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GE Will Freeze 20,000 Worker Pensions In Effort To Cut Deficit By $8 Billion

The General Electric logo appears above a trading post on the floor of the New York Stock Exchange. (Richard Drew/AP)
The General Electric logo appears above a trading post on the floor of the New York Stock Exchange. (Richard Drew/AP)

General Electric is freezing the pension plans for about 20,000 of its workers and offering pension buyouts to another 100,000 former employees as it attempts to slash debt.

The freeze, which takes effect January 1, 2021, means that current, non-union employees covered by the pension plan will receive smaller monthly payments when they reach the plan's retirement age of 65. The company stopped allowing new employees to enter the pension plan in 2012.

In a statement issued Monday, Boston-based GE said that its actions would trim its pension deficit by about $5 billion to $8 billion, and reduce its overall debt by about $4 billion to $6 billion.

The industrial conglomerate has been selling off assets and streamlining its operations amid sagging profits and other negative developments in recent years, and clearing debt has become a priority for CEO Larry Culp.

The move to freeze pensions comes in a tough year for the company. In February 2019, GE scaled back plans for its new headquarters and promised to return $87 million in state incentives it received as an enticement to move to Boston in 2016. In August, the company's finances received additional scrutiny after Harry Markopolos, the whistleblower in the Bernard Madoff fraud, released a report alleging that GE was covering up its financial troubles. GE called the report "meritless."

In freezing its pension plan, GE is part of a years-long trend among large corporations. Since the 1970's, most big companies have frozen or terminated their pension plans, said Olivia Mitchell, executive director of the Pension Research Council at Wharton Business School.

“What is a surprise is that GE has managed to keep the defined benefit plan open for so long,” she said. “In the wake of the financial crisis and the very low interest rates we’re experiencing right now, firms have said, ‘Wait a minute, this is too risky for us to manage, and so we would rather know exactly what we're going to contribute, set up 401k plans, put the money in, and then it's not our problem anymore.’”

For about 100,000 former GE employees who are waiting for their pensions to kick in, the company is offering the option of a lump sum payment instead of receiving monthly payments for the rest for their life. According to GE, those who elect to receive a lump sum should expect to receive it in December 2019.

“It's rarely, rarely, rarely in the employee's interest to take that option,” Alicia Munnell, director of the Center for Retirement Research at Boston College.

There may be circumstances in which taking a lump sum payment instead pension payments makes sense for an individual. In general, however, “the employee simply cannot duplicate the type of income that a defined benefit plan can produce,” whether it be through investments or a purchased annuity.

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Adrian Ma Twitter Reporter
Adrian Ma is a reporter for WBUR's Bostonomix team.

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