(STL.News) – Expects to reduce GE’s pension deficit by approximately $5-8 billion
Multiple changes represent sizable step in Company’s deleveraging plan.
Expected to reduce GE’s pension deficit by approximately $5-8 billion and net debt by approximately $4-6 billion*; in total, along with $5 billion debt tender, GE has announced approximately $9-11 billion in net debt reduction actions in last month.
GE’s pension plan has been closed to new entrants since 2012; today’s actions more closely aligns GE benefits with current industry standards and competitive market practices.
October 7, 2019, Boston – GE (NYSE:GE) announced today that it is taking three actions related to its U.S. retirement benefits as part of its strategic priority to improve its financial position:
1. Freezing the U.S. GE Pension Plan for approximately 20,000 employees with salaried benefits, and U.S. Supplementary Pension benefits for approximately 700 employees.
2. Pre-funding approximately $4-5 billion of estimated minimum ERISA funding requirements for 2021 and 2022.
3. Offering a limited time lump-sum payment option to ~100,000 eligible former employees who have not started their monthly U.S. GE Pension Plan payments
In total, the actions announced today are expected to reduce GE’s pension deficit by approximately $5-8 billion and Industrial net debt by approximately $4-6 billion*. The Company is on track in its deleveraging plan and continues to expect to make significant progress toward its leverage goal of <2.5X Net Debt to EBITDA by the end of 2020, inclusive of the impact of the current interest rate environment. GE will continue to evaluate further options to reduce leverage and strengthen its balance sheet.
1. U.S. GE Pension Plan & Supplementary Pension Freeze:
GE will freeze the U.S. GE Pension Plan for approximately 20,000 employees with salaried benefits, and U.S. Supplementary Pension benefits for approximately 700 employees who became executives before 2011, effective January 1, 2021. There is no change for GE retirees already collecting pension benefits or employees with production benefits. GE will record a non-cash, pre-tax curtailment charge in the fourth quarter of 2019. GE’s pension plan has been closed to new entrants since January 1, 2012.
Kevin Cox, chief human resources officer at GE said, “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. We carefully weighed market trends and our strategic priority to improve our financial position with the impact to our employees. We are committed to helping our employees through this transition.”
2. Voluntary Pre-Funding Contribution
GE also announced that it plans to use a portion of the $38 billion cash sources it has identified or collected from its BioPharma, BHGE, and Wabtec transactions to pre-fund approximately $4-5 billion of its estimated minimum ERISA funding requirements for 2021 and 2022.
3. Limited-Time U.S. GE Pension Plan Lump Sum Payment Option:
GE is offering approximately 100,000 eligible former employees who have not started their monthly payments under the U.S. GE Pension Plan a limited-time option to receive their benefit in a lump sum. Notices will be provided to eligible participants, and those who elect to receive a lump sum should expect to receive it in December 2019.
Company funds will not be used to make the lump sum distributions. All distributions will be made from existing pension plan assets in the GE Pension Trust. The company does not expect the plan’s funded status to decrease as a result of this offer. At year-end 2018, the plan’s funded ratio was 80 percent (GAAP). After distribution of the lump sum amounts, the company expects to record a non-cash pension settlement charge in the fourth quarter of 2019, which will be determined based on the rate of acceptance.