outlined plans to freeze its pension program starting next year, continuing efforts to improve its financial situation and reduce the weight of its obligations.
The world's biggest automaker will freeze accrued pension benefits for salaried employees starting Jan. 1, 2007, shifting toward a reliance on "defined contribution" plans, such as 401(k)s. Salaried employees hired after Jan. 1, 2001, will move solely to the defined contribution plans, receiving a contribution from GM to their 401(k) program of 4% of their annual base salary. Employees hired before 2001 will remain under a type of pension plan, but will receive a reduced retirement benefit for future accruals.
The move won't affect current retirees or the vested benefits of former employees, GM said.
GM expects the changes to lower its pretax pension expense by $420 million in 2007. The additional 401(k) contributions are expected to increase expenses by $15 million. The company also plans to record a pretax charge of $120 million related to the move.
Overall, GM said it anticipates the changes will cut its 2006 pension liability by $1.6 billion.
Aside from weakening sales, GM's recent financial struggles have in large part been related to its heavy burdens from retiree and health-care costs, which foreign competitors such as
"Our legacy costs in pensions and health care are an area of significant competitive disadvantage for us," said GM Chairman and CEO Rick Wagoner in a press release Tuesday. "These changes we are announcing today in our salaried retirement program, plus other changes we announced in recent months, will continue to provide our employees with a good benefit package, while reducing GM's financial risk and cost structure."
Other blue-chip companies have recently announced plans to shift away from so called "defined benefit" pension plans and toward 401(k)s, most notably
GM shares recently were up 32 cents, or 1.6%, to $20.13.