By Thomas Gryta
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 its
GE's traditional pension and post-employment benefits programs,
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
GE is still responsible for lifetime payments to more than
600,000 retirees, workers and beneficiaries. The latest changes
won't affect retirees or others already receiving pension
The company's pension plan is the second largest by projected
obligations, only behind International Business Machines Corp.'s,
according to consulting firm Milliman Inc., which compiles data on
the 100 U.S. public companies with the largest pension plans.
GE had funded 76% of its projected pension obligations at the
end of 2018, according to Milliman, compared with 91% funded at
IBM. The median funding level was 89% for the group.
Freezing pension plans has become a common technique to reduce
risks and shrink corporate balance sheets, said Zorast Wadia, a
consulting actuary at Milliman. "You are stopping the bleeding,"
Mr. Wadia said. "Freezing the plan alone does nothing to your
funding problem that previously exists."
The company said it would 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.
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.
The employees can take the money that has built up when they leave
the company or retire, but they won't receive credit for additional
years of work. 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. IBM closed its pension
plan to new hires in 2005 and froze benefits 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
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's post-employment liabilities include about $4.8 billion in
retiree health benefits and about $6.1 billion in supplemental
pensions for executives and other highly paid employees. In 2015,
GE stopped supplemental health-care plans for many retirees and
substituted a subsidy for private coverage. That change, plus a
reduction in retiree life insurance, cut obligations by $3.3
Theo Francis and Colin Kellaher contributed to this article.
Write to Thomas Gryta at email@example.com
(END) Dow Jones Newswires
October 07, 2019 15:28 ET (19:28 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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