GM plans to reduce pensions for the affected employees and shift to a defined contribution plan (aka a 401(k) plan). The changes will cut GM's 2006 pension liability by about $1.6 billion but trigger a pre-tax charge of about $120 million. In 2007, savings in pension expenses should amount to about $420 million.
The change brings GM into line with the current practice of U.S. companies to abandon pension plans in favor of 401(k) plans, which shift fund management risk to employees.
Investors seem to like GM's recent moves, rewarding the company with a 6 percent share hike over the last two days.