# GM Pension Buyout



## sags (May 15, 2010)

An interesting story........GM is interested in buying out current retiree pensions. I don't recall that having been done before. If successful, it may start a trend.

http://www.detroitnews.com/article/20120112/AUTO01/201120408

I suppose the big advantage to GM is to use some of the cash they have on their balance sheets to reduce future pension liabilities, which would in turn make their balance sheet projections more attractive and push up the share value.

I am not sure what the benefit would be to retirees, if the only option available is to direct the money into an annuity or other financial instrument.

If the money was offered as cash, with a lower level of taxation, I could understand that some pensioners may have an interest. 

They could use the capital to reduce monthly expenses, by paying off a mortgage, purchasing a home, or paying off a car debt etc.

It may also be beneficial to a family with little cash, but multiple pension plan sources of income to transfer one pension into cash.

It will be interesting to see how this goes.........and if it spreads to Canada which have their own set of pension rules.


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## Daniel A. (Mar 20, 2011)

This was well covered in the book Retirement Heist

This is just a carrot and and the majority of workers will take it as they don't understand what they are giving up.

There is not much in it for the employee but a major advantage to companies.
First the company shifts the longevity risk to the employee.
Second the payout is is far less than the real value.
GM has allowed it's white collar workers for some time now to take a lump sum buyout.
Big US companies use their own mortality assumptions when deciding how much money to contribute to pension plans.

There are rules in the USA called anti-cutback rules and depending on how the plan is presented by benefit consultants employers avoid the law.

So the first question for any employee would be insisting on real information to compare apples to apples.
What is the real value of the pension if left as is ?
How much is being offered ?
Early retirement benefits lost ?

In the US tax system companies can report pension plan savings as income gains on paper.
This looks great for the top brass so they collect their big bonuses and reads as profit for stockholders.


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## MoneyGal (Apr 24, 2009)

The U.S. situation is not that comparable to the situation in Canada but just look at the number of people here who say, "I wish my DB pension dollars weren't locked in" or "I think I'm going to take the lump sum instead of a pension [because an investment advisor told me to / because I think I can do better investing on my own / insert other reason here]."

It's hard to blame companies for doing something that (some) people consistently say they want. (I'm playing devil's advocate here, btw!)


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## Eclectic12 (Oct 20, 2010)

MoneyGal said:


> The U.S. situation is not that comparable to the situation in Canada but just look at the number of people here who say, "I wish my DB pension dollars weren't locked in" or "I think I'm going to take the lump sum instead of a pension [because an investment advisor told me to / because I think I can do better investing on my own / insert other reason here]."
> 
> It's hard to blame companies for doing something that (some) people consistently say they want. (I'm playing devil's advocate here, btw!)


The version I kept hearing just before and during an offer to convert from DB to DC pension was "the Pension Adjustment (PA) reduced RRSP contribution room is too small and gives up too much for too little benefit. I'm leaving the DB pension at the first chance to re-gain the full RRSP amount is the way to go".

Describing the differences didn't make an impression but the two who actually ran calculations concluded it was a "no brainer" to stay in the DB plan.


Cheers


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## RedRose (Aug 2, 2011)

DB's are fine if they stand up to what they are supposed to be.

The risk is, if they don't. Then, it is all on paper as previously mentioned.

That old saying comes to mind, " A bird in hand, better than two in the bush."

I am too niave to manage the 'bird in hand.' And would prefer the 'two in the bush' all neatly promised.


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## fraser (May 15, 2010)

My employer tried to buy out my DB pension in 1999. The carrot was a lump sum amount (to be transferred in to a locked in account), migration to a 'more flexible' DC program, and the promise of a 'probable' PAR that would give me a one time extra RRSP room (this actually did not work out to be as much as indicated for most people). I did not like the offer for a number of reasons. I stayed in the DB while most selected the DC program. Looking back, it was one of the best financial decision that I have made (dumb luck). DB pension is well funded. The company has made very substantial additional payments to keep it up to date. 

I do not think that I would have done as well managing the money in a DC given market performance, I did not have the worry of managing the money, and I kept an important 'leg' in my retirement plan. Now that I have retired (but not yet taking the pension) the company is still offering a lump sum in lieu of a pension. I have passed on this if no other reason that only approximately 60 percent can be rolled over, the balance would be taxable in my hands today.


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## carverman (Nov 8, 2010)

fraser said:


> My employer tried to buy out my DB pension in 1999. T
> I do not think that I would have done as well managing the money in a DC given market performance, I did not have the worry of managing the money, and I kept an important 'leg' in my retirement plan. Now that I have retired (but not yet taking the pension) the company is still offering a lump sum in lieu of a pension. I have passed on this if no other reason that only approximately 60 percent can be rolled over, the balance would be taxable in my hands today.


I was offered a similar deal in 1998 by Nortel, when they were still "flying high".

I decided to pass up on the option, since the company's contribution to the DC would have been through their stock...
which by 10 years later (2008) becameworthless pieces of paper... just before they went bankrupt!

Although my DB pension plan is seriously underfunded now (30%) and in the windup process, I do not believe for a moment that I would have been better off going over to my employer's DC plan (at the time when it was first offered) in light of what happened. Had I continued on my own from 1998, I could have been in more jeopardy now, because the Nortel stock is worthless, and the company is defunct.

You cannot predict the future and what can happen. 
If you take on the risk of managing your own pension, you mMAY enjoy a better pension due to the investment climate..or you can lose out as well. 
In today's investment climate..unless you invest in gold buyers..you are not going to do as well on your own as with large DB company pension fund that is well RUN, because your personal fund does not have the huge volume available to
make decisions on better returns.

So either way you take on future risk..but at least with a DB... (with the exception of the employer going bankrupt..and GM/Chrysler were.... until the provincial and federal gov't bailed them out), you don't have to worry and lose sleep at night thinking about your pension investments.


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