GM employee stock in 401(k) plans sold on bankruptcy risk

Friday, April 24, 2009

GM employee stock in 401(k) plans sold on bankruptcy risk

David Shepardson / Detroit News Washington Bureau

The manager of General Motors Corp.’s employee stock fund sold all shares of company stock on fears the automaker could be forced to file for bankruptcy in the coming weeks, the company said Friday.

As of Dec. 31, nearly 30,000 GM employees and plan participants held about 75 million shares of their company’s stock, or 12.5 percent of the Detroit automaker, in their 401(k) plans.

A GM spokeswoman said that figure hadn’t significantly changed. Last year, GM suspended new employee purchases because the company had run out of shares to sell.

The employee shares were sold over the last 25 days at an average selling price of $1.87, company spokeswoman Julie Gibson said. The sale is substantially complete.

The sale began March 31 — the day after the Obama auto task force rejected GM’s viability plan and warned the "best option" for its turnaround could be bankruptcy.

On that day, the independent manager of the GM Stock Fund, State Street Bank and Trust, started selling shares of GM stock.

State Street found that one aspect of its two-part test had been met: a serious question concerning GM’s "short-term viability as a going concern without resorting to bankruptcy proceedings;" and "there is no possibility in the short-term of recouping any substantial proceeds from the sale of stock in bankruptcy."

Gibson declined to comment on State Street’s decision.

State Street invested the proceeds in short-term fixed income and money market instruments. On May 29, the fund will be disbanded and participants who don’t choose a new option will see their funds invested in a default investment fund.

State Street’s sale prompted the involuntary sale of shares held by auto executives as well. They included: GM president and Chief Executive Officer Fritz Henderson 6,629 shares; Troy Clark, GM North America president, 2,156 shares; Treasurer Walter Borst 581 shares; and Chief Financial Officer Ray Young, 1,047 shares.

In January 2008, GM agreed to pay $37.5 million to settle a lawsuit brought by its employees and retirees who lost hundreds of millions of dollars in 401(k) plans when the company’s stock price plummeted by more than 75 percent.

In addition, GM agreed to appoint an independent financial consultant to monitor whether it is prudent to allow employees to invest in company stock over the next four years.

Part of the agreement enshrined changes GM already made to its 401(k) plans, including no further company matches of GM stock, and suspending the requirement that employees must invest some of their own contributions in GM stock. At one point, certain employees were required to invest 50 percent of their own contributions in company stock in their 401(k) plan.

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