US carmaker General Motors is to reduce its pension scheme for salaried employees and move toward a defined contribution retirement plan.
While the current defined-benefit plan guarantees the employee a monthly payout upon retirement, the new defined-contribution pension is funded by contributions from the employee and employer until the pension holder’s retirement.
GM says that the change will save it around $420 million on a pretax basis in 2007, and reduce its pension liability by approximately $1.6 billion. The company will also take a $120 million pretax charge related to the reduced pension liability.
The change is a part of series of cost cutting measures introduced by the troubled auto giant with the aim of returning it to profitability in the tough US marketplace.
Late last year, it reached a tentative agreement with the United Auto Workers Union to significantly reduce its hourly retiree healthcare costs. GM also announced plans to reduce its North American manufacturing capacity, and eliminate 30,000 hourly jobs by 2008.