Mr. Dubrowski declined to say what the percentage is that GM uses now. "The current formula is complex and it's fair to say that it does represent a reduction in benefits," he said.
GM salaried employees hired on or after Jan. 1, 2001, who participate in GM's cash balance plan, will stop accruing future pay credits based on years of service and age. Instead, GM will contribute 4% of their annual base salary to their existing 401(k) plan beginning next Jan. 1.
Existing balances under the cash balance plan will continue to earn annual interest credits, he said.
Nancy Everett, chief investment officer of General Motors Asset Management, New York, which oversees the GM plans, referred calls to Mr. Dubrowski.
Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries, Washington, said a July 2003 decision by a U.S. District Court judge that said IBM Corp.'s cash balance plan discriminated against older workers caused "a lot of uncertainty with cash balance plans. It can be easier and safer for a corporation to switch to a 401(k). Congress has yet to clarify the (cash balance) rules."
Mr. Gebhardtsbauer said while he is unaware of how GM previously calculated its cash balance formula, 1.25% "isn't that bad."
Dallas Salisbury, president and chief executive officer of the Employee Benefit Research Institute, Washington, said: "In the good old days, the average was 1.5%, but surveys have indicated that it has come down. There is not an industry average, but I would say GM's reduction (to 1.25%) is not out of sync with what other companies are doing."
Mercer's Mr. McEvoy said modifying the benefit calculation "is one of the approaches a corporation could take, but it's not the most common. Most are going the DC route. It's much more prevalent these days to go the DC route than reducing the benefits formula."
"The concept of moving new employees to a DC plan is not unusual. What is unusual is that (GM is) revisiting it again," he said, referring to more changes being made five years after GM froze its defined benefit plan. "Maybe we will see more of this as time goes on."
The firm's latest moves will save the automaker $420 million in 2007. The changes are expected to reduce GM's pension liability by $1.6 billion annually, said Mr. Dubrowski. According to its most recent financial statement, at the end of 2005, its pension liability was $10.82 billion on an ongoing basis. GM contributed more than $3 billion to its pension funds in 2003. The plan was $3 billion overfunded at the end of 2004.
GM has $94 billion in global defined benefit assets, according to Mr. Dubrowski.