posted 10-10-2005 07:55 PM         

But with the Pension Benefit Guaranty Corp. (PBGC) already burdened by a $23.3 billion deficit, Delphi's troubles raise pressure on Congress to pass legislation that tries to avoid an eventual taxpayer bailout of the PBGC, these analysts said.

Troy, Michigan-based Delphi filed for bankruptcy on Saturday, a day after the U.S. Senate left for a one-week recess without finishing legislation aimed at strengthening the funding of traditional pensions and the PBGC.

The nation's largest auto parts supplier, Delphi has not said what it intends to do with its pension plan, which it had said is $4.3 billion underfunded.

"When a company is in sufficiently dire straits, there obviously is tremendous pressure to terminate the plan and shift pension liabilities like these to the PBGC," said Mark Iwry, pensions expert at the Brookings Institution think-tank.

"Management and creditors are looking for any legitimate way to bail out the company, and cut back on its liabilities, and here is a way that is lawful," Iwry said. "If they go into bankruptcy, they are allowed to shift this to the PBGC."

The picture is complicated because General Motors Corp. (GM.N: Quote, Profile, Research) , the parent company that spun off Delphi in 1999, may be called on to back some Delphi retiree benefits if the plan ends. GM says its range of exposure under guarantees it made to Delphi extends from "no material impact" to $11 billion.

While this might suggest GM would resist termination of Delphi's pension plan, GM is also a client and major creditor of Delphi's, noted Doug Elliott, director of the Center on Federal Financial Institutions think-tank. Creditors stand to gain if PBGC picks up billions of Delphi's obligations.

"I suspect there would be a way to negotiate so that GM would accept the termination of the (pension) plan in exchange for other benefits," Elliott said.

Delphi's CEO Steve Miller previously served as chief executive at Bethlehem Steel, which shifted $3.7 billion in obligations to the PBGC in 2002, the largest burden to be placed on the PBGC's shoulders by a bankrupt steelmaker.

Since then bankrupt United Airlines (UALAQ.OB: Quote, Profile, Research) dropped $6.6 billion in obligations on the PBGC, and US Airways Group Inc. (LCC.N: Quote, Profile, Research) about $3 billion before it exited bankruptcy court.

Delta Air Lines Inc. (DAL.N: Quote, Profile, Research) and Northwest Airlines Corp. (NWACQ.PK: Quote, Profile, Research) , which last month filed for bankruptcy, could do the same if new pension legislation does not suit their plans.

A proposal to give airlines 14 extra years to repair their underfunded pensions is part of the stalled Senate proposal.

A spokesman for the co-author of a pension bill in the House of Representatives, Ohio Republican Rep. John Boehner, said he expected the House to vote on it in the coming weeks -- and hoped the Senate would act to complete action this year.

"The rash of bankruptcies clearly demonstrates the need for both the House and Senate to act on comprehensive pension reform to protect the interests of workers, retirees and taxpayers," said Boehner spokesman Kevin Smith.

Elliott said the pressure on Congress was increased by speculation that GM itself might seek bankruptcy protection.