GM's salaried retirees balk at uninsured annuities offer
June 16, 2012 by Nathan Bomey
By Nathan Bomey, Detroit Free Press
DETROIT — A group representing General Motors‘ 118,000 salaried retirees blasted the automaker’s plan to convert pension payments into equivalent monthly annuity checks that won’t be insured by a federal authority.
General Motors Retirees Association President Jim Shepherd, in a June 13 letter to GM Chief Executive Dan Akerson, called the plan “galling” and said GM was putting its salaried retirees’ financial future at risk.
The move raises questions about how well the conversion, which affects only salaried retirees for now, will be received.
“Never, even in our wildest imagination, could we ever have foreseen that GM would then turn around and treat its retirees with such little regard and with such disdain as GM is doing now,” Shepherd wrote. “Once again, salaried retirees, those of us not protected by a labor agreement, are being singled out for disparate treatment.”
A GM spokesman was not immediately available to comment Friday.
GM is offering lump-sum payouts to 42,000 salaried workers who retired on or after Oct. 1, 1997, through Dec. 1, 2011, in a deal that will cost the automaker about $4 billion but remove about $26 billion in pension obligations from its balance sheet. If retirees reject the payouts, they can opt to continue receiving monthly checks from Prudential Insurance Company of America.
Annuities are partially insured by many states, but they are not covered by the U.S. government’s Pension Benefit Guaranty Corp. The federal agency provides some compensation to pension holders when a corporate parent is forced to abandon pensions because of a bankruptcy filing, for example.
The federal agency, which has a $26 billion deficit, now guarantees up to $4,653.41 per month — or $55,840.92 a year — for workers who begin receiving payments from the agency at age 65.
If Prudential were to spiral into an economic crisis, the insurer’s annuities theoretically could be at risk. As of May 2, Prudential Insurance Company of America had financial strength ratings of AA- from Standard & Poor’s, A2 from Moody’s and A+ from Fitch Ratings. S&P’s and Fitch’s top ratings are AAA; Moody’s is Aaa.
GM, which operates the largest private pension plan in the world, wants to reduce its exposure to the expensive legacy commitment. The company’s pensions were underfunded by $14.2 billion at the end of 2011, according to an SEC filing. Analysts say the pension liabilities continue to weigh on GM’s stock.
Akerson confirmed Tuesday the company would consider a similar course for its hourly retirees.
“It was discussed during the labor negotiations in broad terms,” Akerson said of 2011 contract talks with the United Auto Workers. “We didn’t know if the market would have the capacity to annuitize something of this size. We’ve been pleased that Prudential was able to step up to this. And I’m not saying we’re going to do it, but it’s certainly something we would consider if the opportunity arose.”
Shepherd rejected the suggestion that GM must remove pensions from its books to compete with automakers like Ford, which is offering lump-sum payouts to 98,000 retirees but is not converting pension holders who reject the offer into an annuitized system.
“Surely GM management is as competent as other competitive managers in the auto industry who believe they can create a strong balance sheet without risking retirees economic futures,” Shepherd wrote.
The GM Retirees Association, a member of the National Retiree Legislative Network, communicates with retirees about GM news.
Many retirees have expressed confusion or anger about the GM proposal. Richard Fusinski, a retired GM engineer living in Cottonwood, Ariz., posted YouTube videos urging retirees to boycott GM products because of the plan.
“General Motors has this big ball of money and they want to try to get rid of us, the people who put them where they are,” he said in an interview. “I’m very upset that they’re throwing us under the bus.”
At GM, workers who retired before Oct. 1, 1997, will continue to receive monthly payments through Prudential. People who retired after Dec. 1 and those who retire in the future will get the lump-sum offer when they retire. GM is no longer offering pensions to new retirees.
Experts broadly agreed that the GM and Ford moves would prompt other major corporations to consider similar moves.
“Whether people will necessarily follow GM in doing lump sums and annuities, I don’t know. Will many people get very serious about doing lump sums? Absolutely,” said Charles E.F. Millard, Citi Investment Research’s head of pension solutions and former director of the Pension Benefit Guaranty Corp.
Millard said it’s notoriously difficult to project an acceptance rate for lump-sum offers. For GM, he guessed it would be anywhere from 40% to 80%, adding that that average figure for people who receive the offer immediately at retirement is close to 75%.
“Your hope is that the take rate will be high,” he said. “This is going to prompt across boardrooms, people saying, ‘what are we doing to do about de-risking?’ ”
Contributing: Susan Tompor, Detroit Free Press
