General Electric Co.'s recent announcement that it is freezing its U.S. defined benefit plan as a means of reducing its pension liabilities is just the latest example of corporations abandoning their DB plans and moving participants into a defined contribution plan.
As a means of reducing its pension deficit by $5 billion to $8 billion, GE said Oct. 7 it is freezing its U.S. pension plan for 20,000 salaried employees and supplementary pension benefits for another 700 employees who became executives before 2011. It is also offering a lump-sum payment to 100,000 former employees who have not yet started receiving their pension. GE did not disclose how much it is setting aside for potential lump-sum payments.
GE also plans to prefund between $4 billion and $5 billion of its estimated minimum funding requirements for 2021 and 2022 out of the $38 billion it collected from selling its BioPharma and Baker Hughes businesses and selling off GE Transportation, which will merge with Wabtec Corp.
GE had a total of $50 billion in DB assets and $68.5 billion in liabilities as of Dec. 31, for a funded status of 73%, its highest since the end of 2013. It was the fifth largest corporate pension plan as of Sept. 30, 2018, according to Pensions & Investments data. Despite its funded status rising nearly 6 percentage points in 2018, the plan's funding ratio ranked 93rd out of the 100 largest U.S. corporate pension plans, according to P&I's analysis of 10-K filings.
A spokeswoman for GE said in an email that these actions are the logical continuation of steps taken in 2011 and 2012 when the company closed the DB plan to new hires and began providing a DC-only retirement plan.
With $26.7 billion in DC assets as of Sept. 30, 2018, GE's 401(k) plan is the 10th largest U.S. corporate DC plan, according to P&I data. GE contributed $430 million to its 401(k) plan in 2018, per its latest 10-K. GE will contribute 3% of employees' salaries to a 401(k) plan and also provide a 50% matching contribution for up to 8% of employee contributions. Employees will also receive a 2% pay increase for the next two years to help with the transition.