US - General Motors (GM) has frozen its DB scheme in a move that will cut the auto giant's pension deficit by US$1.6bn and reduce taxes by $420m in 2007 alone.
As part of the move, GM said all employees hired before 1 January 2001, would stop accruing future benefits as of next year and receive future benefit based on 1.25% of average monthly base salary.
Workers hired on or after that date would be moved to a 401(k) plan of 4% of annual base salary, said GM chairman and chief executive officer Rick Wagoner (pictured).
These changes will reduce financial risks and future costs for GM, while protecting current retirees' and employees' earned pension benefits and providing competitive and fair retirement benefits going forward, he said.
Company executives’ pensions would also be slashed by up to 50%, with the quarterly dividend reduced by 50%.
Wagoner said the changes were necessary if the company, which reported losses of $8.55bn last planned to remain competitive.
Many competitors based outside the US did not have comparable legacy costs, because retirement benefits for employees and retirees in their home countries were more heavily government funded, he said.
“Our legacy costs in pensions and health care are an area of significant competitive disadvantage for us. These changes we are announcing today... will continue to provide our employees with a good benefit package today, while reducing GM's financial risk and cost structure.
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