General Motors will end its pension plan for salaried employees as a way to lessen the risk to its balance sheet, the automaker disclosed. Around 70 percent of the company's 26,000 salaried workers in the United States are enrolled in a defined-benefit (traditional) pension plan. They will be transferred to a 401(k) plan beginning October 1, according to GM's vice president of global human resources Cindy Brinkley.
Eligible salaried employees will continue to receive the benefits accrued based on the pension plan, Brinkley explained. GM also intends to provide lump-sum payouts to salaried workers who retired after December 1, 2011.
This action is also made in order to lessen future pension risk. According to a spokesperson, the payouts cover around 500 recent retirees. Ten years ago, the automaker switched to a 401(k) plan for new hires. Around 7,000 salaried workers who were hired beginning January 1, 2001, are still employed at GM and are part of the 401(k) plan. Brinkley explained that this action will provide employees with more control of their retirement income and at the same time, this places the automaker in a "better position" for long-term financial health.
The company's pension obligations worldwide summed up to around $128 billion at the end of 2010, according to its annual filing with the securities regulators. Its pension plan in the U.S. was underfunded by $12.4 billion while those outside the country were underfunded by $9.9 billion.
The automaker is anticipated to offer an update on the status of its pension plans funding Thursday, when it posts full-year and fourth quarter financial results. Brinkley stated that GM has the biggest pension obligation in the U.S. She further disclosed that about two-thirds of "large, established" corporations in the U.S. like GM have transferred to defined-contribution plans from traditional pensions.