General Electric (NYSE:GE)
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2 Months : From Sep 2019 to Nov 2019
Expects to reduce GE’s pension deficit by approximately $5-8 billion
Multiple changes represent sizable step in Company’s deleveraging plan.
Expected to reduce GE’s pension deficit by approximately $5-8 billion and net debt by approximately $4-6 billion1; in total, along with $5 billion debt tender, GE has announced approximately $9-11 billion in net debt reduction actions in last month.
GE’s pension plan has been closed to new entrants since 2012; today’s actions more closely aligns GE benefits with current industry standards and competitive market practices.
GE (NYSE:GE) announced today that it is taking three actions related to its U.S. retirement benefits as part of its strategic priority to improve its financial position:
Freezing the U.S. GE Pension Plan for approximately 20,000 employees with salaried benefits, and U.S. Supplementary Pension benefits for approximately 700 employees.
Pre-funding approximately $4-5 billion of estimated minimum ERISA funding requirements for 2021 and 2022.
Offering a limited time lump-sum payment option to ~100,000 eligible former employees who have not started their monthly U.S. GE Pension Plan payments.
In total, the actions announced today are expected to reduce GE’s pension deficit by approximately $5-8 billion and Industrial net debt by approximately $4-6 billion1. The Company is on track in its deleveraging plan and continues to expect to make significant progress toward its leverage goal of <2.5X Net Debt to EBITDA by the end of 2020, inclusive of the impact of the current interest rate environment. GE will continue to evaluate further options to reduce leverage and strengthen its balance sheet.
1. U.S. GE Pension Plan & Supplementary Pension Freeze:
GE will freeze the U.S. GE Pension Plan for approximately 20,000 employees with salaried benefits, and U.S. Supplementary Pension benefits for approximately 700 employees who became executives before 2011, effective January 1, 2021. There is no change for GE retirees already collecting pension benefits or employees with production benefits. GE will record a non-cash, pre-tax curtailment charge in the fourth quarter of 2019. GE’s pension plan has been closed to new entrants since January 1, 2012.
Kevin Cox, chief human resources officer at GE said, “Returning GE to a position of strength has required us to make several difficult decisions, and today’s decision to freeze the pension is no exception. We carefully weighed market trends and our strategic priority to improve our financial position with the impact to our employees. We are committed to helping our employees through this transition.”
Approximately 20,000 employees with salaried benefits who participate in the U.S. GE Pension Plan
Effective January 1, 2021, the U.S. GE Pension Plan benefits for eligible employees with salaried benefits will be frozen. Benefits accrued through December 31, 2020 will not be impacted by this change. Affected participants will not accrue additional benefits or make employee contributions to the Plan after this date.
Beginning January 1, 2021, GE will contribute 3% of eligible compensation to the Company’s 401(k) plan and will provide matching contributions of 50% on up to 8% of eligible compensation.
In addition, to aid in the transition, GE will provide an extra 2% of eligible compensation (up to the IRS limit) per year for two years.
Approximately 700 executives currently eligible for U.S. Supplementary Pension benefits
Effective January 1, 2021, U.S. Supplementary Pension benefits for eligible participants will be frozen. Benefits accrued through December 31, 2020 will not be impacted by this change and will remain subject to the plan’s vesting rules. Affected executives will not accrue additional benefits after this date.
Beginning January 1, 2021, affected executives will begin participating in the Executive Retirement Benefit (ERB), an installment retirement benefit currently offered to new executives since 2011.
Employees who become executives after January 1, 2021
For new executives starting in 2021, GE will provide a new defined contribution plan benefit that restores contributions limited in the 401(k) plan by the Internal Revenue Code. This is a common benefit offering as companies shift from traditional defined benefit plans to defined contribution plans.
2. Voluntary Pre-Funding Contribution
GE also announced that it plans to use a portion of the $38 billion cash sources it has identified or collected from its BioPharma, BHGE, and Wabtec transactions to pre-fund approximately $4-5 billion of its estimated minimum ERISA funding requirements for 2021 and 2022.
3. Limited-Time U.S. GE Pension Plan Lump Sum Payment Option:
GE is offering approximately 100,000 eligible former employees who have not started their monthly payments under the U.S. GE Pension Plan a limited-time option to receive their benefit in a lump sum. Notices will be provided to eligible participants, and those who elect to receive a lump sum should expect to receive it in December 2019.
Company funds will not be used to make the lump sum distributions. All distributions will be made from existing pension plan assets in the GE Pension Trust. The company does not expect the plan's funded status to decrease as a result of this offer. At year-end 2018, the plan's funded ratio was 80 percent (GAAP). After distribution of the lump sum amounts, the company expects to record a non-cash pension settlement charge in the fourth quarter of 2019, which will be determined based on the rate of acceptance.
GE (NYSE:GE) drives the world forward by tackling its biggest challenges. By combining world-class engineering with software and analytics, GE helps the world work more efficiently, reliably, and safely. For more than 125 years, GE has invented the future of industry, and today it leads new paradigms in additive manufacturing, materials science, and data analytics. GE people are global, diverse and dedicated, operating with the highest integrity and passion to fulfill GE’s mission and deliver for our customers. www.ge.com
This document contains "forward-looking statements" – that is, statements related to future events that by their nature address matters that are, to different degrees, uncertain. For details on the uncertainties that may cause our actual future results to be materially different than those expressed in our forward-looking statements, see http://www.ge.com/investor-relations/disclaimer-caution-concerning-forward-looking-statements as well as our annual reports on Form 10-K and quarterly reports on Form 10-Q. We do not undertake to update our forward-looking statements. This document also includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.
1 Calculation of net debt tax effects the pension liabilities at a rate of 21%.
View source version on businesswire.com: https://www.businesswire.com/news/home/20191007005406/en/
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