General Electric (NYSE:GE)
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6 Months : From Aug 2019 to Feb 2020
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 debts.
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 billion.
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 payments.
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 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'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 billion.
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)
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