DETROIT — (WWJ) General Motors is freezing its traditional pension plan for salaried workers, and moving them more toward a 401k style “defined contribution” plan.
“We believe this is going to make us more competitive in every aspect of our business,” said Cindy Brinkley, GM’s vice president of Global Human Resources.
Workers who had been hired after 2001 had been on this defined contribution plan, but those hired before that time had remained on the more traditional defined benefit plan, which sends them a monthly pension check after retirement.
That will change this fall.
“We’re moving them to that defined contribution plan for their future service,” said Brinkley. “Pension benefits that were earned under the previous plan will stop accruing after September 30th. October 1st is when the employees will move into this new plan.”
Brinkley said that pension benefits earned before the transition would be paid as promised. This change, she said, only effects benefits earned after October 1, 2012.
This also does not affect GM manufacturing employees, who work under a defined benefit plan as outlined by the company’s contract with the UAW.
The high costs of traditional pension plans have prompted many companies to move to defined contribution plans, where workers contribute money to an account, and employers add matching funds. The account is then used to pay the workers during their retirement.
The advantage to workers is that the account becomes their property, even if they leave the company. The disadvantage is that once the account runs out of money, there are no payments.
“They will have control over their pension, and their finances,” said Brinkley.
This change will affect about 19 thousand workers, or 70 percent of GM’s salaried work force in North America.
General Motors also telling workers today that there will be no across-the-board pay raises. Instead, extra compensation will come in the form of bonuses. Those bonuses will be announced when GM announces its 2011 earnings Thursday morning.
Some “top performers” and “those with the most critical skills” will see pay increases, GM said.
Salaried workers will get five more vacation days each year. In the past, they were able to purchase those extra days. Brinkley says in addition to helping workers with work-life balance, this ends something that had been an accounting problem for the company.
Brinkley said GM compared other companies compensation plans as it worked out the changes, and the goal was not to cut compensation overall, but to link that compensation to performance.
“This is just another in a long line of trying to be more competitive with our pay and benefits that we’re trying to provide to our employees.”
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