http://www.washingtonpost.com/wp-dyn/content/article/2007/04/09/AR2007040901262.htmlGM's High-Performance Pension Machine
By Allan Sloan
Tuesday, April 10, 2007; Page D02
There hasn't been much good news out of General Motors in recent years, but you'll be glad to know that at least one part of GM's U.S. operation is finally fixed: its pension funds. GM may be having a hard time turning around its auto business and getting its financial statements straight, but it's kicked butt in pensionland. In fact, GM's funds have done so well that the company has switched about $20 billion in pension assets to lower-risk bonds from higher-risk stocks. It's the equivalent of taking chips off the table after you've gotten ahead of the game.
Here's the deal. For reasons we'll examine later, GM's pension surplus increased by $9.6 billion in 2006. That gain would have made GM spectacularly profitable if pension results were part of companies' income statements, as some folks propose. I think that's a bad idea because pension returns distort results, which in turn would discourage companies from offering them. Not that they need much discouragement these days.
GM shows just how volatile pensions can be. In a mere four years, its U.S. funds have swung $35 billion, going from $17.8 billion underfunded (according to generally accepted accounting principles) in 2002 to $17.1 billion overfunded last year. To lock in those hard-earned gains, GM has switched investment targets in its $101 billion pension portfolio to just 29 percent stocks and 52 percent bonds from 49 and 32, respectively. (The other 19 percent is in real estate and "alternative investments" such as hedge funds.) Bonds are much less volatile than stocks, hence the change. "It's all about maintaining the funded status of your pension funds," GM's chief financial officer, Fritz Henderson, told me. "We want to take pension risk off the table."
How did GM go from the most underfunded corporate plans in the country four years ago to the most overfunded? By putting a ton of money -- $18.5 billion -- into the funds in 2003, most of which it raised in a giant bond issue. It wanted to fix its pension problems once and for all, which it did by getting above-market returns on that new money in what turned out to be an excellent investment market. GM has a stellar investment staff, and I've joked for years that it should dump the car biz and become a money manager. But who listens to me?
FULL story at link.