GE pension freeze – what did your government have to do with it?

With a Defined Benefit plan that is over 100% funded why did General Electric (GE) announce that it was:

Freezing the U.S. GE Pension Plan for approximately 20,000 employees with salaried benefits, and U.S. Supplementary Pension benefits for approximately 700 employees.

Pre-funding approximately $4-5 billion of estimated minimum ERISA funding requirements for 2021 and 2022.

Offering a limited time lump-sum payment option to ~100,000 eligible former employees who have not started their monthly U.S. GE Pension Plan payments?

But why? Could this be it?

With 422,409 participants as of 12/31/18 the premium GE has to pay to the Pension Benefit Guaranty Corporation (PBGC) in the next week will likely be $262,315,989. Even a plan that is overfunded for valuation purposes is considered underfunded in the view of the PBGC which requires the use of much lower segment rates to determine the liabilities upon which the premiums they get are calculated.

Source: Burypensions blog

Offering a lump sum to 100,000 means GE doesn’t have to pay the PBGC premium for those who take the lump sum.

So, we have a federal law and government regulations supposedly to protect workers pensions that is applied to penalize a company that tries to do the right thing by fully funding its pension plan and results in penalizing the workers who were to be protected.


  1. Interest rates and PBGC premiums did play a role. However, the pension was only funded at 76% of PBO – meaning they only had 76% of the money needed to pay already accrued benefits. They froze the accruals not only so that there would be no increase in participation service (from future service), but also to avoid indexing already accrued benefits for future pay increases.

    The plan has been around for decades. There was no reason to underfund the plan every year after 2008, however, prior to the PPA2006, Congress was more interested in limiting tax deductions than in ensuring fully funded plans.

    Finally, while hyper complex, GE could have maintained the plan while limiting their contributions by making the pension contributory. I wish more had considered this alternative – instead of freezes, terminations and conversion to career average/cash balance formulas.
    Lot’s of blame to go around.


  2. How long will we live? Insurance companies, pension program developers and the Social Security administrators spend a lot of time and research on this question.

    For the individual there are “longevity calculators” available, some crude, some fairly thorough, which can provide a fairly good estimate.


  3. With interest rates at near zero and both corporate and personal debt levels at record highs where will the market gains in the future come from ?


  4. So, what is the best way to determine which option to take? Lump sum or pension. Not everyone is in the same situation, but there must be some general guidelines to help decide.


    1. I’m afraid you said it. Not everyone is in the same situation. Keep in mind the lower interest rates are, the higher the lump sum should be. My opinion is that a big factor is age. The younger you are the more desirable taking the lump sum assuming it’s used to invest and grow. If you are near retirement the idea of a steady income may be more attractive. Can a person effectively manage a large lump sum of cash? Which is better for any survivors, the balance of a lump sum or the promise of a survivor annuity from a pension? I know people who took lump sums and knew it all in a matter of months.


  5. Not to be morbid, but when I was young, I remember people retiring and dying within 5 years of retiring. Talk about unintended consequences of longer living. People are out living their savings and their pension plans ability to be funded for the new life expectancy.

    I also wonder if the deregulation of the banks in the 1980’s that brought us very low savings interest rates also had an impact on retirement. I wonder if whatever benefits that the deregulation had out weighs more benefits than harm it seems to have caused. I am thinking about affluenza pushed by Madison Ave onto consumers and the housing bubble, besides the low savings rates.


  6. Corporate pension plans are in trouble because of the prolonged historic low interest rates which don’t appear to be rising anytime soon. See link

    My company had both a company funded pension plan and an optional 401k with company matching funds. I took advantage of both while I was working. And when I retired a decade ago, I took the optional cash lump sum which has now grown to almost twice as much.


      1. Thank God, I was able to comfortably retire early [age 55] and my nest egg continues to grow without depending on the stock market. Back in the 90s many years before I retired, one time I did put a couple of thousand in a mutual fund. When everyone else seemed to be making money, for over a year my investment continued to decrease in value. When I lost a fourth of my investment, I pulled the rest of my money out vowing never to put my money at risk again. For me that was a very valuable lesson. I retired early in 2007. Imagine if my nest egg had been at risk when the stock market crashed the very next year [2008]! God works in mysterious ways !


      2. Mik !

        I was about to post the very same thing !

        Older people may not have the time to recoup losses.

        With all the weirdness happening today and the stock market at all time highs, IF I were invested in the stock market, I would be very tempted to cash out.


    1. Low interest rates will increase the paper calculated liability, but the rates rise, the liability goes down. The real issue is finding and volatility of investment returns. In the case of many state plans it’s simply a matter of not funding as called for.


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