GM aims for slower, steadier growth in pension investments

February 27, 2012 at 6:32 pm
GM aims for slower, steadier growth in pension investments
By David Shepardson
Washington— General Motors Co. said Monday it had lowered its predicted returns on its U.S. pension plan investments for 2012.
The Detroit automaker said as part of its strategy to “derisk” its pension plans, it was anticipating a more conservative growth in its investments. GM earned 8 percent on its pension investments in 2011, and expects to earn 6.5 percent for its hourly pension plan and 5.7 percent for the salary pension plan.
GM said its pension income will decline by an estimated $800 million in 2012, due to the reduced expected rate of return on plan assets of $1.4 billion, which is partially offset by reducing pension expenses by $600 million — primarily interest cost.
GM’s pension plans underfunding grew worldwide from $22.2 billion underfunded to $25.4 billion, including its U.S. plans, which saw its underfunding increase from $11.5 billion to $13.3 billion.
GM said earlier it is freezing its salaried pension plan, which will mean salaried workers will stop accruing additional pension benefits after Sept. 30. Active plan participants will receive additional contributions to its 401(k)-style plan and an extra week of vacation.
The change affects 19,000 GM salaried employees hired before 2001 who still receive traditional pensions, which provide retirees with a fixed amount of money each month for the rest of their lives.
As part of its new contract with the United Auto Workers union reached last year, it barred new hourly workers from receiving defined benefit pensions.
But the UAW said that GM had sought cuts in hourly pensions for older workers, and the union rejected that.
GM froze its cash balance pension plan for entry-level employees on Jan. 2, and expects to terminate it in June. Participants in the plan and all employees hired after October 2007 will participate in a defined contribution plan, GM said.
GM’s U.S. pension plans have 14 percent of assets in stocks, down from 29 percent a year earlier. It reduced its real estate holdings from 8 to 5 percent. It has upped its investments in debt instruments from 41 percent to 66 percent.
GM made $2.7 billion in contributions to its pension plans in 2011, including 61 million shares of GM stock.
GM said it continues to explore other actions to derisk its pensions, as is Ford Motor Co.
GM expects to spend $75 billion on pension benefits for its U.S. plans from 2012-2021, and $15 billion on its non-U.S. plans.
Analysts have said GM and Ford might seek to buy out the pensions of some retirees in an effort to pare its unfunded liabilities.
Asked in January if GM s considering making a buyout offer to its estimated 500,000 union pension participants, GM Chief Financial Officer Dan Ammann gave no details. “There is a very strict set of guidelines as to what is and isn’t possible,” he said. “And as we have news to report on those, we will update you.”
Ford’s worldwide pension liability increased from $11.5 billion to $15.4 billion as of Dec. 31.
Ford, which contributed $1.5 billion to its global pension plans in 2010, plans to make $3.5 billion in contributions to those plans this year, including $2 billion to its U.S. pension funds. Ford declined to comment on the “strategic actions” it is considering as part of reducing its pension underfunding.
GM reported it had worldwide pension assets of about $110 billion as of Dec. 31.

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