GM to shift white-collar pensions to annuity

DETROIT — General Motors Co. will change the way it makes pension payments to white-collar retirees, shoring up its finances by offering buyouts and shifting liabilities to an annuity.

The Detroit company announced on Friday that it will offer 42,000 retirees a lump-sum of cash if they agree to stop taking monthly benefits. For the rest of the 118,000 U.S. salaried retirees and spouses, GM will buy a group annuity that will make monthly payments starting in 2013.

The Prudential Insurance Co. will handle the annuity and pay the benefits. The amounts of the monthly pension payments will not change.

The moves will cut GM’s total U.S. salaried pension obligation by $26 billion, from $36 billion to around $10 billion. But to pay for the annuity, GM will pump about $4 billion in cash into the pension plan and then pay $29 billion to Prudential.

Even though the deal will cost GM about $3 billion more than it will save over the lives of the retirees, Chief Financial Officer Dan Ammann said the change helps the company by avoiding the long-term risk of paying benefits to the white-collar retirees. Crosstown rival Ford Motor Co. made a similar lump-sum buyout offer to 90,000 retirees back in April as it also tried to cut its pension risk.

Investors at first embraced the change, driving up GM’s stock by 3 percent shortly after the announcement. But the shares quickly fell back with the broader market and were down 2 percent to $21.77 in late-day trading.

At GM, the company’s huge pension burden has been one of several factors holding down its stock price.

Ammann said GM has had to contribute $7 billion to its salaried pension plans since 1999. Generally, companies have to sink cash into their pensions when investment returns don’t generate enough money to cover the growing obligations.

“We will be less exposed to the funding volatility and calls on cash we’ve been exposed to in the past,” Ammann said.

Across the globe at the end of last year, GM had pension obligations of $107 billion but only $94 billion available to pay them, a $13 billion shortfall.