GE freezes pensions for 20K, trimming up to $6B in debt

GE freezes pensions for 20K, trimming up to $6B in debt”

General Electric is making sweeping changes to its pension plan for approximately 20,000 employees, sending shares higher ahead of Monday's opening bell. The moves will help trim the shortfall by as much as US$8 billion.

The effort comes as GE CEO Larry Culp works to bring the company back from a decline in its power-equipment business, address cash flow concerns, and control mounting debt.

The company has struggled to boost profits amid a slump in demand for its gas-fired turbines for power generation.

William Blair & Co. analyst Nicholas Heymann said there was no immediate net reduction in GE's pension liabilities given the 90 basis-point decline in long-term interest rates since the end of a year ago, which has caused its pension liabilities to creep up to about $34 billion from $27 billion toward the end of 2018.

The company will also freeze supplementary pension benefits for about 700 US employees, and these actions are expected to reduce net debt between $4 billion and $6 billion, GE said. At that time, GE will contribute 3 per cent of eligible compensation to a 401 (k) plan and will provide matching contributions of 50 per cent on as much as 8 per cent of eligible compensation.

"Returning GE to a position of strength has required us to make several hard decisions, and today's decision to freeze the pension is no exception", Chief Human Resources Officer Kevin Cox said.

Shares of GE gained more than 17% this year through Friday's close.

The industrial conglomerate said the move would reduce its pension deficit by $5 billion to $8 billion, and shrink its net debt by $4-$6 billion.

GE closed its pension plan to new beneficiaries in 2012. GE had 283,000 employees worldwide at the end of past year, including about 97,000 in the U.S. GE said it expects to take a non-cash, pretax charge against its fourth-quarter earnings.

For the buyouts, GE is offering a limited time lump-sum payment to former employees who have not started monthly pension plan payments.

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