GM’s cost-cutting program took another step Tuesday, as the company announced changes that will affect the retirement
benefits for 42,000 salaried employees.
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.