GE Workers on Edge After Pension Freeze
November 15th Deadline Looms as Holiday Season Approaches
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. (Thomas Gryta, WSJ 2019).
Effective Jan. 1, 2021, affected employees won’t accrue additional benefits or make employee contributions to the pension plan. Starting the same date, GE said it will contribute 3% of eligible compensation to employee 401(k) plans and provide matching contributions of 50% on up to 8% of eligible compensation.
In addition to reducing the pension benefit by $5 billion to $8 billion, GE said it expects to reduce net debt by $4 billion to $6 billion.
The company said it would use a portion of the $38 billion in cash, identified or collected from assets sales to fund the pension moves, which includes pre-funding an estimated $4 billion to $5 billion of its requirements under the Employee Retirement Income Security Act (ERISA) for 2021 and 2022.
“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,” said Chief Human Resources Officer Kevin Cox. “We carefully weighed market trends and our strategic priority to improve our financial position with the impact to our employees.”
The pension plan move comes amid questions about the financial health of the conglomerate amid continued struggles within its power business and as the company looks to reduce its debt burden.
GE said former employees who elect to take a lump-sum payment by the November 15th deadline should expect to receive the money in December. The company said it will fund the lump-sum payments from existing assets in the GE Pension Trust, which was funded at 80% as of the end of 2018. GE expects to record a yet-to-be-determined fourth-quarter charge because of this.
Employees who stay in the pension plan will receive monthly annuity payments, often with the option to choose between a single-life annuity and a joint-and-survivor annuity that would continue paying income to a spouse in the event of the employee\’s death.
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