GM to Cut About One-Fourth of U.S. Pension Liability
General Motors Co will cut nearly a quarter of its U.S. pension obligation by transferring the management of its pension plans for 118,000 white-collar retirees to a third party and offering lump-sum buyouts.
The two moves unveiled on Friday will cut $26 billion from the automaker’s massive U.S. pension liability of nearly $109 billion. GM’s pension overhang is a top concern for investors. It was one of a handful of issues left untouched during GM’s U.S.-financed bankruptcy restructuring three years ago.
“There are lots of companies with pension plans. Very few have plans in the absolute or relative size as us,” Chief Financial Officer Dan Ammann said during a conference call.
“We would like to get back into the category where this is sort of a non-issue for us,” Ammann added. “That doesn’t mean eliminating it completely, but obviously we’ve taken a big step in the right direction today.”
The automaker also announced a third pension-related move. GM will shift most of its salaried employees and a small number of retirees who started receiving pension benefits on or after December 1, 2011, to a new pension plan that GM will continue to pay for. These retirees are not part of the 118,000 affected by the pension overhaul announced Friday.
GM will buy a group annuity contract from a unit of Prudential Financial Inc , which will pay and manage benefit payments starting in January 2013 to retirees who are ineligible or elect not to take a lump-sum pension buyout.
GM will also offer pension buyouts to about 42,000 retirees and their surviving beneficiaries, who will have until July 20 to make a decision. The company will start sending those offers to eligible retirees next week.