General Electric (NYSE:GE)
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6 Months : From Jul 2019 to Jan 2020
By Thomas Gryta and Colin Kellaher
General Electric Co. said it was freezing its pension plan for about 20,000 U.S. workers and offering pension buyouts to 100,000 former employees, as the conglomerate joins the ranks of U.S. companies phasing out a guaranteed retirement.
GE is one of the rare big U.S. manufacturers that still allows salaried workers to accrue traditional pension payments, though it closed its plan to new participants in 2012. The company's profits have evaporated in recent years, prompting GE to slash its dividend and Chief Executive Larry Culp to look for ways to pare it debts.
GE's traditional pension plans, which were underfunded by $27 billion as of the end of 2018, are one of the company's biggest liabilities. The company said the latest changes could reduce its pension deficit by as much as $8 billion.
The company said it will contribute up to $5 billion in cash to the pension plan next year to meet funding requirements. It contributed $6 billion to shore up the plan last year.
GE is still responsible for lifetime payments to more than 500,000 retirees, workers and beneficiaries. The latest changes won't affect retirees or others already receiving pension payments.
On Monday, GE said 20,000 U.S. employees will no longer accrue new benefits under the pension plan as of the beginning of 2021. These workers will still receive vested benefits. They will join GE's existing 401(k) retirement-savings plan and will get an extra 2% of their salary for two years.
The freeze also applies to about 700 employees who became executives before 2012 and had a supplementary pension. The change doesn't affect union workers, the company said, or nonunion production workers. GE will record a noncash charge on the move in the fourth quarter.
For decades, a job at GE with its generous pension was a safe ticket to a middle-class life for many Americans. The 300,000-person company shifted work overseas and restructured its operations, but GE has been slower than some U.S. firms to pare back that safety net.
Thousands of U.S. companies have swapped traditional pensions for 401(k) plans, effectively shifting the risk of volatility to their workers and reducing long-term costs. International Business Machines Corp. froze its pension in 2008. Boeing Co. closed its pension in 2009 and froze benefits in 2016.
In 2017, only 16 companies in the Fortune 500 offered traditional defined-benefit plans to new hires, down from 238 in 1998, according to the consulting firm Willis Towers Watson. By 2017, 42% of Fortune 500 companies with defined-benefit plans had frozen them in some way.
Mr. Culp has made paying down debt one of his priorities since abruptly becoming GE's CEO a year ago. He has called 2019 a "reset year" for GE. The company recently gave up control of oil-services firm Baker Hughes, triggering a charge likely exceeding $8 billion in the third quarter.
GE's main pension plan covered about 243,000 retirees and beneficiaries, 144,500 vested former employees and approximately 43,000 active employees as of the end of 2018. GE also is responsible for other pension plans that are the legacies of acquisitions that cover another 180,000 people.
GE said Monday it will offer lump-sum payments to about 100,000 former employees who haven't started collecting monthly pension payments. Those payments will come from existing pension plan assets.
The company said the changes would cut its pension deficit by up to $8 billion and its net debt by up to $6 billion. On Monday, it said moves in the past month will cut debt by $9 billion to $11 billion. The company has been selling assets, including its locomotive business, to reduce the roughly $100 billion in debt it had at the start of 2019.
GE shares were up less than 0.1% to $8.58.
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(END) Dow Jones Newswires
October 07, 2019 12:18 ET (16:18 GMT)
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