General Motors Corp.’s spin-off of components manufacturer Delphi Corp. won reluctant approval from the United Auto Workers in 1998 thanks in part to a key concession: The automaker agreed to guarantee Delphi’s pension obligations in the event that its former subsidiary went bankrupt. At the time, GM executives thought the spin-off was a masterstroke. Delphi, after all, was a huge liability, undermining GM’s profit potential year after year. Pensions were a side matter, they thought.

They were wrong.

Delphi went bankrupt in October 2005. Its underfunded pension plan destroyed any hope for a short-term turnaround at GM and contributed directly to the automaker’s own entry into Chapter 11 last June. ....

Read More: public pension funds · Delphi Corp. · GM · bankruptcy