(updated at 2:15 pm EDT) General Electric Co., Stamford, Conn., will reduce its pension contributions by a total of $2.5 billion in 2012 and 2013, the company announced during its second-quarter earnings call Friday.
The reduction is due to changes in pension funding requirements contained in the highway bill that was signed by President Barack Obama on July 6.
GE now expects total pension contributions of $400 million in 2012 and $100 million in 2013. Keith Sherin, vice chairman and CFO, said during the call that the company originally planned to contribute $1 billion in 2012 and $2 billion in 2013.
The fair value of the company's defined benefit assets was $42.1 billion as of Dec. 31, down from $44.8 billion a year earlier.
Questioned by an analyst during the conference call about the view other companies have taken — that despite changes in the law, those firms do not want to get further behind in future benefit payouts — Mr. Sherin defended the move saying GE has taken steps toward fully funding the plan, including closing the plan to new employees and working to reduce the risk of the pension portfolio.
Mr. Sherin said the company is “working on a risk-reduction strategy,” but will not fully move assets “100% to risk-off and bonds.” He noted GE plans to fully fund the pension plans in “a couple years” and that the company will not seek additional risk in doing so.
According to the company’s 2011 10-K, filed Feb. 24, the funding ratio of its defined benefit plans was 69.6% as of Dec. 31, when the discount rate used to calculate benefit obligations was 4.21%. It is not clear what the immediate effect of the highway bill — which allows firms to use longer-term interest rates to calculate obligations — had on the company’s current funding ratio. The asset allocation for the plans as of Dec. 31 was 44.7% equities, 26.4% fixed income, 16.1% private equity, 7.8% real estate and 5% cash and other.