General Motors Co. said June 1 that it will offer a lump-sum pension buyout to one-third of its U.S. retirees and shift the remaining retirees to a group annuity run by an outside administrator.
GM, in a written statement, said the moves should reduce its U.S. pension liability by about $26 billion, a major step in its bid to reduce the $134 billion pension obligation on its books, which GM says is the largest pension liability for any U.S. corporation.
About 42,000 of GM's salaried retirees and their dependants—those who retired between Oct. 1, 1997, and Dec. 1, 2011— are eligible for the buyout.
Those who retired before Oct. 1, 1997, as well as any of the 42,000 who decline the buyout offer, will have their benefits paid by Prudential Insurance Co. of America starting in January. The amount of the monthly checks would remain the same.
GM will pay $2.5 billion to $3.5 billion into its U.S. salaried pension plans to cover the group annuity contract with Prudential. GM said it also will pay about $1 billion to chip away at the underfunded status of the pension for active employees.
Current employees and former workers who retired after Dec. 1 will continue to receive their pension benefits from GM. The current employees will be eligible for a buyout at retirement.
In April, Ford Motor Co. said it will offer 90,000 U.S. salaried retirees and former employees the option of receiving a lump-sum pension payout.
The buyout offer is the latest move by GM to reduce its massive pension liability, which is underfunded by about $25 billion. Many analysts point to the pension obligation as the key remaining risk to GM as it continues to emerge from its 2009 bankruptcy.
In February, GM said it would freeze its pension plan for salaried workers, starting in October, and replace it with a defined-contribution plan.
GM said it would take special charges of $2.5 billion to $3.5 billion in the second half of 2012 to cover the cost of the buyout and the annuity contract with Prudential.
"We're taking an opportunity to transfer the business of managing pension liabilities to Prudential," GM CFO Dan Ammann said during a conference call with reporters. "What that allows us to do is to focus more on our core business."
Some analysts have speculated that GM could offer a similar buyout to its hourly retirees, which represent most of its pension obligation. Ammann wouldn't comment on that prospect.
"We've made a big step forward today," he said. "I think there's additional opportunity down the road."