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GM saves $420M by freezing pensions

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GM saves $420M by freezing pensions

Firm joins the growing ranks of major U.S. employers shifting financial risks of retirement to workers.

Bill Vlasic / The Detroit News

The cost-cutting ax at General Motors Corp. fell on salaried workers Tuesday with the announcement that GM will freeze pension benefits for 36,000 U.S. employees and move toward so-called "defined-contribution" plans in the future.

The changes will save cash-strapped GM an estimated $420 million a year and reduce the automaker's overall pension liability for white-collar employees by $1.6 billion by the end of 2006.

By freezing current pensions, GM joins the growing ranks of major U.S. employers such as IBM, Verizon Wireless and Hewlett-Packard in shifting some of the financial risk of retirement to their workers.

GM Chairman Rick Wagoner called the pension modifications a "difficult, but necessary" component of the automaker's restructuring strategy in the wake of an $8.6 billion loss last year.

"Global competition is truly changing the auto industry, and we must restructure ourselves to compete successfully in it," Wagoner said in a statement.

The move was the latest measure by GM to slash employee costs for both hourly and salaried employees.

Last year, GM negotiated $1 billion in health care cuts for hourly workers and retirees, and increased monthly health premiums for salaried employees. In February the automaker halved Wagoner's salary and reduced compensation for other top executives.

GM is also embarking on a historic restructuring of its North American operations, with plans to shed 30,000 manufacturing jobs and to close or downsize six assembly plants by 2008.

Auto industry analysts said the pension changes represent another critical step toward achieving GM's goal of reducing annual costs by $7 billion and returning the corporation to profitability.

Along with health care savings previously announced, GM will reduce its cost of salaried workers by nearly $1 billion annually, according to David Healy of Burnham Securities.

"You take a billion here and a billion there, and it adds up," Healy said. "No question, it's major."

GM said the pension changes will take effect Jan. 1, 2007, and that any benefits earned before that date will be preserved.

After that, GM will divide its white-collar workers into two categories -- those hired before Jan. 1, 2001, and those hired afterward.

The group hired before 2001 will remain in GM's "defined benefit" plan, but will receive reduced retirement benefits based on a percentage of their average monthly base salary.

Workers hired after 2001 will be transitioned into a "defined contribution" plan that calls for GM to contribute 4 percent of their annual base salary to their 401(k) plan.

GM also said it will freeze benefits earned by company executives who participate in the company's Supplemental Executive Retirement Plan.

The moves reflect the belt-tightening agenda of GM's newest board member, Jerry York, who is an adviser to billionaire investor Kirk Kerkorian, GM's fourth-biggest shareholder.

By spreading cost-cuts through its white-collar ranks, GM appears better positioned to ask the United Auto Workers for concessions in connection with the company's overall restructuring.

"It goes to the 'equality of sacrifice' principle embraced by the union," Healy said. "It may make it easier for GM to get concessions from the rank and file."

Wagoner said the pension changes cut to the heart of the cost-advantage that Asian and European competitors have over domestic automakers.

"In many cases, our non-U.S. competitors do not have comparable legacy costs, because retirement benefits for employees and retirees in their home countries are more heavily government funded," he said.

One GM salaried worker said Tuesday that the pension cuts had been expected since GM first signaled changes were coming last month.

"I really don't think a lot of people were surprised because we know things are getting tighter," said Kumasi Rayford, a design engineer at GM. "We're not getting raises and bonuses. This was expected."

The pension announcement came a day after GM said it will sell the bulk of its 20 percent stake in Japanese automaker Suzuki Motor Corp., a move expected to raise $2 billion in cash.

Wall Street responded to the moves by bidding up the price of GM's stock. GM's stock closed at $20.29, up 48 cents, in trading Tuesday on the New York Stock Exchange.

Link: http://www.detnews.com/apps/pbcs.dll/artic.../603080394/1148

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