A federal court is backing General Motors Corp. in its attempts to recover up to $253 million from the federal government for one of its underfunded pension plans.
The Wall Street Journal reported Wednesday that Judge Nancy Firestone of the U.S. Court of Federal Claims made a first-of-its-kind decision in saying that the federal government should pay GM the “allocable amount” of the pension underfunding, even though no specific amount was given.
The government owes GM because the company in 1993 sold a division called Allison Gas Turbine, which provided services to the government. The government pays salaries of employees at contracted companies and part of the pension costs. When companies close or sell a unit with an overfunded pension plan, the government then recovers part of the pension surplus that is attributable to the amounts it contributed, the newspaper reported.
The Allison Gas Turbine pension plan was underfunded, and GM argued that the government was in the same way obligated, in this case to make pension contributions. GM filed a claim for $253 million in 1996, later suing the government in 2000 over the contract dispute.
While Judge Firestone decided in GM's favor on the pension underfunding issue, she denied GM's motion to recover not only the underfunded amount, but a profit on top of it.
The Journal called the June 28 decision significant, as it could prompt other government contractors to make similar claims. Pension plans in the Standard & Poor's 500 had a net underfunding of $159 billion at the end of 2004.
GM would not comment on the court decision. An appeal is likely.