TORONTO (Reuters)—The Canadian Auto Workers union on Thursday said the government of Ontario was ducking its obligation to guarantee the pensions of retired General Motors Corp. workers in Canada.

The union argues Ontario, the heartland of Canada's auto industry, is responsible to fund a shortfall of nearly $2 billion Canadian ($1.6 billion) in GM Canada's pension plan because of a loophole that allowed the company to underfund the plan. The province says it lacks the resources to make up the difference.

"In the case of GM, a big part of the problem is the government's own regulations," said Ken Lewenza, president of the CAW.

"Since 1992, they have excluded GM from solvency funding. That means they can fund their pensions to lower standards than all other companies. No wonder the deficit is so big today."

In 1992, Ontario allowed corporations that have over $500 million Canadian ($406.5 million) in assets in their pension funds, or companies that were considered "too big to fail," to pay off their obligations over a 15-year time span.

Other companies operating in the province with pension plans have five years to cover shortfalls.

GM retirees now face the possibility that their pensions could vanish if the company goes bankrupt, which GM's new CEO has said is a real possibility.

Len Harrison, the president of the CAW's Retirees' Council of Canada, said the situation that retirees find themselves is completely unjust. He said now-retired workers had always bargained in good faith and always lived up to what was asked of them. Now the company is walking away from its agreements, he said.

"What happened when we retired? Did we stop living as citizens in this country?" he asked at a press conference.

"We were signing agreements where they were promising us things and we would work for less, obviously, because we wanted our pensions...Now, because there was no oversight on the greedy in this world...the financial crisis appeared."

Guaranteed pensions

Part of the funds GM would have contributed to its pension plan were channeled into a provincial " pension benefit guarantee fund," designed to ensure that if companies go under, retirees would still receive their pensions.

That fund has about $100 million Canadian ($81.3 million) in it, Ontario Premier Dalton McGuinty said Wednesday.

Mr. McGuinty said the amounts paid by companies into the pension guarantee fund were "grossly inadequate" and that the fund "comes nowhere near meeting any liabilities for the auto sector alone, to say nothing of all the other sectors."

He said the province does have a political and moral responsibility to pensioners who played by all the rules.

"We have some responsibility there. It's debatable how much that is, but we have a role to play."

The CAW's Mr. Lewenza took it further and said Ontario may have a legal obligation to cover the pensions as well, but Tony Faria, an auto analyst at the University of Windsor, said that is not the case.

"They do not seem to have a legal obligation," he said. "They apparently are not on the hook at all."

In any case, Mr. Faria said, the government simply does not have the wherewithal to cover the shortfalls. "They just don't have the money."

The Ontario government said on March 26 that it would run budget deficits for the next six years, including a $14.1 billion Canadian ($11.7 billion) dollar shortfall in the 2009-2010 fiscal year as it deals with the fallout from the global economic crisis.

GM was not immediately available for comment. The company's new CEO, Fritz Henderson, said late on Wednesday the company was in talks with the governments of Ontario and Canada about the underfunded pension situation.

"So we are in dialogue constructive dialogue and we are going to work with them to bring this matter to resolution," he told the Canadian Broadcasting Corp.

The union is asking all retirees in Ontario to attend a demonstration at the provincial legislature on April 23.

"All we really want is some justice. We've done our bit and we continue to do our bit and with the help of good people in this country, we'll continue to do that," Mr. Harrison said.