Mini Case Study - GM & PBGC & CalPERS - 2011

Mini Case Study - GM & PBGC & CalPERS -...

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1 “Mini” Case Study General Motors & PBGC
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4 GM pension plan – background Was largest corporate DB pension plan Plan covered nearly 0.5 million retirees and spouses, plus many active employees Company paid roughly $7B in annual benefits Healthcare plan also led to large outflows
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7 Perfect Storm for DB Plans Recently (and in early 2000s) Market down plan underfunded have to increase contributions Interest rates down NPV of future pension obligations increases Mortality rates down NPV of future pension obligations increases What can firms do to increase assets in the pension plan besides increase contributions to the plan?
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8 DB Pension Reform For DB plans: “Perfect Storm” recently (stock market ↓ and r ↓) In 2008 firms were allowed to switch from using U.S. Treasuries to corporate bonds for the discount rate to determine the present value of pension liabilities Why did the government respond in this way?
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10 What did GM do to shore up pension plan besides bond offering and asset sales? Changed investment strategy
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

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Mini Case Study - GM & PBGC & CalPERS -...

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