General Motors Corp. said yesterday that it would freeze or eliminate the traditional pension benefits of its U.S. salaried workers and move newer hires into a plan that relies more on 401(k) investments as the automaker continues to cut costs.
The changes start next year and affect about 42,000 workers, including top executives. The automaker, which lost $8.6 billion last year, is shifting away from the guaranteed lifetime monthly pension payment plan it helped pioneer in the 1940s.
"These decisions are difficult, but necessary to position GM for future success," Chief Executive Officer G. Richard Wagoner Jr.said. "These changes will reduce financial risks and future costs for GM [and provide] competitive and fair retirement benefits going forward."
GM will still provide a monthly pension for salaried workers hired before 2001, but with reduced benefits credited for years worked after 2006. For newer employees, GM will end the guaranteed pension plan and replace it with a 401(k).
GM will contribute 4 percent of each employee's annual pay to the tax-deferred program and allow employees to make additional contributions and manage their investments to generate retirement income. GM also will match 50 percent of a salaried worker's contribution, up to 4 percent of the base salary.
The company's move "is significant because it was GM and the other Detroit automakers who wrote the corporate social contract with workers after World War II ... that said the employer will reward loyalty by taking care of the worker," said Harley Shaiken, a University of California, Berkeley professor and a labor specialist. "Now the message is, 'Take care of yourself.'"
GM said the changes to its salaried pension programs would affect 36,000 automotive employees and 6,000 salaried workers at General Motors Acceptance Corp. - a finance unit that it is trying to sell to raise cash. The pension changes do not affect current retirees or GM's 105,000 hourly union workers in the United States.
GM expects the new plans to save it $420 million on a pretax basis next year and to reduce its pension liability by $1.6 billion at the end of this year. GM's pension liability was $10.92 billion in December.
The automaker is following other large employers in trying to cut pension costs. About 80 percent of U.S. private businesses have ended traditional guaranteed pensions in favor of 401(k) retirement plans, Shaiken said.
But GM is the first Detroit automaker to make the shift, after a similar announcement in February by the North American unit of Japan's Nissan Motor Co.
David Cole, director of the Center for Automotive Research in Ann Arbor, Mich., expects Ford Motor Co. and DaimlerChrysler's Chrysler Group to match GM's pension changes "in a matter of weeks, if not days" to remain competitive.
Neither company would comment yesterday.
GM and Ford have been losing sales and market share to foreign brands in the U.S. for decades. And both automakers have complained bitterly that company-paid benefits for their hundreds of thousands of workers and retirees place them at a competitive disadvantage to carmakers in Asia and Europe with national health and pension plans.
The pension changes follow a deal GM reached with the United Auto Workers in November to cut health benefits for retired hourly workers. That deal, which would save the automaker $1 billion a year, is awaiting federal court approval.
GM's stock price gained 48 cents for the day to $20.29.
John O'Dell writes for the Chicago Tribune.