[A-List] GM freezing pensions

["Charles Brown" <cbrown@xxxxxxxxxxxxxxxxx>]

Wednesday, March 08, 2006



GM saves $420M by freezing pensions

Firm joins the growing ranks of major U.S. employers shifting financial
risks of retirement to workers.

Bill Vlasic / The Detroit News



At a glance

How changes in GM's new retirement benefits will affect salaried workers:
Hired before Jan. 1, 2001: Your traditional pension plan continues. What
changes is the formula used to calculate how much money you receive in
retirement. The current formula -- based on the average of your highest-paid
five years in your last 10 years of service -- is frozen at the end of this
year. After that a new formula pays you 1.25 percent of your average monthly
base salary for all new years of service.
Hired after Jan. 1, 2001: Your pension is a "cash balance plan" that has you
accrue credits for money GM deposits in a special account. Your balance in
the plan is frozen at the end of the year (but continues to earn interest)
and you can participate in the new GM 401(k) plan. Whether or not you
participate in the 401(k), GM will contribute 4 percent of your pay to the
plan. Workers vested in the cash-balance plan can roll it over into an
Individual Retirement Account or the 401(k) plan of another employer if they
quit.
GM 401(k): Available to all workers. You can deposit pretax money in the
account, and choose from a variety of investment options. For salaried
workers, beginning Jan. 1, 2007, GM will match half of your contributions up
to 4 percent of your salary.
Current retirees: The changes do not affect the benefits of GM's current
U.S. salaried retirees or the vested benefits of former employees.
Sources: GM, Detroit News research




The cost-cutting ax at General Motors Corp. fell on salaried workers Tuesday
with the announcement that GM will freeze pension benefits for 36,000 U.S.
employees and move toward so-called "defined-contribution" plans in the
future.

The changes will save cash-strapped GM an estimated $420 million a year and
reduce the automaker's overall pension liability for white-collar employees
by $1.6 billion by the end of 2006.

By freezing current pensions, GM joins the growing ranks of major U.S.
employers such as IBM, Verizon Wireless and Hewlett-Packard in shifting some
of the financial risk of retirement to their workers.

GM Chairman Rick Wagoner called the pension modifications a "difficult, but
necessary" component of the automaker's restructuring strategy in the wake
of an $8.6 billion loss last year.

"Global competition is truly changing the auto industry, and we must
restructure ourselves to compete successfully in it," Wagoner said in a
statement.

The move was the latest measure by GM to slash employee costs for both
hourly and salaried employees.

Last year, GM negotiated $1 billion in health care cuts for hourly workers
and retirees, and increased monthly health premiums for salaried employees.
In February the automaker halved Wagoner's salary and reduced compensation
for other top executives.

GM is also embarking on a historic restructuring of its North American
operations, with plans to shed 30,000 manufacturing jobs and to close or
downsize six assembly plants by 2008.

Auto industry analysts said the pension changes represent another critical
step toward achieving GM's goal of reducing annual costs by $7 billion and
returning the corporation to profitability.

Along with health care savings previously announced, GM will reduce its cost
of salaried workers by nearly $1 billion annually, according to David Healy
of Burnham Securities.

"You take a billion here and a billion there, and it adds up," Healy said.
"No question, it's major."

GM said the pension changes will take effect Jan. 1, 2007, and that any
benefits earned before that date will be preserved.

After that, GM will divide its white-collar workers into two categories --
those hired before Jan. 1, 2001, and those hired afterward.

The group hired before 2001 will remain in GM's "defined benefit" plan, but
will receive reduced retirement benefits based on a percentage of their
average monthly base salary.

Workers hired after 2001 will be transitioned into a "defined contribution"
plan that calls for GM to contribute 4 percent of their annual base salary
to their 401(k) plan.

GM also said it will freeze benefits earned by company executives who
participate in the company's Supplemental Executive Retirement Plan.

The moves reflect the belt-tightening agenda of GM's newest board member,
Jerry York, who is an adviser to billionaire investor Kirk Kerkorian, GM's
fourth-biggest shareholder.

By spreading cost-cuts through its white-collar ranks, GM appears better
positioned to ask the United Auto Workers for concessions in connection with
the company's overall restructuring.

"It goes to the 'equality of sacrifice' principle embraced by the union,"
Healy said. "It may make it easier for GM to get concessions from the rank
and file."

Wagoner said the pension changes cut to the heart of the cost-advantage that
Asian and European competitors have over domestic automakers.

"In many cases, our non-U.S. competitors do not have comparable legacy
costs, because retirement benefits for employees and retirees in their home
countries are more heavily government funded," he said.

One GM salaried worker said Tuesday that the pension cuts had been expected
since GM first signaled changes were coming last month.

"I really don't think a lot of people were surprised because we know things
are getting tighter," said Kumasi Rayford, a design engineer at GM. "We're
not getting raises and bonuses. This was expected."

The pension announcement came a day after GM said it will sell the bulk of
its 20 percent stake in Japanese automaker Suzuki Motor Corp., a move
expected to raise $2 billion in cash.

Wall Street responded to the moves by bidding up the price of GM's stock.
GM's stock closed at $20.29, up 48 cents, in trading Tuesday on the New York
Stock Exchange.

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@xxxxxxxxxxxx

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C Copyright 2006 The Detroit News. All rights reserved.

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