US automaker General Motors on Friday announced a plan to save $26 billion in pension outlays by offering some retirees lump sums and annuities instead of monthly payments.
The proposed changes will only apply to salaried GM employees and will not affect hourly employees, whose pension benefits are negotiated directly with the United Auto Workers union.
Pension obligations have been a growing burden for the largest US automaker over the past decade since it now has roughly one active employee for every five to six retirees.
Approximately 42,000 salaried retirees and surviving beneficiaries will be eligible to receive a voluntary single lump-sum payment option, General Motors Co. officials said.
GM also plans to purchase a group annuity contract from insurer Prudential under which Prudential will pay and administer future benefit payments to most of the remaining US salaried retirees, the company said.
The transactions are expected to be completed by the end of the year, following completion of regulatory review.
The Detroit, Michigan-based GM said that Prudential would then assume responsibility for the benefits covered by the agreement and begin making the benefit payments in January 2013.
"We appreciate the contributions our retirees have made to the company and we have taken great care in ensuring the security of their retirement benefits," said Cindy Brinkley, GM vice president of global human resources.
"Many of our retirees will now have more flexibility to manage their retirement funds and we are confident that Prudential will provide outstanding service to those receiving a monthly payment," she said.
GM was taking a similar approach to rival Ford Motor Co. The number-two US automaker announced in April it planned to offer more than 90,000 salaried employees, former employees and retirees a one-time, lump-sum cash settlement instead of regular pension payments in an effort to reduce the size of the company's future financial obligations.
"This is really an important step for use because it reduces the company's risk profile," Ford's chief financial officer Robert Shanks said during a conference call after the company reported net income fell 46 percent in the 2012 first quarter from a year ago.