GM outsources pensions, offers lump-sum buyouts

4:30 PM, Jun 1, 2012   |    comments
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GM says it will offer pension buyouts to thousands of salaried workers, similar to an earlier move by Ford Motor, and is freezing the value of the existing pensions later this year.

Some 42,000 salaried GM workers, retirees and surviving spouses, out of 118,000 potentially eligible, will be offered the option of taking a lump-sum buyout instead of monthly pension payments.

GM didn't forecast how many it expected to take the offer.

The automaker is outsourcing white-collar pensions for those who don't take the buyout and some others, paying $29 billion to The Prudential Insurance Company of America to take over $26 billion of pension obligations.

"Funding the plan transfers (the pension responsiblity) to Prudential...and we will never have to deal with it again," GM CFO Dan Ammann said in a conference call this afternoon with investment analysts and journalists.

"The size of the transaction alone makes it unique within corporate America and the pension industry," said Aon Hewitt at KemperLesnik, a big Chicago public relations and marketing company.

Hewitt's "2012 Hot Topics in Retirement" survey of 500 employers shows 35% of companies said they were were very or somewhat likely to offer lump sums in 2012, and 19% were likely to add or liberalize lump sum options.

Ammann said there's no reason not to consider a similar move for GM's hourly workers covered by the United Auto Workers union, but he refused "to discuss in public our private conversations withe the UAW."

The categories of people and their choices:

  • People who began receiving pension benefits as of last Dec. 1 and later will be eligible for a lump-sum payment at retirement, or can continue monthly pension payments from GM.
  • People who retired from GM before Oct. 1, 1997 continue receiving monthly pension payments, but those will come from Prudential, not GM.
  • People who retired on or after Oct. 1, 1997, and before last Dec. 1, can choose the lump-sum payment, or continued monthly payments from Prudential, or in some cases can opt for an annuity -- an insurance contract that would pay monthly benefits to the retiree or survivors.

Ammann said, "We're not on a mission all the way to zero (pension obligations), but to get the issue fundamentally off the table," as GM tries to make its balance sheet more robust.

Here's the automaker's announcement:

General Motors Co. today announced that it will provide select U.S. salaried retirees a lump-sum payment offer and other retirees with a continued monthly pension payment securely administered and paid by The Prudential Insurance Company of America, a Prudential Financial, Inc. company.

The retirement plan actions will result in an expected $26 billion reduction of GM's U.S. salaried pension obligation.

Approximately 42,000 salaried retirees and surviving beneficiaries will be eligible to receive a voluntary single lump-sum payment option. GM plans to purchase a group annuity contract from Prudential under which Prudential will pay and administer future benefit payments to most of the remaining U.S. salaried retirees. The transactions are expected to be completed by the end of 2012, following completion of regulatory review. Prudential would then assume responsibility for the benefits covered by the agreement and begin making the benefit payments in January 2013.

 

By James R. Healey, USA TODAY

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