By Deepa Seetharaman
DETROIT (Reuters) - General Motors Co
The largest U.S. automaker will offer lump-sum payments to about 42,000 retirees and their surviving beneficiaries. They will have until July 20 to make a decision.
GM will also buy a group annuity contract from Prudential, which will now pay and manage future benefit payments to GM's remaining white-collar retirees and those who elect not to take the lump sum payment.
The two moves will cut $26 billion from GM's U.S. pension obligation and affect 118,000 of its U.S. retirees. GM's obligation of nearly $109 billion is a major concern for its investors and is one of a handful of issues left untouched during the Obama administration's bailout of GM in 2009.
"We feel it's important to both mitigate the future growth of these obligations as we've been doing to date and in the case of today's actions actually reduce the obligation," Chief Financial Officer Dan Ammann said during a conference call.
The changes relieve GM of the responsibility of managing pensions for those retirees. There is no change to the pension plans that GM offers its hourly workers represented by the United Auto Workers.
The pension changes do not affect white-collar retirees' eligibility for post-retirement health care, life insurance and a vehicle discount.
Both transactions are expected to be completed at the end of this year. GM said it will pay between $3.5 billion and $4.5 billion in cash to fund the purchase of the group annuity contract and improve the funded status of the pension plan for active salaried employees.
"The company's overall financial flexibility is enhanced as we will be less exposed to the funding volatility and calls on cash we've experienced in the past, which in turn will improve our flexibility to deploy cash for alternate uses," Ammann said.
A growing concern for decades as U.S. automakers lost market share to foreign-based automakers in their home country, pension costs became an albatross for the U.S. industry with the sector's downturn five years ago.
(Reporting By Deepa Seetharaman. Editing by Bernadette Baum and Carol Bishopric)