GM Transfers Some Pension Risk

June 1, 2012 ( - General Motors Co. will offer lump-sum payments to select U.S. salaried retirees.

Other retirees will receive a continued monthly pension payment administered and paid by The Prudential Insurance Company of America.   

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 this year, 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.  

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

GM’s anticipated cash contribution to its U.S. salaried pension plans to effect these actions will be in the range of $3.5 to $4.5 billion. The money will help fund the purchase of the group annuity contract and to improve the funded status of the pension plan for active salaried employees. The company expects to take net special charges in the range of $2.5 to $3.5 billion in the second half of this year and the ongoing annual impact to earnings will be approximately $200 million unfavorable due to a decrease in pension income.  

“These actions represent a major step toward our objective of de-risking our pension plans and will further strengthen our balance sheet and give us more financial flexibility going forward,” said Dan Ammann, senior vice president and CFO.  

These pension changes do not affect GM salaried retirees’ eligibility for post-retirement health care, life insurance or a vehicle discount. The company said it will establish a new plan for active salaried employees with the same provisions as the current plan. GM will terminate the current salaried pension plan. There is no impact on hourly retirees.  

Ford Motor Company announced in April it will offer approximately 90,000 eligible U.S. salaried retirees and former employees the option to receive a voluntary lump-sum pension payment in order to reduce its pension risk (see “Ford Offers Lump-Sums to De-Risk Pension”).