General Motors Co. said today it will phase out its pension plan for salaried workers as a way to reduce the risk to its balance sheet.
About 70 percent of GM's 26,000 salaried U.S. workers are enrolled in a defined benefit, or traditional, pension plan. Those workers will be shifted to a 401(k) plan starting on Oct. 1, said Cindy Brinkley, GM's vice president of global human resources.
Eligible salaried employees will still receive the benefits accrued under the pension plan, Brinkley said.
GM also plans to offer lump-sum payouts to salaried workers who retired after Dec. 1, 2011, another move designed to reduce future pension risk. A spokeswoman said that covers about 500 recent retirees.
A decade ago, GM switched to a 401(k) plan for new hires. About 7,000 salaried workers who were hired since Jan. 1, 2001, are still working at GM and are enrolled in the 401(k) plan.
Brinkley said the move "will give employees more control of their retirement income while certainly putting GM in a better position for long-term financial health."
GM's global pension obligations totaled about $128 billion at the end of 2010, according to its annual filing with securities regulators. Its U.S. pension plan was underfunded by $12.4 billion; plans outside the United States were underfunded by $9.9 billion.
GM is expected to provide an update on the funding status of its pension plans Feb. 16, when it reports fourth quarter and full-year financial results.
Brinkley said GM has the largest pension obligation in the United States. She said that about two-thirds of "large, established" U.S. corporations such as GM have migrated to defined contribution plans from traditional pensions.
GM's massive pension obligation remains a key worry for investors. Reducing future pension risks is a key component of GM's strategy to build a "fortress balance sheet" that carries little debt and maintains healthy cash reserves.
GM ended the third quarter of 2011 with $32 billion in cash and $4 billion in debt.
Under a pension plan, a company pays into a pool of money and invests it on behalf of employees. Workers are guaranteed set payments in retirement regardless of how the pension investments perform.
Under a "defined contribution" plan such as a 401(k), an employee sets aside a certain percentage of pretax pay. In some cases, the employer matches a portion or all of the employee's contribution. Future payments are not guaranteed but are determined by the performance of the employee's investments.
Brinkley also said that GM won't pay across-the-board raises this year, but will award raises to top performers. In addition, GM will disclose performance bonuses on Feb. 16.
She declined to comment on a Feb. 15 report on the Wall Street Journal's website that says GM's salaried workers are in line for smaller bonuses for 2011 than they received a year earlier because the company didn't hit all of its financial targets.
Brinkley also said GM will give salaried employees five extra days of vacation this year, phasing out a previous system that allowed workers to buy extra vacation time.
"Employees have been saying for quite some time that they're looking for additional ways to balance work and life," she said. "We think this will help them get there."