Category: Commentary & Opinion

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Interview With Ford’s Felicia Fields: Shifting Out of Reverse

Ford Motor Co.’s turnaround since hiring CEO Alan Mulally in 2006 is now considered legendary. When the former Boeing Co. executive arrived, the company was grappling with plummeting profits and a highly competitive culture that, some say, stood in the way of its success. Under Mulally’s leadership, the company returned to profitability and embraced a new corporate philosophy called “One Ford.” Felicia Fields, 48, group vice president of human resources and corporate services, oversaw that cultural transformation and recently shared her insights with Workforce senior writer Rita Pyrillis.

Workforce: Ford has had a reputation for its competitive, some say cut-throat, culture. How has that culture changed over the years?

Felicia Fields: I read your first question, and I’ve been here for 26 years, but I must say ‘cut throat’ didn’t resonate for me. I would say it was more individually focused vs. team-focused. ‘One Ford’ changed everything because it put everybody on the same plan with the same goals and really got everybody focused on delivering against the same plan. There were a lot of good people here, but they weren’t always working with same objectives, and that didn’t create the kind of performance you’d want. Not everyone was rowing in the same direction.

Workforce: What is the ‘One Ford’ philosophy?

Felicia Fields: It is a set of goals that we work toward, but the behaviors are just as important as the actual objectives. For example, the goals include ‘Fostering technical excellence,’ that’s the ‘F’ in Ford. The ‘O’ is ‘Own working together.’ The ‘R’ is ‘Role model Ford values’ and the ‘D’ is ‘Deliver results.’ Inside each of those goals are expected behaviors, and we live those behaviors. It has transformed our culture, and you can see and feel the difference.

Workforce: Corporate mottos and mission statements sound nice but don’t often spark a cultural transformation. How did ‘One Ford’ evolve, and what role did human resources play in that transformation?

Felicia Fields: It’s not just a clever saying. It’s everything we do, and it’s how people are taught to lead. HR had a big role in a lot of the coaching around that. The first year Alan was here he talked a lot about one team and one goal. He brought these behaviors from Boeing. Alan brought a lot of that can-do positive attitude, with a focus on respecting and listening to people and having a passion for the business and the customer.

We spent about a year collectively working with Alan, really crystallizing that philosophy and getting it down to a format, and that became the ‘One Ford’ card that we give to all employees. That was launched in January 2008. We revised all of our people management processes, our performance management, our leadership-development programs, our 360 feedback, everything. It’s how people were taught to lead, how people were recognized for good performance, and in talking about succession planning, we began looking at who exhibits those behaviors. We embedded ‘One Ford’ into all our people processes.

Workforce: What has been the impact on morale?

Felicia Fields: If you look at the 2006 employee opinion survey at that time it was about 63 percent favorable and, as of last week, it was 75 percent. The external benchmark is 70 percent. We also have an index that measures employee satisfaction. It’s been a steady climb year after year.

Workforce: Can you give me some real-life examples of how morale has improved?

Felicia Fields: One of the signature processes Alan brought to Ford is the BPR [business plan review] process. Every week for 2½ hours we meet and we cover every skill team in our company. We go around the world in a very transparent way and look at the health of the business.

We give each team a red, yellow, or green based on the status of where they stand against our business plan. We usually have about 10 to 15 [employee] guests who are there in the room with us or online because this is a global meeting. Employee after employee are allowed a chance to express any observations they have, and it’s wonderful reinforcement for the leadership team to continue this transparent and inclusive behavior because we hear from person after person what an incredible process it is, how transparent it is, how motivational it is to see that we’re dealing with the realities of our business very openly.

People who have been at the company for many, many years just talk about the contrast they’ve seen in the leadership team. … It’s very real. People can sense the difference, and it’s far more fun. One of our behaviors is enjoy the journey and that’s a big part of it. It’s a much better place to work.

Workforce: Like other automakers, Ford has had tumultuous relations with the United Auto Workers, but that relationship seems to have improved in recent years. Where do the company and UAW stand today?

Felicia Fields: Certainly among our major competitors, Ford has long enjoyed, since I’ve been here to be honest, a good relationship with the UAW. I think that by and large it’s been a constructive relationship and a pretty transparent one. We’ve moved to incredible levels of transparency and that probably started with Ron Gettlefinger (former UAW president) and really explaining the business challenges and what we had to do to keep jobs in America so I think it’s a good relationship that got better. It allowed us to get into some inventive agreements before others did and frankly I think it still continues to be one of our strengths. The way we partner with them (UAW) and respect their involvement and leadership and their thinking on how to stay competitive and how to do everything we can to create jobs here in the U.S. And that’s really speaking from a US perspective. We obviously have lots of relationships with unions globally and those are very different and some are more challenging than others.

Workforce: There seem to be fewer women in leadership roles in the auto industry today than in 2005, the year that some say was the peak of women’s influence in automotive leadership. What is Ford doing to promote women and minorities into executive positions?

Felicia Fields: We were lucky that we had Anne Stevens who was in a COO role in North America [she left in 2006]; Louise Goeser [retired in 2008] who was CEO in Mexico. There’s always been a heavier amount of women in HR and finance-type roles, and our desire is to continue to stock that pipeline, but we also want to get more women in operating roles and in general management.

Workforce: There’s been much speculation recently over retirement plans for Mr. Mulally, who is 67 and his potential successor. What are his plans and what is Ford’s succession-planning philosophy?

Felicia Fields: Just know that we are continually working on great internal candidates to be ready for his succession when that happens. And he’s committed to stay at least until the end of 2014. We have a strong succession-planning process. … I hope that if you see the transitions we make, they are very smooth and orderly and they make sense. I do give HR some credit for that.

Rita Pyrillis is Workforce’s senior writer. Comment below or email editors@workforce.com.

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Survey: 29% of Employers Find Fake Job References

Twenty-nine percent of employers have caught fake references on candidate applications, according to a survey from CareerBuilder. Additionally, 62 percent said that when they contacted a reference listed on an application, the reference didn’t have good things to say about the candidate.

Other findings include:

  • Fifteen percent of workers reported that they have listed someone as a reference, but didn’t tell that person.
  • Eighty percent of employers said they do contact references when evaluating potential employees. Sixteen percent of these employers will contact references even before they call the candidate for a job interview.
  • Sixty-nine percent of employers said they have changed their minds about a candidate after speaking with a reference, with 47 percent reporting they had a less favorable opinion and 23 percent reporting they had a more favorable opinion. Thirty-one percent said references haven’t swayed their decisions on a candidate.

Harris Interactive conducted the study from Aug. 13, 2012, to Sept. 6, 2012. It included 2,494 hiring managers and human resource professionals.

Staffing Industry Analysts is a sister company of Workforce Management. Comment below or email editors@workforce.com.

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The ‘Naked Organization’ Gets Nakeder

You think Glassdoor is radical corporate transparency?

Just wait until Tom Vines’ vision of the future takes shape.

Vines is IBM’s vice president of technical and business leadership, where he oversees the computing giant’s leadership development and succession planning. Leaders at Big Blue and elsewhere could blush a deep pink if Vines is correct about where performance management, crowdsourcing and social media are heading.

I spoke with Vines recently for an article about what people management will look like 10 years from now. Vines argues that the sorts of comments and endorsements you see at LinkedIn and in applications like Salesforce.com’s Work.com will evolve to the point where employees will select their managers based on very visible feedback given to those supervisors. What’s more, Vines expects companies to publish this information as a recruiting tool. “It will be both inside and outside” the company, Vines says. “Companies will want to expose their managers’ ratings to attract talent.”

Wowza. Vines is talking about airing the laundry of millions of supervisors in an unprecedented display of corporate candor. Individual performance reviews these days are private, internal affairs. And knowledge of ratings flows upward in organizations rather than downward—bosses get to see ratings of underlings, not the other way around.

But already some sophisticated forms of employee feedback about firms and leaders are becoming public. Visit Glassdoor and you will see approval ratings of CEOs by the employees who leave feedback there. Yes, those reviews are anonymous. But Glassdoor has taken steps to get past the era of pure employee venting—for example, company reviews have to include both positive and negative comments.

And CEOs take those reviews seriously. I spoke with Glassdoor CEO Bob Hohman recently, and he said he’s had CEOs contact him to quibble over their published rating. The titans of industry are doing their own calculations of Glassdoor data.

This suggests an acceptance of greater corporate nakedness. It’s a trend fueled also by feedback sites like TripAdvisor and Yelp, which showcase strong performance and prevent companies from hiding their mistakes.

Hohman says Glassdoor consciously chose not to publish the names of middle managers in company reviews. These folks, Hohman and crew reasoned, don’t expect to be public personalities.

But that could change over time.

As Vines argues, companies may decide to bare more of their selves as a way to win over talent. Just being willing to expose the strengths and weaknesses of managers might make a powerful statement about an organization’s commitment to the values of honesty and transparency. What’s more, there are practical considerations. Vines points out that detailed comments about managers could help job candidates apply to a job with the right boss. For example, a supervisor who gets credit for being very supportive and hands-on might be a good choice for someone at the start of his career. A manager known for giving direct-reports more autonomy might be a better fit for a mid-career worker ready to do her own thing. “At different points, you may want a different style,” Vines says.

Get ready for a very different style of management if Vines is right. The ‘naked organization’ will get a lot more naked.

Ed Frauenheim is senior editor at Workforce. Comment below or email efrauenheim@workforce.com.

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Do You Know What to Do When Severe Weather Strikes Your Workplace? #Sandy

I don’t know if you’ve heard, but there this little storm named Sandy trekking toward the mid-Atlantic and New England.

The storm is so potentially dangerous that the National Weather Service is sending out passive-aggressive warnings, just in case people are thinking of riding it out: “If you are reluctant, think about your loved ones, think about the emergency responders who will be unable to reach you when you make the panicked phone call to be rescued, think about the rescue/recovery teams who will rescue you if you are injured or recover your remains if you do not survive.”

Do you know what to do with your workers when a weather event such as Sandy aims for your workplace?

Two winters ago, I offered five suggestions for your workplace extreme weather policy, including how to handle issues such as attendance, wage and hour, and telecommuting.

In light of this week’s storm of apparently historical proportions, I thought it best to revisit that post: Do you have a severe weather policy?

Written by Jon Hyman, a partner in the Labor & Employment group of Kohrman Jackson & Krantz. For more information, contact Jon at (216) 736-7226 or jth@kjk.com.

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Firing an Employee? Tell Them! (Don’t ‘Milton’ the Termination)

Jon Hyman The Practical Employer

Office Space is one of the great movies about the modern workplace.

One of its key plot lines involves sad sack employee Milton Waddams, who mumbles through the movie about his missing stapler and ever-moving desk. Amazingly, the company had laid off Milton years earlier without anyone telling him. When the company fixed a computer glitch that had accidentally kept him on the payroll, Milton finally cracked and burned down the office.

Lawrence v. Youngstown (9/21/12) [pdf], decided last week by the Ohio Supreme Court, gives employers a reason other than arson-avoidance to tell employees that they’ve been fired.

Ohio’s workers’ compensation retaliation statute (Revised Code 4123.90, for those counting) is an odd-duck. It has a two-part statute of limitations. First, the aggrieved employee must provide the employer “written notice of a claimed violation … within the 90 days immediately following the discharge, demotion, reassignment, or punitive action taken.” If the employee sends that written notice, he or she then has up to 180 days from the adverse action to file suit. The 90-day notice requirement is “mandatory and jurisdictional,” and no employee is permitted to file a workers’ compensation retaliation claim without sending the written notice.

In Lawrence, the Court answered a question of timing — does that 90-day period begin to run on the effective date of the discharge or when the employee receives notice of the discharge?

The facts of Lawrence illustrate the potential problem. On January 7, 2007, Youngstown suspended Lawrence without pay from his position with the city. Two days later, the city converted the suspension to a termination, and mailed, via regular mail a letter notifying him of the termination. Lawrence claimed he did not learn of his discharge until February 19, 2007. On April 17, 2007, Lawrence’s attorney sent the city a letter stating that Lawrence intended to bring a lawsuit claiming unlawful workers’ compensation retaliation. When he filed his lawsuit a few months later, the city sought, and obtained its dismissal on the basis that Lawrence’s letter was untimely based on his termination date.

The Ohio Supreme Court reversed. It held that normally the start of the 90-day period triggers from the actual discharge date. It also created an exception when the employee both did not know of the discharge and could not reasonably have learned of it:

A limited exception to the general rule that the 90-day period for employer notice … runs from the employee’s actual discharge…. The prerequisites for this exception are that an employee does not become aware of the fact of his discharge within a reasonable time after the discharge occurs and could not have learned of the discharge within a reasonable time in the exercise of due diligence. When those prerequisites are met, the 90-day time period for the employer to receive written notice … commences on the earlier of the date that the employee becomes aware of the discharge or the date the employee should have become aware of the discharge.

As the Court reminded us in the Lawrence opinion, “Usually, an employer will make a good-faith effort to communicate the fact of the employee’s discharge to the employee when it occurs…. The employer commonly will use a method like personal notification, hand delivery of notice, or a certified letter.” In other words, if you are going to fire an employee, don’t you owe it to him as a human being to at least tell him?

Written by Jon Hyman, a partner in the Labor & Employment group of Kohrman Jackson & Krantz. For more information, contact Jon at (216) 736-7226 or jth@kjk.com.

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The 47 Percent and You

Let’s leave aside for a moment whether Mitt Romney just sank his campaign by calling 47 percent of Americans moochers. There’s a workforce angle in his remarks, related to the employment “deal.” It boils down to this: Romney’s remarks reflect a version of the deal that is outdated and doomed.

As you’ve probably heard by now, Romney made striking comments about President Obama supporters that were secretly recorded at a fundraiser earlier this year. The liberal website Mother Jones published the video and transcripts from it. The crucial passages:

“There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what. … These are people who pay no income tax. … [M]y job is is not to worry about those people. I’ll never convince them they should take personal responsibility and care for their lives.”

What does this have to do with the employment deal? Most of the 47 percent of people who pay no income tax are people who nonetheless pay payroll taxes. In other words, they are workers, who contribute their share to Social Security and Medicare. Employees at lower wage rates who may qualify for earned income credits or child tax credits.

In effect, Romney reveals contempt for these folks. For people that often are the ones delivering the company’s customer experience as clerks or servers or working as support staff.

Implied is a view of a company where employees are costs to be minimized rather than assets to be valued and developed. It is a management mindset that reigned in the 1980s and 1990s. The corporate raider ethos, eager to lay off employees in the pursuit of quick profits. In fact, there’s evidence Romney embraced or practiced this philosophy as head of Bain Capital.

An employment deal that offers employees little in the way of security and treats them as necessary evils may have led to higher bottom lines for a while. It also may have served as a correction to the overly paternalistic compact around work in the 1950s, 60s and 70s: the one that saw companies give nearly guaranteed employment for life in exchange for employee loyalty.

But companies can no longer be dismissive about their employees. Research shows that layoffs generally are not a strategy for success, that companies that are better to workers and to their stakeholders overall outperform peers in the stock market. Consumers increasingly want to do business with kind companies. And this just in: 75 percent of Americans would not take a job with a company that had a bad reputation, even if they were unemployed.

Romney may not realize it, but reciprocity and interdependence are on the rise. What’s needed now is an employment deal that blends the performance mindset of the 1980s, 1990s and 2000s with the protective attitude toward workers found in the post-World War II period. Companies that have struck such a balance include Ultimate Software, The Container Store, FedEx and Google.

Romney’s comment about the 47 percent miscasts Americans and American workers. As an Obama supporter I took it personally — a rare thing as a reporter covering public affairs for more than 15 years. And I suspect that other Americans of varying political stripes will not forgive him come Nov. 6.

Whatever the outcome of the election, though, Romney’s remarks imply a variety of the employment deal that is dated and likely a dangerous strategy. Executives, owners and managers should be wary of it.

Ed Frauenheim is senior editor at Workforce. Comment below or email efrauenheim@workforce.com.

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How Late Is Too Late for an FMLA Medical Certification?

Jon Hyman The Practical Employer

Under the FMLA, an employee requesting leave for a serious health condition must provide a medical certification for the leave upon request by the employer.

The employee has 15 days to return the requested certification, unless it is not practicable to do so under the particular circumstances. If an employee fails to provide certification, the employer may deny the FMLA leave.

What happens, however, if an employee returns the requested medical certification late—after the expiration of the 15-day time limit? According to the Northern District of Ohio, in Kinds v. Ohio Bell Telephone Co. (7/30/12) [pdf], an employer can lawfully deny FMLA benefits when an employee submits the medical certification beyond the 15-day deadline, even if the employee only misses it by a short amount of time.

Ohio Bell’s decision to deny Kinds FMLA coverage due to untimely certification is justified …. In spite of ample notification by Ohio Bell, Kinds did not submit certification by the 13th …. Ohio Bell would have been justified in denying coverage for this failure alone, but the company nonetheless granted Kinds an extension. Kinds failed to submit certification by the January 27, 2010, deadline as well. Finally, on February 16, 2010, Kinds submitted the medical certification, but it failed to provide an explanation—a request made by FMLA Operations as a condition for giving Kinds a third extension—as to why she failed to submit certification earlier. As a matter of law, it cannot be said that Ohio Bell’s refusal to accept Kinds’s twice late and still inadequate certification—submitted one month past the FMLA required 15-day period—constituted interference with Kinds’s FMLA rights.

To sum up:

  • How late is too late for an employee to submit a medical certification to support a request for FMLA leave? One day.
  • Can you extend the 15-day period and accept a late certification? Yes.
  • Do you have to? No.

Written by Jon Hyman, a partner in the Labor & Employment group of Kohrman Jackson & Krantz. For more information, contact Jon at (216) 736-7226 or jth@kjk.com.

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EEOC Pronounces Protections for Transgendered Workers

Title VII does not, on its face, protect transgendered workers from discrimination.

Increasingly, however, courts have extended its protections under the umbrella of Title VII’s protections against sex-stereotyping-as-gender-discrimination, as first explained 23 years ago by the U.S. Supreme Court in its landmark Price Waterhouse v. Hopkins decision:

“In saying that gender played a motivating part in an employment decision, we mean that, if we asked the employer at the moment of the decision what its reasons were and if we received a truthful response, one of those reasons would be that the applicant or employee was a woman. In the specific context of sex stereotyping, an employer who acts on the basis of a belief that a woman cannot be aggressive, or that she must not be, has acted on the basis of gender.”

Earlier this week, the EEOC made what might be the most significant pronouncement to date on the issue of the protection of the transgendered as gender discrimination. Macy v. Holder [pdf] involved a transgender woman, Mia Macy, who claimed that the federal Bureau of Alcohol, Tobacco, Firearms denied her a job after she announced she was transitioning from male to female.

In reinstating Macy’s Title VII claim, the EEOC concluded:

“That Title VII’s prohibition on sex discrimination proscribes gender discrimination, and not just discrimination on the basis of biological sex, is important…. Title VII prohibits discrimination based on sex whether motivated by hostility by a desire to protect people or a certain gender, by assumptions that disadvantage men, by gender stereotypes, or by the desire to accommodate other people’s prejudices or discomfort. …

Thus, we conclude that intentional discrimination against a transgender individual because that person is transgender is, by definition, discrimination “based on … sex,” and such discrimination therefore violates Title VII.”

While this opinion is not binding on courts, one cannot overstate the significance of the fact that the agency responsible for enforcing the federal EEO laws has made this broad pronouncement. Many employers operate under the belief that they are free to discriminate on the basis of sexual orientation or gender identity because Title VII lacks no facial prohibition. As this case illustrates, that belief, no matter how commonly held, might be mistaken.

The EEOC and I disagree on a lot. (See criminal background checks as hiring criteria). Yet, on this issue, we are on the same page. It strikes me as appalling that in 2012 there are still minority groups against whom it remains facially legal to discriminate.

Already, 21 states prohibit sexual orientation discrimination in employment, 16 of which also prohibit gender identity discrimination; another 140 cities and counties have similar laws. Many companies have also made the private decision to prohibit this type of discrimination in their individual workplaces.

For the uncovered, this EEOC decision signals that the time is coming when this type of discrimination will no longer be an open issue. I suggest you get on the bandwagon now, and send a signal to all of your employees that you are a business of inclusion, not one of bigotry and exclusion.

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The Last Word: Backyard Retirement Plan

Since the financial meltdown hit and my retirement investments largely were blown to bits, I joke with my kids that they’d better buy a house on a big enough plot of land for me to comfortably locate my future digs. Nothing fancy, I tell them; enough room in the backyard for a refrigerator-size cardboard box works just fine.

The kids, God bless them, have grander visions for my golden years. “Dad, don’t be silly,” they tell me. “We’ll pitch a nice tent for you. It will be just like camping when we were little.”

Welcome to the new retirement reality, 2012.

Sure we joke about our days of gray, but unfortunately for a lot of boomers there’s more than a grain of truth to this modern-day gallows humor. According to a study last summer by Palo Alto, California-based investment advisers Financial Engines, nearly half of all boomers—those of us born between post-World War II and the early 1960s—fear that retirement will result in poverty.

Scarier still, an upcoming Aon Hewitt report reveals just 4 percent of employers feel “very confident” their workers will retire with enough money.

Many boomers who were laid off during the Great Recession still can’t find permanent work. Those of us lucky enough to hang onto our homes—we considered them our nest eggs, knowing a company-funded pension was not in our future—are largely under water, or if we’re lucky, barely have a chimney poking above.

Consider where we were just six years ago. As 2006 dawned, the sun was especially bright as our home values grew like kudzu. Investment portfolios—for many of us defined contribution plans like 401(k)s—happily followed suit. Birds chirped carefree tunes as the mailman delivered quarterly reports of double-digit returns. If a fund provided less than 10 percent, it was time to dump it and find another—heck, there were plenty that touted 20 percent returns.

Just a year later, however, gloom encompassed our bright little boomer future. The sky-high home values we used as ATMs to fund kitchen remodels and kids’ braces plummeted like rocks in a murky lake as the subprime mortgage crisis started sinking our retirement dream.

Later that year the Great Recession was officially under way and we boomers watched helplessly as the financial meltdown roared through the fall of 2008 like a Southern California wildfire. What remaining financial security offered by 401(k)s quickly went up in flames.

Within a year’s time, most every piece of financial advice imparted to us by our parents, financial counselors and anyone with an opinion was shredded. Owning a home—the American dream—was a financial mess. The values of save, save, save in a company-sponsored retirement plan might have been better served by burying cash in a coffee can in the backyard.

I recall a former colleague telling me he lost $50,000 in his retirement plans virtually overnight. On a journalist’s salary, that kind of loot takes a long time to accrue.

I would like to believe, three years past the depths of the worst economic time since the Great Depression, there are lessons learned.

Even though workers will still be tempted to do the coffee-can-in-the-backyard trick, there is wisdom in long-term stock investments. Employers must drive home that point.

The military has offered financial counseling for decades with great success. Service members also have benefited from financial incentives to advance their education.

I’m not sold on employees being automatically enrolled in employer-provided retirement programs. After all, I know my financial obligations better than my boss does. But it merits consideration, especially if the employer is matching an employee’s contribution.

Yes, the employee’s fruitful retirement is at stake, but so is the employer’s future. There is the so-called employee life cycle, and if the company expects to remain vibrant and relevant, the employer must maintain that circle of life. To pull a page from the Disney cartoon The Lion King, do you really want a befuddled, toothless, drooling Simba running your sales department?

And honestly, do I want to live in my kids’ backyard? Of course not.

But should that retirement money run out and I wind up scoping out a corner of the yard, I’m putting in for a five-man tent.

Rick Bell is Workforce Management’s managing editor. To comment email editors@workforce.com.

Workforce Management, February 2012, p. 34 — Subscribe Now!

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GM, Chrysler Might Have to Contribute Nearly $15 Billion

General Motors Co. and Chrysler Group are projected to make required contributions totaling $14.92 billion to their pension plans by 2014 to comply with federal funding requirements, according to a Government Accountability Office report.


Under the Pension Protection Act of 2006 and the temporary funding relief of the Worker, Retiree and Employer Recovery Act of 2008, GM would have to contribute $5.9 billion in 2013 and $6.4 billion in 2014, while Chrysler would have to make contributions of $400 million this year, $40 million in 2012, $930 million in 2013 and $1.25 billion in 2014, the report said.


The “future viability of the companies and their pension plans is unclear,” stated the report, which was released Tuesday, April 6.


GM had $85.9 billion in pension assets and Chrysler had $20.4 billion, both as of September 30, according to Pensions & Investments, a sister publication of Workforce Management.


Treasury Department officials “expect both GM and Chrysler to return to profitability,” the report said. “If this is the case, and the companies are able to make the required contributions to their pension plans as they become due, then Treasury’s multiple roles [as an owner and regulator] are less likely to result in any perceived conflicts. 


However, if the funding of any of GM’s or Chrysler’s defined-benefit plans declines below [statutory required] funding levels, the company may request a waiver” from the IRS “to reduce its required contributions to its plans over an extended period.”


In addition, “automaker downsizing and the credit market crisis have created significant stress for [auto] suppliers and their pensions,” including in 2009 “a rise in the number of supplier bankruptcies, liquidations and pension plan terminations.”


In July, Delphi Corp. of Troy, Michigan, terminated its pension plans; as a result, the Pension Benefit Guaranty Corp. estimates it will have to finance about $6.2 billion of Delphi’s pension funding shortfall, the report said.


In January 2009, the PBGC estimated that unfunded pension liabilities across the auto sector totaled $77 billion, “with the agency’s exposure for potential losses due to unfunded benefits about $42 billion, leaving plan participants to bear the potential loss of the $35 billion difference through reduced benefits.”


Because of the funding risk, the GAO recommends Treasury should report publicly not only on the status of its auto investments but also on the status of the automakers’ pensions. But in a response contained in the report, Herbert M. Allison Jr., assistant secretary for financial stability in the Treasury, wrote, “It would be inappropriate for Treasury in our capacity as a shareholder to separately report on the pension assets and liabilities under GM and Chrysler pension plans.”


Chrysler CEO Sergio Marchionne expects the company “to break even this year,” said Chrysler spokesman Mike Palese, who hadn’t seen the GAO report and had no comment about it.


GM couldn’t be reached for comment. 


Filed by Barry B. Burr of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


 


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