(By Balachander) General Motors Co. (NYSE:GM) announced retirement plan actions that are expected to reduce its salaried pension obligations by $26 billion.
The Detroit, Michigan-based auto giant will offer select U.S. salaried retirees a lump-sum payment. GM plans to purchase a group annuity contract from Prudential Insurance Company of America under which Prudential will pay and administer future benefit payments to most of the remaining U.S. salaried retirees.
GM expects to take net special charges in the range of $2.5 to $3.5 billion in the second half of 2012 and the ongoing annual impact to earnings will be about $200 million unfavorable due to a decrease in pension income.
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Around 118,000 U.S. salaried retirees are overall impacted by these changes depending on retirement date and eligibility and about 42,000 will be eligible for a voluntary single lump-sum payment, GM said.
The company expects cash contribution to its U.S. salaried pension plans between $3.5 and $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.
Dan Ammann, GM's chief financial officer said these action represent a major step toward the company's objective of de-risking its pension plans and will further strengthen balance sheet and provide more financial flexibility in the future.
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Following changes to the pension plan for salaried retirees, GM will establish a new plan for active salaried employees with the same provisions as the current plan. GM will terminate the current salaried pension plan. There is no impact on hourly retirees.
The transactions are expected to be completed by the end of 2012.
On Friday, shares added 0.23 percent to trade at $22.25.