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New rate could swell GM's pension, health obligation
Discount figure tied to lower Treasury bill yields
January 7, 2004

At the same time General Motors Corp. has nearly closed the gap of almost $20 billion in its pension fund, the automaker must make an accounting change that, on paper, could increase its retiree pension and health-care obligations by billions of dollars.

GM has decided to lower a key interest rate that determines how much the automaker assumes it will owe retirees in future pension and health-care benefits, said GM's chief financial officer.

By lowering the rate -- called a discount rate -- GM's assumption of its future retiree obligations will grow because this interest rate is the amount GM can "discount" what it will pay in the future.

GM's current discount rate is 6.75 percent for its pension fund and 6.76 percent for its retiree health-care benefits. GM provides a pension and benefits to 455,000 hourly and salaried retirees.

(If the discount rate is 6.75, a $100 future pension obligation appears on today's books as $93.25.)

Because GM has such a large pension fund -- the largest corporate pension fund in the United States -- moving the discount rate by half a percent to 6.25, for example, would increase its pension fund liability by $4 billion and its retiree health-care obligation by nearly $3 billion.

(Full story here)
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