General Electric announced plans Monday to cut debt and reduce its pension deficit by up to $8 billion by freezing the pension plans of roughly 20,000 U.S. employees with salaried benefits.
Since stepping in as CEO last year, Lawrence Culp has worked to raise cash and eliminate debt; GE had total borrowings of about $105.8 billion as of June 30, with industrial net debt at $54.4 billion, Reuters reported.
The company will also freeze supplementary pension benefits of about 700 of its U.S. employees who became executives before 2011. The plan has been closed to new enrollees since 2012. The freeze is expected to lower net debt between $5 billion and $8 billion.
GE said retirees already collecting pension benefits will not be impacted by the plan. “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,” Chief Human Resources Officer Kevin Cox said in the company's release.
The plan is three-pronged:
- Pension plan freeze. First, it will freeze the plans of 20,000 employees with salaried benefits and supplementary pension benefits for 700 employees, all U.S.-based.
- Pre-fund ERISA. Second, it will be pre-funding approximately $4-5 billion of “estimated minimum ERISA funding requirements for 2021 and 2022.”
- Lump-sum option. Third, it will offer a limited-time lump-sum payment option to about 100,000 eligible former employees who have not started their monthly U.S. GE pension plan payments.
The effort, led by Culp, intends to revitalize GE following a steep decline in its power-equipment business, as well as to address cash flow concerns and mounting debt, Business Insider said.
According to the Pension Rights Center, as long as the benefits employees have already earned are protected, GE is free to “change, freeze or eliminate altogether” the pension benefits it offers.
GE CFO Jamie Miller, who in July announced plans to step down, is assisting Culp until a new CFO is named.
The company has had a rocky few years. Among other things, they've weathered a whistleblower complaint that charged them with misallocating $38 billion in funds, although GE has denied the charges.