General Motors plans to cut 24 percent of U.S. pension liability image

General Motors Co will change the way it makes pension payments to white-collar retirees. The US automaker plans to 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.

“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 moves, which follow Ford Motor Co.’s planned offer of lump-sum buyouts, will eliminate about $26 billion from GM’s pension obligations, which totaled $134 billion at the end of last year.
The Prudential Insurance Co. will handle the annuity and pay the benefits. The amounts of the monthly pension payments will not change. GM’s current salaried workers also will get the same benefits they would have received before the move.

Offering more than a third of GM’s white-collar retirees this choice caused analysts to ask whether GM will do something similar with its larger hourly pension plans that cover hundreds of thousands of UAW retirees.

“Although the transaction doesn’t come cheap, it serves a very important purpose of permanently de-risking 25 percent of GM’s U.S. pension obligation,” Citi analyst Itay Michaeli said.

G.M.’s stock price fell 19 cents to $22.01 in trading Friday, a comparatively strong showing on a day when other auto shares and the general market were down significantly.

  • Jenny Goren

    General Motors has declared their plan to buy out pensions in an effort to reduce their pension liability by a projected 26 billion dollars. This plan, announced June 1, will offer select salaried U.S. retirees a lump-sum payment and other retirees a continued monthly pension payment. This complicated decision is best made under the advisement of a knowledgeable financial advisor. A free white paper on the General Motors (NYSE:GM) Pension Buyout plan as well as additional information is available at http://youtu.be/32ZRne7AoTQ. The decision-making deadline is July 20, 2012.