General Motors said Friday it will offer 42,000 white-collar retirees in the U.S. a lump-sum payment in lieu of their monthly pension check and will transfer pension responsibility for 76,000 others to a group annuity plan managed by Prudential Insurance.  It’s the latest, and boldest, step to ease GM’s massive pension burden. Chief Financial Officer Daniel Amman said the changes would erase $26 billion from GM’s $134 billion worldwide pension obligation and “set the groundwork” for further actions. “It really comes down to risk reduction,” he said. “We want to remove this as an issue for us.”  GM no doubt would like to do something similar with its $71 billion pension plan for hourly factory workers and retirees, whose assets are $10 billion short of its obligations. During contract talks last fall, GM and United Auto Workers bargainers spent many hours discussing the pension plan, but no substantial changes were made. Amman told reporters Friday: “We’ve agreed to keep an open channel on that topic.” A UAW spokeswoman was not available for comment.  Pension accounting is a volatile business, and depends on market returns, discount rates and worker mortality rates. Despite steady cash and stock contributions over the years, as well as a shift toward a more stable asset mix, GM’s global pension plans are still $25 billion short of the company’s expected obligation to current and future retirees.  The transfer of about 25% of its total U.S. pension obligation to Prudential will cost GM $3.5 billion to $4.5 billion: $1 billion to “top off” the salaried plan’s assets before they are turned over, and $2.5 billion to $3.5 billion to cover a one-time premium payment to Prudential. (The actual amount depends on how many retirees opt to continue getting their monthly benefits from Prudential.) But it’s worth it: After GM pays off Prudential, it will have no further cash obligations tied to the transferred pensions.  GM, which emerged from bankruptcy in June 2009 after a government bailout, is trying to restore its financial credibility and raise its stock price so that the U.S. Treasury can sell its remaining stake in the automaker. Fitch Ratings Friday called the pension restructuring a “positive step” for GM, and said the company, with $31.5 billion in cash, could easily afford it. But Fitch took no action on the automaker’s debt rating, currently “BB.”  GM isn’t the first to try to unload a huge chunk of its pension debt. . In April, Ford said it would offer 90,000 of its retired engineers and office workers the chance to take a lump sum payment now and forgo their monthly pension checks for the rest of their lives. That program is just getting under way so it is too early to know how many people will accept.  GM’s offer comes with a twist, though: the option to continue receiving the same monthly benefits from Prudential through a group annuity plan. That could be more appealing to retirees worried about whether their money would last if they accepted a a lump-sum. Eligible retirees have until July 20 to decide on their payment options. The transactions are expected to be completed by the end of 2012, and Prudential would then assume responsibility for the pensions in January 2013.  Amman said transferring salaried pensions to Prudential makes sense. “That is their core business. This allows us to spend more time and resources on our core business which is designing, building and selling world-class vehicles.”
GM's pension offer would allow retirees to take a lump-sum or keep getting monthly checks from a group annuity