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Automaker’s Unfunded Pension Liability Swells to $11 Billion

November 16, 1992

DETROIT (AP) _ General Motors Corp.’s pension funds are $11 billion short because the automaker overestimated how much money the funds would earn and underestimated how long its retirees would live.

The liability is up $2.4 billion from $8.6 billion last year. The shortfall is a problem only on paper at this point. It would only have a material effect on GM retirees only in the unlikely event that all those who qualified for pensions would tried to collect at one time.

GM executives have hinted the automaker might add some cash to the pension funds before the end of the year, perhaps part of the proceeds of a fourth- quarter charge against earnings. GM has not said how big the charge would be.

However, GM spokesman Mark Tanner said today he doesn’t believe another pension contribution is required this year. GM added $500 million worth of common stock to the funds in May, but the value of that stock has fallen about 30 percent since, contributing to the gap.

GM periodically adds stock to its pension funds, Tanner said.

Pension fund earnings have been depressed this year by low interest rates. Higher rates next year could restore some of the gains GM thought it would make.

GM also underestimated the longevity of some of its retired workers, which has placed an additional demand on the funds.

The $11 billion figure is potentially troublesome because GM still must decide how to pay for retiree health care costs under a new accounting standard that goes into effect next year.

The automaker has estimated that will require a charge of $16 billion to $24 billion, either taken at one time or written off over 20 years.

If taken at one time, the health care cost writeoff and the pension shortfall could create a severe strain on GM’s net worth. And that could result in GM being forced to eliminate the dividend it pays on common and preferred stock.

GM executive vice president William Hoglund hinted last week that there may be an addition to the pension fund this year, although he said he doesn’t think GM will have a problem. The company has not indicated how or when it will take the health care accounting charge. It must decide by the first quarter of 1993.

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