Pension watchdog says Nummi plan underfunded

Pension watchdog says Nummi plan underfunded

Tuesday, March 9, 2010

The federal agency that protects pensions says New United Motor Manufacturing Inc. is liable for $292 million in benefit payments but has just $161 million in assets, and it wants Toyota Corp. to help make up the difference.

Nummi was founded in 1984 as a partnership between Toyota Corp. and General Motors, but last summer GM quit the partnership and turned its interest in the Fremont plant over to Motors Liquidation Co., the bankrupt remnant of the old GM.

Toyota later decided to cease making cars in Fremont effective April 1.

In an action filed last week in San Francisco, the Pension Benefit Guaranty Corp. (PBGC) asked the federal courts for permission to take over the underfunded plan that covers more than 4,700 workers who will lose their jobs when the plant closes April 1.

Nummi said Monday that it first learned of the PBGC action on Friday and was not sure how the agency had reached its conclusions nor why it had taken action at this time.

"Nummi has complied with the law in terms of its pension funding obligations," the company said in an e-mail.

PBGC spokesman Gary Pastorius said the agency assumes the pension plan will terminate when the plant closes April 1 and, if its takeover is approved, would "ask Toyota about its plans for Nummi and for addressing the pension issue."

A Toyota official said the company has not been contacted and would not comment.

But last week, on the same day PBGC took its action, Toyota said it would be giving Nummi $250 million to fund severance payments for affected workers.

At the time Toyota said: "It is unfortunate that neither GM – Nummi’s other 50 percent shareholder and customer for 25 years – nor Motors Liquidation Co., its current shareholder, has indicated that it will do the same."

Pastorius said PBGC could also ask the old GM to help address Nummi’s pension shortfall, but because it is in bankruptcy, it is in a weaker position to get a settlement.

Questions to Motors Liquidation were not answered by press time.

A former PBGC official said the federal takeover would give the agency a better chance to get back some part of the plan’s unfunded liability.

"Toyota, as a current shareholder (in Nummi), might have an interest in negotiating with PBGC," said Nell Hennessy, who now runs the consulting firm Fiduciary Counselors Inc., but used to be the agency’s top-ranked negotiator.

If the federal takeover is approved, Nummi employees will not be able to collect lump sum pension payments, Pastorius said.

The amount of the lump sum would vary by age and years of service, but payouts might have totaled up to $200,000 for a 62-year-old employee who had worked at the plant since it opened in 1984, according to Javier Contreras, an official of the United Auto Workers Local 2244, which represents plant employees.

Pastorius said employees would not lose that final payout, but would have to take whatever they are due in monthly installments.

That is less advantageous to departing workers than taking a lump sum and rolling it into a personal retirement account.

Otherwise, Pastorius said, the 5,826 current and retired Nummi workers who are plan beneficiaries should experience little or no benefit loss.

Contreras said the union had asked Nummi to put more money into the plan but was told no.

He said the UAW continues to negotiate with Nummi over the pension plan, health coverage after the shutdown, and the severance package toward which the Toyota money had been aimed.

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