U.S. seeks $3 million from Delphi Corp.

The government questions how Delphi handled GM stock in 2000.

DETROIT FREE PRESS

DETROIT — The U.S. Department of Labor is seeking $3 million from Delphi Corp., saying the company cheated workers by not going far enough to repay employees who lost money due to an investment mistake in its retirement plan.

The government also accuses Delphi of misleading workers with the remedy it offered so the company ultimately would have to pay less to fix the mistake.

The problem dates back to March 2000, shortly after General Motors Corp. spun off its parts division. The company reinvested GM dividends into more GM stock, instead of investing them in another fund.

This went on for nearly four years, according to court records. During that time, the value of GM’s stock lost almost 16 percent.

Had the money been invested in the fund where it was supposed to go, the Promark Income Fund, about 11,000 workers would have seen their investment grow by a total of $3 million, the department said in court papers filed Monday.

The dispute is taking shape in Delphi’s Chapter 11 bankruptcy case, in which the company is sorting through thousands of potential claims from parties who say the company owes them money. In this case, the Labor Department is asking for a $3 million unsecured claim. It will be up to a U.S. Bankruptcy Court judge to decide whether to accept the government’s claim.

Delphi argues that the claim should be dismissed because the company already has addressed the mistake. In 2005, Delphi gave workers the choice of keeping the extra GM stock or selling the extra GM shares and buying shares of the other fund, plus the difference if that money had been invested correctly.

The company said it paid $856,596 to 1,476 workers who asked for a change.

“Delphi was not required to choose for participants in order to make them whole,” the company said in court filings. Instead the company said it followed pension laws by giving workers a choice. The plan also received approval from the Internal Revenue Service, the company said in a September filing.

But the Labor Department argues that when it came time to tell workers about their options, the company altered language that the IRS approved and made it sound as if workers stood a chance of losing money if they sold their extra GM shares.

Delphi declined to comment beyond its court filings.

“The inescapable conclusion is that in drafting the participant notice, Delphi sought to discourage participants from correcting their accounts, knowing the result would be a smaller payout for participants and a larger savings for itself,” the Department of Labor said in its filing.

That the language going to workers was different from what the IRS had approved should raise concern, said Susan Cancelosi, assistant professor specializing in retiree benefits at Wayne State University Law School.

“Usually you try to make sure you follow exactly what you’ve received approval for,” she said.

In cases such as these, it’s possible that companies try to limit payouts to investors or workers, said Cancelosi, who is not involved in the case.

But that doesn’t mean this is a case of a company trying to cheat workers, she said.

“I don’t always think that companies do things for bad reasons,” she said. “In the benefits realm, a lot of times people are doing the best they can.”