Industrial industry giant General Electric announced, this week, a plan to freeze pension benefits for approximately 20,000 employees, an attempt to reduce its mounting debt and improve its overall balance sheet. With that, the company said it hopes the effort will effectively shrink their pension deficit by at least $5 billion and as much as $8 billion, reducing its debt by $4 to $6 billion, net, in the process.
News of this, while terrible for those who have earned a pension, seemed to encourage investors: shares of GE rose 3 percent on Monday morning.
This judgment affects not only current pension holders, of course, but approximately 100,000 former GE employees who have yet to start receiving their pension benefits. Instead, however, the company wants to offer them a limited-time lump-sum payment. This might be the smart play for those waiting on their post-employment payout as GE has also said it will freeze US supplementary pension benefits for 700 employees.
In addition, the company has also announced a plan to pre-fund somewhere between $4 and $5 billion of its currently-estimated minimum requirements for 2020 and 2021, as described in the Employee Retirement Income Security Act. This plan established a baseline standard for pension plans among employers in the private sector.
This important move comes as GE CEO Larry Culp works to restructure the company as it faces massive cash flow issues, on top of growing debt and a power business that continues to struggle in today’s marketplace. As of June 30, GE had $105.8 billion in debt.
Accordingly, GE Chief Human Resources Officer Kevin Cox comments, “Returning GE to a position of strength has required us to make several difficult decisions, and today’s decision to freeze the pension is no exception.”
The press release goes on to say, “We carefully weighed market trends and our strategic priority to improve our financial position with the impact to our employees. We are committed to helping our employees through this transition.”
At the end of the day, the company said it will allocate some of the money acquired from the sale of BioPharma and BHGE and Wabtec to pre-fund upwards of $5 billion towards the Employee Retirement Income Security Act payments for the next few years.