GM follows in Ford's tracks, offers lump sum to retirees

GM follows in Ford's tracks, offers lump sum to retirees
Automaker also shifting balance of pension plan to Prudential
JUN 19, 2012
Apparently, as Ford Motor goes, so goes GM. General Motors Co. on Friday announced plans to cut its pension obligation by $26 billion by offering lump-sum payments to about 42,000 white-collar retirees. The nation's largest automaker is also shifting the balance of its plan to Prudential Insurance Co. of America. “These actions represent a major step toward our objective of derisking our pension plans and will further strengthen our balance sheet and give us more financial flexibility,” Dan Ammann, GM's chief financial officer, said in a statement. GM's pension buyout announcement follows a similar move by Ford Motor Co. that offered lump-sum payments to about 90,000 salaried retirees. The GM announcement affects retirees who retired before Dec. 1. GM retirees don't have to accept the offer. Those who don't will continue to receive monthly pension payments through a new group annuity contract administered by Prudential. The annuity contract is expected to be completed by the end of this year. “This landmark agreement allows GM to maintain the value of U.S. salaried pension benefits for its retirees while significantly reducing its pension obligations,” said Christine Marcks, president of Prudential Retirement. “With our financial strength, investment capabilities and actuarial expertise, Prudential is uniquely suited to assume the responsibility of guaranteeing pension benefits.” Leon LaBrecque, founder of LJPR, a firm managing over $431 million in assets, noted that choosing between the two payment types can be nettlesome. “The lump-sum vs. monthly pension benefit decision is an exceedingly complex one with, tax, estate, mortality, investment, and many more consequences," he said. "Retirees should study their options carefully before making a decision,” The GM and Ford announcements may be just the tip of the iceberg. A new report, “The Future of Retirement and Employee Benefits,” issued by Prudential and CFO Research Services last month found that senior finance executives in a broad cross-section of industries increasingly are exploring solutions to reduce or eliminate the effect of pension-funding volatility. Many respondents indicated that funding their pension obligations constrains their firm's cash flow, access to capital and ability to invest in growth opportunities. The 2012 survey found an increase in the percentage of companies likely to transfer pension plan risk to a third-party insurer. More than 40% of respondents said they are likely to do so within the next two years, up from 30% in the 2010 survey.

Latest News

Investor accuses Canaras, U.S. Bank of hiding $50 million CLO loss
Investor accuses Canaras, U.S. Bank of hiding $50 million CLO loss

A trustee says it has no record of the investor now suing it for $50 million

New bill would let advisers unlock accredited investor status for clients
New bill would let advisers unlock accredited investor status for clients

Legislation seeks to loosen access to private markets to include professional advice from RIAs and broker-dealers, not just income or net worth.

More than a quarter of moms are planning to opt out of Trump accounts, survey finds
More than a quarter of moms are planning to opt out of Trump accounts, survey finds

"I just feel like I can get a lot further [by] opening a 529 account," said one respondent to the BabyCenter survey on Trump accounts.

IRA investors keep rushing toward lower-cost mutual funds
IRA investors keep rushing toward lower-cost mutual funds

New ICI research shows these retirement savers pay expense ratios nearly matching industrywide averages, extending years of fee declines

US household wealth grows more liquid than global peers
US household wealth grows more liquid than global peers

UBS data show American net worth is shifting from property to cash and funds faster than in seven other wealthy nations.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.