GM’s $26 Billion Pension Risk Transfer To Pru Sets Record

U.S. automaker General Motors' plan to reduce pension obligations by about $26 billion in a pension close-out deal with Prudential Insurance Company of America represents the largest pension risk-transfer transaction worldwide to date, according to an executive with Prudential Financial Inc.'s retirement business.

Under terms of the agreement, Prudential will take on some of GM's salaried retiree benefit obligations in the United States. When the deal closes, expected by the end of 2012, GM would buy a group annuity contract from Prudential, which would then be responsible for paying benefits to a portion of the automaker's salaried retirees. The agreement covers white-collar GM employees who retired before December 2011.

This transaction is "designed to enable GM to completely remove this pension liability from their balance sheet," said Dylan Tyson, head of pension risk transfer solutions for Prudential Retirement.

The automaker has about 118,000 retirees, 42,000 of whom are being offered a lump sum. Of the retirees who aren't offered or don't want the lump sum, that remaining pension risk is being transferred to Prudential,Tyson said. In exchange for a premium paid by GM of about $2.6 billion, Prudential will take on all of the investment and actuarial risks, as well as administering the benefits, covered under this transaction,Tyson said.

- Fran Matso Lysiak