DELPHI BANKRUPTCY

Termination of Delphi 

Pension Plans

Statement of A. Nicole Clowers, Director 

Financial Markets and Community Investment Issues

Testimony before the Subcommittee on 

TARP, Financial Services and Bailouts of 

Public and Private Programs, Committee 

on Oversight and Government Reform, 

House of Representatives

For Release on Delivery 

Expected at 10:00 a.m. EDT

Tuesday, July 10, 2012

GAO-12-909T

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-909T, a testimony 

before the Subcommittee on TARP, Financial 

Services and Bailouts of Public and Private 

Programs, Committee on Oversight and 

Government Reform, House of 

Representatives

July 10, 2012

DELPHI BANKRUPTCY

Termination of Delphi Pension Plans

Why GAO Prepared This 

Testimony

The Delphi Corporation was a global 

supplier of mobile electronics and 

transportation systems that began as 

part of GM and was spun off in 1999. 

Delphi filed for bankruptcy in 2005, and 

in July 2009, PBGC terminated 

Delphi's six defined benefit pension 

plans and assumed trusteeship of the 

plans. Because of the resulting 

differences in participant benefits, 

questions have been raised about how 

PBGC came to terminate the plans, 

whether treatment for certain Delphi 

workers was preferential, and the role 

of Treasury in these outcomes.

GAO’s testimony describes key events 

related to the termination of Delphi 

pension plans and the reasons for GM 

providing retirement benefit 

supplements to certain Delphi 

employees, and Treasury's role in 

those events. The testimony is based 

on GAO’s March and December 2011 

reports that examine these and other 

related issues. In preparing these 

reports, GAO relied on publicly 

available documents—such as GM and 

Delphi bankruptcy filings, Treasury 

officials’ depositions, and company 

reports to the Securities and Exchange 

Commission—and on documents 

received from groups GAO 

interviewed, including Delphi, GM, the 

Delphi Salaried Retirees Association, 

PBGC, and Treasury. GAO also 

coordinated with the Special Inspector 

General for the Troubled Asset Relief 

Program (SIGTARP) because of that 

office’s work on Treasury’s role in 

GM’s decision to provide top-ups for 

certain hourly workers, including 

whether the Administration or Treasury 

pressured GM to provide additional 

funding for the hourly plan.

What GAO Found

The termination of the six defined benefit plans the Delphi Corporation (Delphi)

sponsored, and the provision of benefit protections to some Delphi employees 

but not others, culminated from a complex series of events involving Delphi, the 

General Motors Corporation (GM), various unions, the U.S. Department of the 

Treasury (Treasury), and the Pension Benefit Guaranty Corporation (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: (1) the 

International Union, United Automobile, Aerospace, and Agricultural Implement 

Workers of America (UAW); (2) the International Union of Electronic, Electrical, 

Salaried, Machine and Furniture Workers, AFL-CIO (IUE); and (3) the United 

Steelworkers of America (USWA). 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 unfolded over the next 

decade, the agreements with these three unions ultimately were 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 limits on the benefits it 

guarantees, 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.

As GM’s primary lender in bankruptcy, Treasury played a significant role in 

helping GM resolve the Delphi bankruptcy. Treasury’s effort to restructure GM 

included helping GM find the best resolution of the Delphi bankruptcy from GM’s 

perspective. This effort was guided by the following principles: preserving GM’s 

supply chain, resolving Delphi’s bankruptcy as quickly as possible, and doing so 

with the least possible amount of investment by GM. However, court filings and 

statements from GM and Treasury officials suggest that Treasury deferred to 

GM’s business judgment on decisions about the Delphi pension plans—that is, 

their sponsorship and the decision to honor existing top-up agreements. 

According to public records and Treasury officials, Treasury agreed with GM’s 

assessment that the company could not afford the potential costs of taking over 

sponsorship of the Delphi hourly plan, but that the company had solid 

commercial reasons to honor previously negotiated top-up agreements with 

some unions. Nevertheless, Treasury officials said that Treasury did not explicitly 

approve or disapprove of GM's agreement to honor previously negotiated top-up 

agreements. PBGC officials stated that PBGC decided to terminate the plans

independently of Treasury input.

View GAO-12-909T. For more information, 

contact A. Nicole Clowers at (202) 512-8678 

or clowersa@gao.gov or Barbara Bovbjerg at 

(202) 512-7215 or bovbjergb@gao.gov. 
 

Page 1 GAO-12-909T 

Mr. Chairman, Ranking Member Quigley, and Members of the 

Subcommittee:

Thank you for the opportunity to discuss our work on the termination of 

Delphi’s pension plans. As you know, 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 1999.1 Following Delphi’s bankruptcy, the 

Pension Benefit Guaranty Corporation (PBGC), the government 

corporation that insures private-sector defined benefit (DB) plans, 

terminated Delphi’s six plans in July 2009. The plans were estimated to 

be underfunded by a combined $7.2 billion at termination, of which PBGC 

expects to cover about $6 billion.2

My testimony discusses key events related to the termination of Delphi 

pension plans and the reasons for GM providing retirement benefit 

supplements to certain Delphi employees, and Treasury’s role in those 

events. My comments are based on our March and December 2011 

Since the termination, there has been 

controversy over different pension benefit outcomes for certain unionized 

and non-unionized Delphi retirees. Further, the involvement of the U.S. 

Department of the Treasury (Treasury) in the bankruptcy of GM, Delphi’s 

former parent company, raised questions for some about the role that 

Treasury played in PBGC’s decision to terminate Delphi’s pension plans, 

the decisions to provide retirement benefit supplements (“top-ups”) to 

certain Delphi employees, and the resulting outcomes for Delphi plan 

participants.

 

1

At the time of the spinoff, Delphi established two pension plans, with assets and liabilities 

transferred from their GM counterparts: the Delphi Hourly-Rate Employees Pension Plan 

(hourly plan) and the Delphi Retirement Program for Salaried Employees (salaried plan). 

Delphi acquired four more plans after the spin-off from GM. Before bankruptcy 

reorganization, GM’s legal name was General Motors Corporation. The legal name of the 

new entity created in the bankruptcy process is General Motors Company (the entity that 

purchased the operating assets of the pre-reorganization corporation, which we discuss 

later in this statement). As of October 19, 2009, General Motors Company became 

General Motors LLC. Throughout this statement, 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

A DB plan promises a benefit that is generally based on an employee’s final pay and 

years of service. The employer is generally responsible for funding all or most of the 

benefit, investing and managing plan assets, and bearing the investment risk. 

 
 

Page 2 GAO-12-909T 

reports that examined these and related issues.3 To construct a timeline 

of events and identify Treasury’s role in those events for our reports, we

relied on publicly available documents, such as bankruptcy filings by GM 

and Delphi, Treasury officials’ depositions, company reports to the 

Securities and Exchange Commission, press releases; and documents 

received from groups we interviewed, including Delphi, GM, the Delphi 

Salaried Retirees Association (DSRA), PBGC, and Treasury. We 

performed the work on which this statement is based from October 2010 

to December 2011 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

also coordinated with the Special Inspector General for the Troubled 

Asset Relief Program (SIGTARP) because of that office’s work on 

Treasury’s role in GM’s decision to provide top-ups for certain hourly 

workers, including whether the Administration or Treasury pressured GM 

to provide additional funding for the hourly plan.

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 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), as well as other 

 

3

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

GAO-11-373R (Washington, D.C.: Mar. 30, 2011); and GAO, Delphi Pension Plans: GM 

Agreements with Unions Give Rise to Unique Differences in Participant Benefits, 

GAO-12-168 (Washington, D.C.: Dec. 15, 2011). These products provide additional details 

on the scope and methodology of this work.

Key Events Leading to 

the Termination of 

Delphi’s Pension 

Plans 

Three Unions Secured TopUp Agreements in 

Negotiations Following 

Delphi’s Spin-Off from GM
 

Page 3 GAO-12-909T 

“splinter” unions.4 As a result of these negotiations, GM agreed to pay 

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 

difference between the amount PBGC would pay them and the benefit 

amount promised by the Delphi plans.5 Also, on December 22, 1999, 

Delphi agreed to indemnify GM for all benefits provided by GM under the 

UAW benefit guarantee.6 At the time GM entered into these agreements, 

Delphi’s salaried plan was fully funded while Delphi’s hourly plan was not 

fully funded.7

 

4

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 and Display Union 

Local 59; International Brotherhood of Teamsters; International Brotherhood of 

Boilermakers; International Union of Operating Engineers; and United Catering Restaurant 

Bar and Hotel Workers. 

5

“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. 

6

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

incurred by GM for coverage of guaranteed benefits. 

7

According to data provided by Delphi, based on a fair market valuation of plan assets the 

Delphi salaried plan was 108.8 percent funded as of year-end 1998 and 122.7 percent 

funded as of year-end 1999 while the Delphi hourly plan was 69.1 percent funded as of 

year-end 1999. A plan is fully funded if as of a particular date, plan assets equal or exceed 

the relevant measure of plan obligations. However, for the typical pension plan invested in 

a mix of stocks and bonds, measures of funded status can be highly volatile, so that a 

plan that is fully funded on one date could be substantially less than fully funded on a 

subsequent date.
 

Page 4 GAO-12-909T 

From 2001 to 2005, Delphi suffered large losses, and the company filed 

for bankruptcy in October 2005. After Delphi filed for bankruptcy, Delphi 

and GM agreed to extend the top-up agreements with UAW, IUE, and 

USWA.8

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 for it to become effective. Before becoming effective, the 

agreement was modified in September 2008, based on further 

negotiations described below.

The splinter unions negotiated for other benefits at this time, but 

were not guaranteed top-ups. No other agreements were reached in 

relation to top-ups for salaried workers.

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 the first phase, 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 the second 

phase, upon “substantial consummation” of Delphi’s reorganization, the 

remaining assets and liabilities in Delphi’s hourly plan would be 

transferred to GM. No comparable arrangements were made for a 

transfer of assets and liabilities for Delphi’s salaried plan or other smaller 

 

8

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.

After Delphi Filed for 

Bankruptcy, Delphi and 

GM Agreed to Extend the 

Top-Up Agreements with 

the Three Unions
 

Page 5 GAO-12-909T 

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

smaller plans, and in November 2008, Delphi froze its hourly plan.9

Beginning in the fall of 2008, economic conditions deteriorated throughout 

the automotive industry. Delphi experienced declining revenues as GM 

and other manufacturers sharply reduced production in response to 

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.

 

9

A freeze is an amendment to a DB 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). 

Losses throughout the 

Automotive Industry 

Pushed Delphi Near 

Liquidation and GM to 

Seek Assistance from 

Treasury
 

Page 6 GAO-12-909T 

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

Treasury through the Automotive Industry Financing Program (AIFP).10

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

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

company’s assets to a new entity (“new GM”).12 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.13

 

10In 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. The Helping 

Families Save Their Homes 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(f),123 Stat. 1632, 1658. 

Under EESA the appropriate committees of Congress must 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)). The Dodd-Frank Wall Street Reform and Consumer Protection Act, 

enacted on July 21, 2010, (1) reduced Treasury’s authority to purchase or insure troubled 

assets to $475 billion and (2) prohibited Treasury from using its authority under EESA to 

incur any additional obligations for a program or initiative unless the program or initiative 

already had begun before June 25, 2010. Pub. L. No. 111-203, § 1302, 124 Stat. 1376, 

2133 (2010).

As GM’s primary lender, Treasury was 

11Treasury established an internal working group—the auto team—to oversee AIFP and 

provide analysis in support of the Auto Task Force. 

12On 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,” to be addressed in bankruptcy court. New GM emerged on July 10, 2009. 

13Deposition of Treasury Official at 185, No. 04-44481 (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). 
 

Page 7 GAO-12-909T 

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 1). However, according to Treasury’s February 2010 

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

with the Delphi pensions.

Table 1: Treasury’s 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 already had been in bankruptcy for 3 years. 

A resolution that required the least possible 

amount of investment by GM 

Because GM already had 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, No. 04-44481 (RDD) (S.D. N.Y. July 21, 2009).

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 the second phase of the 

September 2008 agreement. Additionally, on June 1, 2009, Delphi 

announced that its hourly plan would be “addressed by GM.” 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. The second phase of 

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

reorganization plan and never took place.

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 who are or were covered by 

GM’s Reorganization 

Maintained Delphi UAW 

Top-Ups Based on UAW’s 

Continued Relationship 

with GM
 

Page 8 GAO-12-909T 

UAW collective bargaining agreements in its master sale and purchase 

agreement, which included GM’s obligation to provide top-ups to Delphi 

UAW retirees.14

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.

No other negotiations took place that resulted in 

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

unions, IUE and USWA (although they had previously secured top-up 

agreements with GM) or for the splinter unions or the salaried employees 

who had no previous top-up agreements with GM.

15 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 

way of exception, no longer work for GM.”16 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 

 

14The 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. In re GMC, 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). 

15Objection 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). 

16407 B.R. 512. 

Delphi Publicly Stated 

That It Was Unable to 

Fund Its Plans and the 

Plans Were Terminated
 

Page 9 GAO-12-909T 

foreign liens on Delphi’s assets on July 21, 2009.17 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 DB plans, and on August 10,

2009, PBGC assumed trusteeship of the plans. PBGC determined 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,18 leaving plan participants to bear the 

loss of the $1 billion difference through reduced benefit amounts provided 

by PBGC, consistent with statutory limitations.19

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. 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 

 

17PBGC 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.

18GM also assumed about $2 billion in net liabilities when it accepted the transfer of about 

a fourth of Delphi’s hourly plan in September 2008. In addition, GM expects to pay an 

estimated $1 billion in top-up benefits to Delphi hourly employees.

19PBGC pays participant benefits only up to certain limits set forth by the Employee 

Retirement Income Security Act of 1974. 29 U.S.C. §§ 1322 and 1322a. Participants 

whose benefits under the plan would otherwise exceed these statutory limits may have 

their benefits reduced to the guaranteed amount, unless the plan has sufficient assets to 

pay the nonguaranteed portion of their benefits, either in part or in full.

New GM Ultimately 

Agreed to Provide Top-Ups 

for IUE and USWA to Help 

Finalize Delphi’s 

Bankruptcy 
 

Page 10 GAO-12-909T 

objections against Delphi’s proposed reorganization plan and sale.20

While new GM maintained that it was not obligated to provide top-ups to 

Delphi IUE and USWA retirees, it did have reason to want to resolve 

Delphi’s bankruptcy, given GM’s reliance on Delphi for parts.

On 

July 15, 2009, DSRA filed an objection against Delphi’s bankruptcy based 

on Delphi’s modified plan, including the termination of the salaried plan. 

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.

21 Moreover, 

IUE and USWA, which still represented part of Delphi’s workforce, 

needed to give their consent to finalize the sale of assets in Delphi’s 

bankruptcy.22

 

20Preliminary 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 and 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). 

According to a GM official’s court declaration, a prolonged 

cessation in the supply of parts from Delphi to GM would have had a 

“devastating effect on GM, its ability to reorganize, and the communities 

that depend on employment by GM and its community of parts 

21According to a July 2009 declaration of a GM official, since the spin-off from GM, Delphi 

was GM’s largest component parts supplier, accounting for approximately 11.3 percent of 

GM’s North American purchases and 9.6 percent of GM’s global purchases in 2008. 

Declaration of Randall L. Pappal in Support of Debtors’ Motion for Entry of Order 

Approving (I) Master Disposition Agreement for Purchase of Certain Assets of Delphi 

Corp., (II) Related Agreements, (III) Assumption and Assignment of Executory Contracts, 

(IV) Agreement with PBGC, and (V) Entry into Alternative Transaction in Lieu Thereof, at 

4, In re General Motors Corp., No. 09-50026 (Bankr. S.D.N.Y. July 8, 2009). 

22Master 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). 
 

Page 11 GAO-12-909T 

suppliers.”23

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.

As a result, new GM continued negotiating with IUE and 

USWA to resolve their objections against Delphi’s bankruptcy case.

24 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 non-covered 

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.25

 

23The July 2009 declaration of a GM official stated that Delphi was a sole-source, just-intime supplier of many critical parts to GM, including parts that are used in almost every 

GM product line in North America and identified several ways in which a cessation of parts 

delivery by Delphi could affect GM, including that (1) most parts that Delphi manufactures 

for GM are not readily available from an alternate source, and while GM could accelerate 

efforts to re-source Delphi parts in the event of a supply interruption, the sheer magnitude 

of the parts to be re-sourced and revalidation required would take at least several months 

to achieve; (2) because GM operates on a just-in-time inventory delivery system, GM 

plants relying on just-in-time shipments may run out of inventory of such parts and have to 

shut down within a matter of days, if Delphi ever ceased shipping even a small fraction of 

production parts to GM; and (3) the shutdown of GM plants as a result of termination of 

deliveries of affected parts from Delphi could idle tens of thousands of GM workers, 

significantly decrease GM’s revenues, and increase GM’s costs to expedite resourcing 

efforts. 

DSRA 

amended its complaint on November 5, 2009, to include new GM, 

24Settlement 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. 

25Complaint for Equitable Relief, No. 2.09-cv-13616 (E.D. Mich. Sept. 14, 2009). 
 

Page 12 GAO-12-909T 

Treasury, and the Auto Task Force as defendants. New GM, Treasury, 

and the Auto Task Force were later removed as defendants in the case.26

GM’s agreements with certain unions give rise to differences in participant 

benefits. Because Delphi’s pension plans were terminated with 

insufficient assets to pay all accrued benefits in July 2009, and because 

PBGC must adhere to statutory limits on the amount of benefits it 

guarantees to individuals, many Delphi retirees will receive less from 

PBGC than their full benefit promised by Delphi. Based on PBGC’s 

review of cases as of June 2011, when GAO conducted its study, just 

under half of both the hourly and salaried plan participants had received 

reductions in their promised benefits due to the application of statutory 

benefit limits.27 However, the approximately 60 percent of participants in 

the hourly plan receiving the top-ups are protected from such benefit 

reductions because GM will supplement their PBGC benefit to replace 

any benefit loss, while other hourly employees as well as employees in 

Delphi’s salaried plan and the other smaller plans are not protected from 

such losses.

As GM’s primary lender in bankruptcy, Treasury played a significant role 

in helping GM resolve the Delphi bankruptcy in terms of GM’s interests. 

However, court filings and statements from GM and Treasury officials 

suggest that Treasury deferred to GM’s business judgment about the 

Delphi pension plans—that is, their sponsorship and the decision to honor 

existing top-up agreements. According to public records and Treasury 

officials, Treasury agreed with GM’s assessment that the company could 

not afford the potential costs of sponsoring the Delphi hourly plan. 

 

26Delphi salaried retirees are in litigation against PBGC about termination of Delphi’s 

pension plans. Black v. Pension Benefit Guar. Corp., No. 2:09-cv-13616 (Bankr. E.D. 

Mich. filed Nov. 5, 2009). The court dismissed the retirees’ claims against new GM in 

March 2010 and against Treasury and Treasury officials in September 2011. Black v. 

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

dismissing General Motors LLC). Order Granting Defendant United States Dep’t 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). 

27PBGC pays participants’ benefits only up to certain limits set forth by the Employee 

Retirement Income Security Act of 1974 (ERISA) and related regulations. Participants 

whose benefits under the plan would otherwise exceed these statutory limits may have 

their benefits reduced to the guaranteed amount, unless the plan has sufficient assets to 

pay the nonguaranteed portion of their benefits, either in part or in full.

Treasury Worked with 

GM to Resolve the 

Delphi Bankruptcy
 

Page 13 GAO-12-909T 

Additionally, PBGC officials have maintained that their agency’s decision 

to terminate the Delphi plans was made independent from Treasury’s 

input. Treasury officials said that while Treasury did not explicitly approve 

or disapprove of GM’s agreeing to honor previously negotiated top-up 

agreements with some unions, it agreed that GM had solid commercial 

reasons to enter into such an agreement.

From Treasury’s initial discussions with PBGC about Delphi’s pensions in 

April 2009 until after GM’s bankruptcy filing on June 1, 2009, Treasury 

had anticipated that PBGC would terminate Delphi’s salaried pension 

plan but that GM would assume the remaining portion of Delphi’s hourly 

plan, as called for in the second phase of the September 2008 

agreement.28 According to a Treasury official’s deposition and our 

interviews with Treasury officials, Treasury agreed with GM’s rationale not 

to assume the now underfunded Delphi salaried plan, because that plan 

had been fully funded when GM transferred it to Delphi in 1999. However, 

the Treasury official’s deposition indicated that Treasury thought it was 

reasonable for GM to assume the Delphi hourly plan for UAWrepresented workers, because of UAW’s continuing role with the new GM 

and because the hourly plan, which covered both the UAW and other 

union-represented workers, had not been fully funded at the time the plan 

was transferred from GM to Delphi in 1999.29

According to our review of the records, Treasury was involved in 

discussions with PBGC and GM on how to address Delphi’s pensions 

before GM’s bankruptcy filing. Specifically, according to a Treasury 

official’s deposition, initial discussions with PBGC, GM, and Treasury in 

April and May 2009 centered on trying to reach an agreement under 

which, among other things, the Delphi salaried plan would be terminated 

and GM would assume the hourly pension plan. According to PBGC 

officials, discussions in April and May 2009 revolved around how to deal 

with Delphi’s pension plans in light of the collapse of the automotive 

market, growing concerns about Delphi’s imminent liquidation and 

inability to maintain its pension plans, and GM’s own financial difficulties 

and impending bankruptcy. However, PBGC officials told us that at this 

 

28Deposition of Treasury Official, No. 04-44481 (RDD) (S.D. N.Y. July 21, 2009). 

29According to the deposition, Treasury was not focused on the other unions’ plans at this 

time but was concerned about UAW because of UAW’s role for new GM. 

Decisions Related to Plan 

Sponsorship 
 

Page 14 GAO-12-909T 

time, they had not reached any agreement with GM or Delphi about the 

future of the Delphi pension plans.

According to court filings, GM officials first informed Treasury on June 3, 

2009, (shortly after GM’s bankruptcy filing) that they had concerns about 

taking on the hourly plan and had not built the cost of doing so into their 

restructuring plan. In June 2009, GM developed and provided Treasury 

with an assessment of the costs of Delphi’s pensions, which explained 

that the restructuring plan did not assume the transfer of remaining Delphi 

hourly or salaried plans. The assessment also stated that, subject to 

certain conditions, GM was obligated to absorb the second transfer of 

Delphi’s hourly plan but did not expect Delphi to meet those conditions.30

GM also noted that it was not obligated to absorb Delphi’s salaried plans. 

After reviewing GM’s calculations and engaging in discussions with GM’s 

pension team, Treasury agreed with GM’s assessment that taking on the 

Delphi hourly plan was a “3 billion dollar liability that GM could not 

afford.”31 In a legal brief, Treasury asserted that the department did not 

dictate what should be done with the Delphi pensions and that Treasury 

agreed with GM’s decisions.32

According to PBGC, Treasury did not play an active role in PBGC’s 

decision to terminate the Delphi plans, although by statute the Secretary 

of the Treasury is one of PBGC’s three board members.33

 

30The assessment added that since the first transfer in September 2008, the unfunded 

liability for the remainder of Delphi’s hourly plan had increased from $1.5 billion to 

approximately $3.2 to 3.5 billion as of March 31, 2009.

According to 

PBGC officials, PBGC’s director informed the board of PBGC’s decision 

to seek termination of the Delphi plans, gave the board advance notice of 

31Deposition of Treasury Official, No. 05-44481 (RDD) (S.D. N.Y. July 21, 2009). Upon 

termination in July 2009, PBGC calculated that the underfunding of the hourly plan totaled 

$4.4 billion. 

32Motion of Defendants U.S. Dep’t of the Treasury et al. to Dismiss or, in the Alternative, 

for Summary Judgment at 24, No. 2:09-CV-13616 (E.D. Mich. Feb. 16, 2010).

3329 U.S.C. § 1302(d). As we reported in GAO-12-168, PBGC’s decision to terminate the 

plans was ultimately precipitated by the apparent lack of a viable sponsor, impending 

foreclosure on Delphi’s assets, and the prospect of increased losses for PBGC and the 

plans that would occur upon liquidation. Our examination of PBGC termination decisions 

for nine of its ten largest insurance claims (Delphi’s being the tenth) shows the agency 

making assessments similar to those it made for the Delphi pension plans. See 

GAO-12-168 for more details on this work.
 

Page 15 GAO-12-909T 

subsequent implementation of that decision, and routinely kept the board 

informed of the agency’s actions in the Delphi bankruptcy case, 

consistent with PBGC’s practice in other large cases. The law gives the 

board responsibility to establish and oversee PBGC policies, but 

according to PBGC, the board decides broad policy issues that may arise 

from cases without getting involved directly in those cases.34 For their 

part, Treasury officials acknowledged that the department had multiple 

roles in this process by virtue of its roles in PBGC oversight and in 

managing the U.S. investment in new GM, but noted that Treasury does 

not communicate with PBGC about its GM investment activities.35

Moreover, in response to questions from Congress, the Treasury 

Secretary stated that Treasury did not make the decision to terminate 

Delphi’s pension plans.36

Although GM decided not to assume the second installment of Delphi’s 

hourly plan, GM did decide to honor existing top-up agreements for 

commercial reasons that Treasury found reasonable. As noted in a 

Treasury official’s deposition, during GM’s bankruptcy process, GM was 

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

retirees, while the situation was less clear in relation to comparable 

agreements with IUE and USWA. GM officials told us that the company 

agreed to honor the top-up agreement with UAW during its restructuring 

because of its dependence on the union, whose members made up a 

substantial part of GM’s workforce. As previously noted, GM agreed to 

provide top-ups to the Delphi UAW retirees as part of GM’s master sale 

and purchase agreement, to which Treasury gave its approval.

According to a Treasury official’s deposition, Treasury was kept apprised

of GM’s ongoing bargaining with IUE and USWA on a variety of issues, 

including the top-ups.37

 

3429 U.S.C. § 1302(d) and (f).

According to Treasury officials, Treasury’s 

consent for transactions greater than $100 million, which had been 

35GAO-10-492. 

36The Federal Bailout of AIG: Hearing before the H. Comm. on Oversight and Government 

Reform, 111th Cong. 310 (2010) (answers to questions for the record from Timothy 

Geithner, Secretary of the Treasury).

37Deposition of Treasury Official, No. 04-44481 (RDD) (S.D. N.Y. July 21, 2009). 

Decisions Related to TopUp Agreements
 

Page 16 GAO-12-909T 

required before GM’s bankruptcy, was not required of new GM. 

Therefore, Treasury’s consent was not required when the settlement 

agreement was signed 2 months after new GM began operations. 

Negotiations resulted in the September 2009 settlement agreement 

between new GM, old GM, IUE, and USWA. According to the agreement, 

the parties entered into it after consideration of the “factual and legal 

arguments regarding these issues, as well as the costs, risks, and delays 

associated with litigating these issues.”38

Although Treasury officials said Treasury did not explicitly approve or 

disapprove of GM providing top-ups to the Delphi UAW, USWA, and IUE 

retirees, Treasury subsequently commented on GM’s decision. In its legal 

brief, Treasury stated that GM had solid commercial reasons for providing 

the top-ups.39 Specifically, Treasury stated that its aim in negotiating the 

details of GM’s reorganization plan was to ensure that new GM would 

assume only those liabilities of old GM that were “commercially 

necessary” for new GM to operate. Treasury noted in the brief that 

because of new GM’s dependence on the UAW workforce and the costs, 

risks, and delays associated with litigating USWA’s and IUE’s claims 

related to the Delphi bankruptcy, new GM had solid commercial reasons 

to agree to provide the top-ups to the Delphi UAW, USWA, and IUE 

retirees. Additionally, Treasury officials noted that, unlike the hourly plan, 

the salaried plan was fully funded at the time GM transferred it to Delphi. 

Also, because GM was never obligated to provide top-ups to the salaried 

or other retirees not represented by UAW, IUE, and USWA, GM did not 

have any legal obligation to agree to provide top-ups to these groups.

This concludes my prepared statement. I would be pleased to answer any 

questions you may have.

 

38Settlement 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. 

39Motion of Defendants U.S. Dep’t of the Treasury et al. at 28, No. 2:09-cv-13616 (E.D. 

Mich. Feb. 16, 2010). 
 

Page 17 GAO-12-909T 

For further information on this testimony or GAO’s March and December 

2011 reports on the termination of Delphi’s pension plans, please contact 

me at (202) 512-8678 or clowersa@gao.gov, or Barbara Bovbjerg, 

Managing Director, Education, Workforce, and Income Security Issues at 

(202) 512-7215 or bovbjergb@gao.gov. Other key contributors to this 

statement include Mark M. Glickman, Sarah Farkas, Charles Jeszeck, 

Heather Krause, Raymond Sendejas, Margie Shields, and Craig Winslow. 

Contact points for our Congressional Relations and Public Affairs offices 

may be found on the last page of this statement.

GAO Contact and 

Staff 

Acknowledgments

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