Benefits March 7, 2006

GM Unveils Finalized Pension Restructuring

March 7, 2006 (PLANSPONSOR.com) - General Motors Corp. on Tuesday reiterated its plans to shift new employees from a defined benefit to a defined contribution plan to help it slash ballooning labor costs.
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In a statement , GM said that as previously announced , it would reduce retirement benefits for salaried employees hired before 2001, changing the formula under which those benefits are based. Salaried employees hired after January 1, 2001, will be migrated to a DC plan for future service where they will get a company contribution equal to 4% of their annual base salary.

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In addition to these actions, effective January 1, 2007, all eligible US salaried employees who contribute to GM’s 401(k) program will receive a company match of 50% up to 4% of base salary.

By restructuring its pension programs in a way that mimics ongoing DB to DC trends throughout the economy, the ailing carmaker said the changes would cut its year-end 2006 pension liability by about $1.6 billion and result in a pre-tax charge of about $120 million.

Effective January 1, 2007, GM’s white-collar workers hired before 2001 will stop accruing future DB benefits and begin getting a modified benefit based on 1.25% of the average monthly base salary for future years.US executives participating in GM’s supplemental executive retirement plan will have these benefits frozen as of December 31, 2006. The amended plan will be aligned with its revised US salaried-employee pension plan.

“These changes will reduce financial risks and future costs for GM, while protecting current retirees’ and employees’ earned pension benefits and providing competitive and fair retirement benefits,” Chairman and Chief Executive Rick Wagoner said in the statement.

Benefits March 6, 2006

Pentagon Gets Recommendations for Beefed up 401(k) Plan

March 6, 2006 (PLANSPONSOR.com) - At a time when numerous public and private employers are rethinking their retirement plan programs, the US Defense Department is also considering needed pension changes for the nation's military personnel.
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In fact, a Pentagon study commission recently recommended that defense officials consider wholesale changes that effectively mimic a major ongoing retirement trend – the migration from a traditional defined benefit pension to a 401(k)-type plan, the Stars and Stripes newspaper reported.

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The recommendations came from t he Defense Advisory Committee on Military Compensation , a panel of compensation experts chartered by the Defense Department.

As is frequently the case with employers making the DB to DC shift, the Defense Department plan calls for the existing pension to be retained and for the Thrift Savings Plan (TSP) or another DC plan to be offered as an alternative to current military workers, the news report said. The TSP is eventually intended to be the only program used by new Pentagon hires. In many cases, the DB plan is frozen when the employer implements the change.

Under the study committee proposal:

  • the new plan would feature a government employer match of the TSP contributions made by members, not to exceed 10% of basic pay
  • full TSP vesting could occur after only five years of service
  • full vesting in a retirement benefit would occur after 10 years of service. The current annuity formula, of 2.5% of basic pay for each year served, would apply. So a 10-year retiree would get 25% of retired pay.
  • retirement pay would not start until age 60.

The plan is expected to be seen as fairer to the many members who now leave service short of 20 years with no retirement. That’s the experience of 85% of enlisted recruits and 50% of officers, according to the Stars and Stripes report.

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