SCHENECTADY -- General Electric will end future contributions to its retirement plan for salaried employees, the company announced Monday in its latest cost-cutting move.
The freeze on the U.S. GE Pension plan will affect approximately 20,000 employees nationwide with salaried benefits, including hundreds who work in the Schenectady area at facilities including the Schenectady manufacturing campus and Global Research in Niskayuna. Another 700 employees in a supplemental plan will also be affected, the company said.
The company will end new contributions to the pension plans at the end of 2020. GE said it will contribute 3% of eligible compensation to a 401(k) plan, and will provide matching contributions of 50% on as much as 8% of eligible compensation.
Such freezes have become common across America's industrial economy as traditional pensions have become a way of the past, with employees generally encouraged to contribute their own money -- sometimes with a company match -- to individual pension plans.
The change will help the financially struggling company deal with a major funding deficit in its pension program.
GE’s $22.4 billion in underfunded pension liabilities at the end of last year, including the main and supplemental plans, represented the largest shortfall of firms in the Russell 1000 Index of large U.S. companies, according to a Bloomberg News review of the data.
GE said it will be pre-funding approximately $4 billion to $5 billion of estimated pension funding in 2021 and 2022, and offering a limited time lump-sum payout option to about 100,000 eligible former employees who have not yet started their monthly pension plan payments. People eligible for the lump sum payment will be notified.
In total, GE said in a press release that the actions announced Monday are expected to reduce GE’s pension deficit by approximately $5 billion to $8 billion, and industrial net debt by approximately $4 billion to $6 billion.
The company said there is no change for GE retirees already collecting pension benefits or employees with production benefits, and only people already in the pension plan will see an impact. New employees haven't been eligible for GE’s pension plan since January 1, 2012.
“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," said Kevin Cox, GE's chief human resources officer. "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.”
The move isn't really a surprise, since traditional pensions are mostly a thing of the past, said Peter Bardunias, president of the Chamber of Southern Saratoga County, whose wife is a 30-year GE employee. It doesn't mean anyone who now had pension benefits will lose them, he said. He is a former GE employee, though he took a buyout of his pension plan years ago.
"All this pension freeze means is that longtime employees like my wife will no longer see growth in the pension plan," Bardunias wrote in a Facebook post.
"All lot these companies have done away with the traditional pension plans," he said in a phone interview. "In the scheme of things, I think it's still a pretty good retirement plan."
One financial analyst, Julian Mitchell of Barclays, said in a note that efforts to reduce debt are encouraging, though a pension freeze is likely to damage employee morale, Bloomberg reported. “In a situation of ‘corporate battlefield surgery,’ this tends to be a typical, if unfortunate, casualty," he wrote.