed 

suppliers, including Delphi. Specifically, Treasury was concerned about 

how GM’s Delphi liabilities would fit within the new company’s business 

plan. According to a Treasury official deposition, Treasury’s mandate to 

restructure GM included helping GM determine the “best resolution” of the 

Delphi bankruptcy from GM’s perspective, which was guided by three 

principles (see table 2). 15 However, as Treasury asserted in a February 

2010 court motion, the Auto Task Force did not dictate what should be 

done with the Delphi pensions. 16

 

13On June 1, 2009, GM filed a voluntary petition for reorganization under Chapter 11 of the 

U.S. Bankruptcy Code (11 U.S.C. §§ 1101-1174) and conducted a court-supervised asset 

sale (under 11 U.S.C. § 363), in which substantially all of the operating assets of the 

company were sold to General Motors Company, or “new GM,” and most of the 

company’s debt and liabilities remained in the possession of Motors Liquidation Company, 

or “old GM,” which is being addressed in bankruptcy court. New GM began operations on 

July 10, 2009. 

14Deposition of Treasury Official at 185, No. 05-44481 (RDD) (S.D.N.Y. July 21, 2009) and 

Motion of Defendants U.S. Department of the Treasury et al. at 10, No. 2:09-cv-13616 

(E.D. Mich. Feb. 16, 2010). 

15According to the December 19, 2008, pre-bankruptcy loan agreement between Treasury 

and GM, Treasury had the right to review and prohibit any “asset sale, investment, 

contract, commitment, or other transaction not in the ordinary course of business 

proposed to be entered into with a value in excess of $100 million,” referred to as a 

“material transaction.” Treasury also needed to sign off on the purchase agreement under 

which old GM sold substantially all of its assets to new GM. This agreement established 

which contracts would be assumed by new GM. After July 10, 2009, the only approval 

right, pursuant to the new loan agreement, was if new GM needed funds from an escrow 

account. 

16The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) is 

conducting an audit of Treasury’s role in GM’s decision to provide top-ups for hourly 

workers, including whether the Administration or Auto Task Force pressured GM to 

provide additional funding for the hourly plan. SIGTARP has not announced when it 

expects to complete this audit. 

Page 9 GAO-12-234T Delphi Corporation
 

Table 2: Treasury’s Three Guiding Principles for Resolving GM’s Liabilities Related 

to Delphi 

Principle Treasury rationale 

Development of a resolution 

that guaranteed the “sanctity” 

of GM’s supply chain 

Treasury did not want GM’s attention, which was focused 

on its own restructuring, to be diverted to finding 

suppliers for the products provided by Delphi. 

Quick resolution of the Delphi 

bankruptcy 

Treasury wanted Delphi’s bankruptcy to conclude sooner 

rather than later, given that Delphi had already been in 

bankruptcy for 3 years by this point. 

A resolution that required the 

least possible amount of 

investment by GM 

Because GM had already invested billions of dollars in 

Delphi during Delphi’s bankruptcy process, Treasury 

believed that GM should not provide additional money to 

Delphi absent an overall resolution of the Delphi 

bankruptcy. 

Source: Deposition of Treasury Official at 36 and 37, No. 05-44481 (RDD) (Bankr. S.D.N.Y. July 21, 2009). 

In assisting with GM’s reorganization, Treasury conducted analysis 

confirming GM’s assessment of the Delphi pension liabilities. Specifically, 

in May 2009, Treasury had anticipated that Delphi’s salaried pensions 

would be terminated, but that GM would assume additional liabilities for 

the Delphi hourly plan, as called for in phase 2 of the September 2008 

agreement. Additionally, on June 1, 2009, Delphi announced that its 

hourly plan would be “addressed by GM.” According to a Treasury official 

deposition, there was a reasonable argument for GM to assume the 

Delphi hourly plan for UAW-represented workers, given that UAW’s role 

was continuing with the new GM and that the hourly plan was not fully 

funded at the time the plan was transferred from GM to Delphi in 1999. 

However, the phase 2 transfer called for Delphi to pay a $2.055 billion 

administrative claim to GM, which it could not do. In the Treasury official’s 

deposition, it was noted that shortly after GM’s bankruptcy filing, GM 

notified Treasury that it had not built sufficient funding into its restructuring 

plan to take on the hourly plan, but that it had built in the assumption that 

it would provide the top-up for Delphi UAW retirees. Treasury’s auto team 

assessed GM’s analysis on the potential cost of GM taking on the Delphi 

hourly pension plan and agreed with GM’s conclusion that the hourly plan 

was a “$3 billion liability that General Motors could not afford.” 17 Phase 2 

of the transfer of hourly plan liabilities from Delphi to GM was not in GM’s 

reorganization plan and never took place. 

 

17Deposition of Treasury Official, No. 05-44481 (RDD) (S.D.N.Y. July 21, 2009). 

Page 10 GAO-12-234T Delphi Corporation
 

As part of the sale of the assets of old GM to new GM, GM negotiated 

with UAW—which represented its largest employee group—to modify 

wages, benefits, and work rules to be more cost competitive. As a result 

of these negotiations, GM and UAW agreed that new GM would assume 

all employment-related obligations and liabilities under any assumed 

employee benefit plan relating to employees that are or were covered by 

UAW collective bargaining agreements in its master sale and purchase 

agreement, to which Treasury gave its approval. 18 Thus, the master sale 

and purchase agreement included only GM’s obligation to provide top-ups 

to Delphi UAW retirees. 19 No other negotiations took place that resulted 

in comparable obligations concerning top-ups for members of the two 

other unions, IUE and USWA, even though they had previously secured 

top-up agreements with GM; nor for the splinter unions or the salaried 

employees who had no previous top-up agreements with GM. As noted in 

a Treasury official deposition, because of the bargaining between GM and 

UAW concerning the GM bankruptcy and new UAW agreement, GM was 

prepared to honor the obligation of providing top-ups to UAW Delphi 

retirees, while the situation regarding comparable obligations with the 

other unions was less clear. 

GM’s Reorganization 

Maintained Delphi 

UAW Top-Ups Based 

on UAW’s Continued 

Relationship with GM 

On June 19, 2009, IUE and USWA objected to the proposed sale of GM’s 

assets because retirees of Delphi represented by IUE and USWA would 

not receive the same benefits as retirees of Delphi represented by 

UAW. 20 The court overruled these unions’ objection to the sale, stating 

that new GM needed a “properly motivated workforce to enable [new GM] 

to succeed,” requiring it to enter into “satisfactory agreements with the 

UAW” and was not “similarly motivated in triaging its expenditures to 

assume obligations for retirees of unions whose members, with little in the 

 

18In re General Motors Corp, 407 B.R. 463, 481 (Bankr. S.D.N.Y. 2009) (Decision on 

debtor’s motion for approval of (1) sale of assets to Vehicle Acquisitions Holdings LLC; (2) 

assumption and assignment of related executory contracts; and (3) entry into UAW retiree 

settlement agreement). 

19The master sale and purchase agreement outlined, among other things, the assets being 

sold by old GM to new GM and the liabilities being assumed by new GM from old GM. 

20Objection to Debtors’ Motion Pursuant to 11 U.S.C. §§ 105, 363(b), (f), (k) and (m), and 

365 and Fed. R. Bankr. P. 2002, 6004, and 6006, to (I) Approve (A) the Sale Pursuant to 

the Master Sale and Purchase Agreement with Vehicle Acquisition Holdings LLC, a U.S. 

Treasury-Sponsored Purchaser, Free and Clear of Liens, Claims, Encumbrances, and 

Other Interests; (B) the Assumption and Assignment of Certain Executory Contracts and 

Unexpired Leases; and (C) Other Relief; and (II) Schedule Sale Approval Hearing, In re 

General Motors Corporation, No. 09-50026(REG) (Bankr. S.D.N.Y. June 19, 2009). 

Page 11 GAO-12-234T Delphi Corporation
 

way of exception, no longer work for GM.” 21 Accordingly, the bankruptcy 

court approved the sale of GM’s assets on July 5, 2009, and those assets 

were conveyed to new GM on July 10, 2009. 

On June 1, 2009, Delphi, citing its inability to fund its plans and a lack of 

feasible alternatives, publicly stated that PBGC “may initiate an 

involuntary termination” of the Delphi salaried plan. Delphi and GM 

entered into agreements with PBGC that provided PBGC an unsecured 

claim in Delphi’s bankruptcy and released PBGC’s current claims and 

foreign liens on Delphi’s assets on July 21, 2009. PBGC agreed to 

release its $196 million of foreign liens (foreign subsidiaries had not filed 

for bankruptcy) and other termination claims in exchange for a $3 billion 

unsecured claim in Delphi’s bankruptcy, a $70 million cash contribution 

from GM, and 10 percent of the first $7.2 billion of distributions from 

Delphi Automotive LLP, the newly-created British partnership that 

purchased most of Delphi’s assets. On July 22, 2009—12 days after the 

sale of GM’s assets to new GM—PBGC announced the termination of all 

six of Delphi’s qualified defined benefit plans, and on August 10, 2009, 

PBGC assumed trusteeship of the plans. PBGC stated that the Delphi 

pension plans were underfunded by $7 billion when they were terminated. 

PBGC estimates that it will need to make up about $6 billion of that 

shortfall using PBGC funds, leaving plan participants to bear the loss of 

the $1 billion difference through reduced benefit amounts provided by 

PBGC. 

Delphi Publicly Stated 

That It Was Unable to 

Fund Its Plans and the 

Plans Were 

Terminated 

 

21407 B.R. 512. 

Page 12 GAO-12-234T Delphi Corporation
 

The approval of the sale of old GM did not resolve IUE’s and USWA’s 

claims that new GM was required to continue to provide the pension 

benefit guarantees in accordance with collectively bargained agreements. 

Both old GM and new GM denied these claims. According to a company 

filing, new GM maintained that it was not obligated to assume or to 

continue to abide by old GM’s collective bargaining agreements with IUE 

and USWA, while old GM maintained that it was entitled to cancel or 

terminate all obligations arising from collective bargaining agreements 

between old GM and IUE or USWA. 22 In the summer of 2009, IUE and 

USWA shifted the focus of their objections from the GM bankruptcy 

settlement to the Delphi bankruptcy settlement. On July 9 and July 15, 

2009, IUE and USWA, along with some of the splinter unions, filed 

objections against Delphi’s proposed reorganization plan and sale. 23 On 

July 15, 2009, Delphi Salaried Retiree Association (DSRA) filed an 

objection against Delphi’s bankruptcy based on Delphi’s modified plan 

including the termination of the salaried plan, among other things. On July 

30, 2009, the Delphi bankruptcy court overruled the IUE, USWA, and 

DSRA objections and authorized the consummation of Delphi’s modified 

reorganization plan. 

New GM Ultimately 

Agreed to Provide 

Top-Ups for IUE and 

USWA to Help 

Finalize Delphi’s 

Bankruptcy 

Delphi remained a significant—if not the largest—supplier for GM. Thus, 

although GM was not required to provide the top-ups to IUE and USWA 

under its own bankruptcy settlement, GM was motivated to resolve 

Delphi’s bankruptcy, and Treasury, as previously noted, was interested in 

a quick resolution of the Delphi bankruptcy that required the least 

possible amount of investment by GM, but that guaranteed the “sanctity” 

of GM’s supply chain. According to the Delphi–GM master disposition 

agreement, IUE’s and USWA’s consent was required to finalize the sale 

 

22Settlement Agreement Between and Among GMCO/MLC-IUE-CWA and USWA 

Regarding Retiree Health Care, Life Insurance, Pension Top-Up, and Modification and 

GMCO Assumption of MLC-IUE-CWA CBA, dated Sept. 10, 2009. 

23Preliminary Objection of IUE-CWA to Motion for Order Authorizing and Approving the 

Equity Purchase and Commitment Agreement Pursuant to Sections 105(a), 363(b), 503(b) 

and 507(a) of the Bankruptcy Code, No. 05-44481 (RDD), (Bankr. S.D.N.Y. July 9, 2009) 

and Joinder of United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied 

Industrial and Service Workers International Union to Preliminary Objection of IOUE 

Locals and IBEW and IAM to Debtors’ Motion for Order Authorizing and Approving 

Modified Plan of Reorganization, No. 05-44481 (RDD), (Bankr. S.D.N.Y. July. 15, 2009). 

Objection to Debtors’ Proposed Modifications to Debtors’ First Amended Plan of 

Reorganization (As Modified) at 2, No. 05-44481 (RDD) (Bankr. S.D.N.Y. July 15, 2009). 

Page 13 GAO-12-234T Delphi Corporation
 

of assets in Delphi’s bankruptcy. 24 As a result, new GM continued 

negotiating with IUE and USWA to resolve their objections against 

Delphi’s bankruptcy case. 

On September 10, 2009, new GM, old GM, IUE, and USWA signed a 

settlement agreement that, among other things, required new GM to 

provide top-ups to retirees of Delphi represented by IUE or USWA who 

were covered by the benefit guarantee agreements that GM had entered 

with IUE and USWA in 1999. 25 The parties entered into this agreement 

after consideration of the “factual and legal arguments regarding these 

issues, as well as the costs, risks, and delays associated with litigating 

these issues.” In its February 2010 court motion, Treasury noted that in 

light of these costs, new GM had solid commercial reasons for agreeing 

to provide top-ups to Delphi retirees represented by IUE or USWA. As 

part of the settlement agreement, IUE and USWA agreed to withdraw 

their objections against Delphi’s bankruptcy, resulting in the completion of 

Delphi’s reorganization on October 6, 2009, with the sale of its assets. 

The settlement agreement did not provide top-ups to the splinter unions 

or to any other noncovered employees, including all members of Delphi’s 

salaried plan. On September 14, 2009, DSRA filed a complaint against 

PBGC in U.S. district court related to the termination of Delphi’s salaried 

plan. 26 DSRA amended its complaint on November 5, 2009, to include 

new GM, Treasury, and the Auto Task Force as defendants. However, in 

 

24Master Disposition Agreement among Delphi Corp.; GM Components Holdings, LLC; 

Gen. Motors Co., Motors Liquidation Co.; DIP Holdco3, LLC; and the Other Sellers and 

Other Buyers Party Hereto at 96 (July 26, 2009). 

25Settlement Agreement Between and Among GMCO/MLC-IUE-CWA and USWA 

Regarding Retiree Health Care, Life Insurance, Pension Top-Up, and Modification and 

GMCO Assumption of MLC-IUE-CWA CBA, dated Sept. 10, 2009. 

26Complaint for Equitable Relief, No. 2.09-cv-13616 (E.D. Mich. Sept. 14, 2009). 

Page 14 GAO-12-234T Delphi Corporation
 

March 2010, the court dismissed the claim against new GM, 27 and in 

September 2011, dismissed the claim against Treasury. 28

Mr. Chairman and Members of the Committee, this completes my 

prepared statement. I would be happy to respond to any questions you or 

other Members of the Committee might have. 

For further information regarding this testimony, please contact me at 

(202) 512-7215 or bovbjergb@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this statement. Individuals who made key contributions to this 

testimony include Margie K. Shields (Assistant Director), Mark M. 

Glickman (Analyst-in-Charge), James Bennett, Julie DeVault, Heather 

Krause, Edward Leslie, Kathy Leslie, and Craig Winslow. 

GAO Contact and 

Staff 

Acknowledgments 

 

27First Amended Complaint, No 2:09-cv-13616 (E.D. Mich. Nov. 5, 2009). On March 12, 

2010, the court dismissed GM as a party to the DSRA lawsuit. The court stated that if the 

plaintiffs showed new facts and circumstances that demonstrated new GM’s conduct is 

not subject to the release and injunction provisions of the approved Delphi modified plan 

and plan modification order, then the plaintiffs could bring a future claim against new GM. 

Black v. Pension Benefit Guaranty Corp., No. 2:09-cv-13616 (E.D. Mich. March 12, 2010) 

(Order dismissing General Motors LLC). 

28In September 2011, the court dismissed the retirees’ claims against Treasury and 

Treasury officials. Order Granting Defendant United States Department of the Treasury, 

Presidential Task Force on the Auto Industry, Timothy F. Geithner, Steven L. Rattner, and 

Ron. A. Bloom’s Reviewed Motion to Dismiss, No. 09-13616 (E.D. Mich. Sept. 1, 2011).

(131136) Page 15 GAO-12-234T Delphi Corporation
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