General Motors Co. (NYSE: GM) is trying to get dwindle down its massive pension exposure. The company announced that it is offering some select salaried retirees a lump-sum payment option. It is also offering other retirees with a continued monthly pension payment securely administered and paid by The Prudential Insurance Company of America, a Prudential Financial, Inc. (NYSE: PRU) company.
No free lunch here… GM expects $2.5 to $3.5 billion in special charges in the second half of 2012, and it sees the ongoing annual impact to earnings of about $200 million due to a decrease in pension income.
If all goes well here, GM shows that it expects about $26 billion in total reductions to the company’s U.S. pension obligations. It says that some 118,000 salaried retirees in total are impacted and GM said that some 42,000 salaried retirees and surviving beneficiaries are being offered the lump-sum payment options.
While the company is cutting costs where it can with employees and retirees, GM was quick to point that there will be no changes from this action to active employee benefits.
As far as how this ties in with Prudential, GM stated, “GM plans to purchase a group annuity contract from Prudential under which Prudential will pay and administer future benefit payments to most of the remaining U.S. salaried retirees. The transactions are expected to be completed by the end of 2012, following completion of regulatory review. Prudential would then assume responsibility for the benefits covered by the agreement and begin making the benefit payments in January 2013.”
GM’s anticipated cash contribution to its U.S. salaried pension plans will be $3.5 to $4.5 billion to help fund the purchase of the group annuity contract and to improve the funded status of the pension plan for active salaried employees.
This news matters, at least so far. GM shares are now up 3.2% at $22.91 against a 52-week range of $19.00 to $32.08.
JON C. OGG