Editors’ pick: Originally published March 8.
Total costs, which include the value of benefits earned by employees during a given period, interest expenses and changes to estimates of future charges, were $5 billion last year, according to the Fairfield, Conn.-based company's yearly financial statements. The savings were achieved at the same time the company cut off traditional healthcare plans for retired employees, sending them to a private exchange with a $1,000-a-year subsidy.
GE's filing didn't specify how much of the savings were from the healthcare plan changes, and the company declined to provide further detail. The shift to a private exchange was initially applied to administrative retirees then expanded to manufacturing employees, many of whom are union members, last year. That helped drive the annual cost of retiree health and life benefits down 81% over a two-year period, to $174 million in 2015, according to the filing
Elimination of the company's traditional health plans, whose quality prompted some workers to spend their entire careers at the company, have already sparked two lawsuits, including a 2014 civil claim filed by Dennis Rocheleau, GE's former chief labor negotiator, and retired benefits counselor Evelyn Kaufman, and a separate federal claim by unions including the Teamsters and United Auto Workers.
GE has contested the claims, arguing that it never promised to continue offering previous healthcare plans indefinitely. In a motion seeking to have the union's suit dismissed, the company noted that not only will the changes make retiree health care "more financially manageable for GE," they will also save many retirees money.
A healthcare consultant that GE retained before making the changes concluded that roughly 75% of eligible retirees would have a chance to save money under the new arrangement, the company said in the motion, filed Feb. 10 in U.S. District Court in Northern Ohio.
Source: GE regulatory filing
The moves have reduced GE's total retiree benefit obligation, the amount owed to current and future retirees under existing health and life plans, by a combined $4.7 billion, including $3.3 billion in 2015, $832 million in 2012 and $586 million in 2014. At the end of 2015, the company's total health and life benefit obligation was $6.7 billion, the filing showed.
GE's total pension obligation, meanwhile, dropped almost 3%, or $2 billion, to $68.7 billion last year, according to the filing, as the company benefited from an improvement in likely future returns on investments used to fund the plan. Those investments, which include company and worker contributions, were valued at $45.7 billion at the end of 2015, leaving the plan underfunded by about $23 billion, the filing showed.
Returns are affected by fluctuations in interest rates, which the Federal Reserve cut to nearly zero during the financial crisis and kept at that level for seven years. The central bank approved its first hike since the crisis, of 25 basis points, in December, and traders are speculating that it will increase them another 25 basis points by year end.
GE's pension, closed to new participants, covers 231,000 retirees and beneficiaries, along with 167,000 vested former employees and 75,000 current workers, according to the filing. GE has about 333,000 workers worldwide, about 38% of whom are in the U.S.
"Our policy for funding the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements under employee benefit and tax laws," the company said in the filing. It made no contributions in 2014 or 2015.
"Our current estimate projects no required minimum pension funding contributions to the GE Pension Plan in 2016 and approximately $2.1 billion in projected contributions in 2017," the company said in the filing.
GE expects its annual operating pension costs, which measure benefits accrued during the year, will drop by about $200 million this year, to $1.5 billion, Julian Mitchell, an analyst with Credit Suisse, said in a note to clients. He rates the stock "outperform," the equivalent of a "buy."