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GE to Freeze, Pre-Pay Pensions to Save Up to $8 Billion, Cut Debt

368 Views 9 Replies 7 Participants Last post by  friendof2nd
07 October 2019

General Electric said on Monday it would freeze pensions for about 20,000 salaried U.S. employees and take other related moves to help the ailing conglomerate cut debt and reduce its retirement fund deficit by up to $8 billion.

Analysts said the move would largely offset the rise in GE’s pension obligation due to lower interest rates and is in line with other steps Chief Executive Officer Larry Culp has taken over the past year to raise cash and pare down $105.8 billion in debt.

Culp has slashed GE’s quarterly dividend to a penny and has sold - or announced plans to sell - non-core businesses, slimming the once-sprawling company to focus just on power plants, jet engines and windmills, plus related equipment and services.

GE’s pension plans are among its biggest liabilities and were underfunded by about $27 billion at the end of 2018.

The company has struggled to boost profits amid a slump in demand for its gas-fired turbines for power generation. It also faces potential costs of more than $1 billion in its jet engine unit from the grounding of Boeing Co.’s (BA) 737 MAX airliner.

GE also is likely to set aside about $11 billion to cover liabilities for its long-term care insurance business.

By freezing the U.S. pensions, pre-paying about $4.5 billion in contributions due in 2021 and 2022 and offering lump sums to about 100,000 retirees, GE said it expects to cut pension underfunding by $5 billion to $8 billion.

William Blair & Co. analyst Nicholas Heymann said there was no immediate net reduction in GE’s pension liabilities given the 90 basis-point decline in long-term interest rates since the end of last year, which has caused its pension liabilities to creep up to about $34 billion from $27 billion toward the end of 2018.

“The impact is being offset now, rather being reduced. So it is possible that investors are not cheering,” Heymann told Reuters. He added, though, that Culp “is setting up (GE for) much better performance next year.”

GE's shares were up 0.05 percent to $8.57 in morning trading, after rising 2.6% to $8.79 in premarket trading.

The pension freeze takes effect Jan. 1, 2021.

The moves also are expected to help lower GE’s $54.4 billion industrial net debt by $4 billion to $6 billion, it said.

The Boston-based company said there would be no change for retirees already collecting pension benefits.

“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,” GE Chief Human Resources Officer Kevin Cox said in a press release.

GE’s pension plan has been closed to new entrants since 2012. The company had about 283,000 employees at the end of 2018, about 97,000 of them in the United States.

GE expects to record a non-cash pension settlement charge in the fourth quarter, but did not specify the amount.

The company said it will also pre-fund about $4 billion to $5 billion of its requirements for 2021 and 2022 under the Employee Retirement Income Security Act by using a portion of the $38 billion in cash it is collecting from the sale of various businesses.

GE said it was on track to hit its target of less than 2.5 times net-debt-to-earnings before interest, tax, depreciation and amortization, or EBITDA, by the end of 2020.
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It's a shame to see a bellweather American company stumbling.
Same for Kodak and others who strayed from core competencies or didn't adapt to changing markets
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I read that article and was very concerned then got to the part where it said existing retirees won't be affected. Good to know my piddly monthly check is safe -- for now.

GE would have been good to me but they sold off GE Computer Service and I left shortly thereafter. I only worked there for 3 or 4 years I was only putting in the maximum matching in my 401k. Years later it was about 40k. After 9/11 it was 30k, After a divorce it was gone except for the memories of the tax consequences. Then I recently get a letter sent to my old address which is a paid for house my ex owns from GE asking what I wanted to do about my retirement check. That's nice I didn't even realize I was going to get one. Beer money for life -- I'm good with that.

“And meanwhile what do we eat?' she asked, and seized the colonel by the collar
of his flannel night shirt. She shook him hard.

It had taken the colonel seventy-five years - the seventy-five years of his life,
minute by minute - to reach this moment. He felt pure, explicit, invincible at the moment
when he replied: '****'.
Same for Kodak and others who strayed from core competencies or didn't adapt to changing markets
Funny you should mentioned Kodak. I worked for GE Computer Service for a few years then they sold that money burner off to IBM who started a joint venture with Kodak and called it TSS. I worked for them for a short while then left for greener pastures. Still looking by the way.
IBM is another like Kodak and GE who failed to grasp the current market - they HAD the PC market and blew it totally; they HAD the main frame market and blew it totally, they had tech services and blew it, and they recently bought loser companies whose time had come and gone.
My wife worked for GE Financial for over 15 years before they shut it down.
They say will not affect retirees, but then also said will be offering a one time cash out offer.
My wife still has about 10 years till she collects. I hope it does not evaporate.
This is not a welfare check, this is money people have worked hard for and contributed to.
Take the cashout, invest it for the next ten years properly, and you'll be $$$$$$ ahead. My former employer merged and then got bought out again. They gave me a choice, I took the cash, turned it over to my financial guy and it has done more in the last 8 years than I would have gotten over the life term of the pension - and that's assuming I would have lived long enough to collect it all
Same for Kodak and others who strayed from core competencies or didn't adapt to changing markets

Kodak invented a device called the Baker sensor ( Not 100% sure on the name ) this device was the precursor of the electronic camera, at the time, the board of directors of Kodak did not wanted to expand on the invention, becausae it had the potential of killing the photo film industry. Big mistake! other companies, such as Cannon, Nikon, Sony, etc, saw the potential and developed the Baker sensor to the level that it is today. End result, the photo film industry is dead! Electronic format is king.
Kodak could have been at the forefront of the electronic camera business, but, its board of director choose not to adapt with the time and now Kodak is a has been company.
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