GM's pension move is a lemon
Last week, General Motors announced that it will offer 42,000 of its salaried retirees the opportunity to take their lifetime monthly pension benefits as a one-time lump-sum payment. Retirees who don’t take the lump-sum offer will receive an annuity equivalent to their pensions from Prudential.
While a lump sum might look like a lot of money, it’s not always the best choice. Also, an annuity paid by an insurance company might be less secure than a pension. GM’s announcement leaves retirees with a difficult decision to make. How do you decide? Our new and improved fact sheet, Deciding Between a Lump Sum and an Annuity, might help. GM retirees have until July 20 to make their decision.
GM claims that this move will enable its retirees to “have more flexibility to manage their retirement funds,” but in reality, GM is sacrificing the retirement security of thousands of retirees in order to boost the company’s bottom line. The company makes no secret of the fact that removing the pension obligations from its balance sheet will make it more attractive to investors.
Retirees who take the lump sum will have to figure out how to make the money last in retirement on their own – not an easy task. Retirees who end up with an annuity from Prudential will no longer be protected by the Pension Benefit Guaranty Corporation, which insures pensions up to specified limits when underfunded plans terminate. Instead, their private annuities will be backed by State Guaranty Assoications, which provide more limited protections when insurance companies fail.
For a more in-depth explanation of GM’s offer, check out this FAQ that the company has provided to its retirees.
GM workers, retirees, and their families can contact the Mid-America Pension Rights Project (toll-free: 866-735-7737) in Lansing, MI, if they need help understanding their legal rights when it comes to their pension. You can find a complete list of pension counseling projects here.
On a related note, Ford has announced that it will also make lump-sum offers to 98,000 of its salaried retirees and former employees. Unlike GM, however, it appears that the Ford pension plan will continue for those retirees who don’t take a lump sum. We are concerned that using pension money for millions in lump-sum payments will hurt the plan’s funding level. Further details about Ford’s proposal are unknown as the company won’t start making lump-sum offers until later this year.
Looking for help with your retirement plan?
If you have a problem with your retirement plan, free help may be available from the U.S. Administration on Aging's network of Pension Counseling and Information Projects. Find help now.
PensionHelp America connects people who need help with their pension, 401(k), and other retirement plans with the pension counseling projects, legal services providers, and government agencies that can help answer their questions. Visit www.pensionhelp.org.
Retirement USA is a national initiative that is working for a new retirement system that, along with Social Security, will provide universal, secure, and adequate income for future retirees. Visit the website.
Did You Know?
A pension plan is a retirement plan that is sponsored by an employer for the purpose of providing retirement income to employees. The most common type of pension plans is a defined benefit plan. Most defined benefit plans provide retirees with guaranteed lifetime payments.