A trailblazing pension risk-reduction program has significantly reduced the size of General Motors Co.'s U.S. pension plans.
At year-end 2012, GM's U.S. pension plans, had $82.11 billion in benefit obligations, a whopping $26.45 billion decline compared with $108.56 billion in promised benefits at year-end 2011.
The amount of assets held in the plans also fell sharply. At year-end 2012, the plans held $68.09 billion in assets, compared with $94.35 billion a year earlier.
The dramatic reduction in the size of the plans is the direct result of twin de-risking approaches GM took in 2012.
Under one approach, GM offered to 42,000 salaried employees who retired after Oct. 1, 1997, and before Dec. 1, 2011, the opportunity to convert their monthly annuity to a lump-sum cash benefit. GM, in its form 10-K, which became publicly available earlier this month, disclosed that it paid $3.6 billion to the 12,500 plan participants who accepted the offer.
In addition, the GM pension plan paid $25.1 billion to Prudential Insurance Co. of America for a group annuity.
The Prudential annuity replaced benefits that salaried employees who retired before Oct. 1, 1997, received from GM, as well as retirees who declined the lump sum benefit conversion offer.
Through its de-risking strategy, which dramatically cut the size of its salaried employees' pension plan, GM reduced its exposure to risks such as unpredictable pension plan contributions due to fluctuating interest rates and investment results.
GM also reduced the administrative overhead associated with maintaining a pension plan and cut the premiums it must pay to the Pension Benefit Guaranty Corp. Under legislation Congress passed last year, the base premium employers pay the PBGC rose to $42 per participant this year, up from $35 in 2012, and it will increase to $49 in 2014.
More than a dozen other well-known employers, including Archer Daniels Midland Co., Ford Motor Co., and The New York Times Co., have made similar annuity-to-lump-sum benefit conversion offers.
In addition, like GM, Verizon Communications Inc. in 2012 purchased a giant group annuity, also from Prudential, to transfer to Prudential about $7.5 billion in benefits promised to about 41,000 management participants who retired and began receiving benefits before Jan. 1, 2010.