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The Challenge of Transferring Pension Risk

General Motors Alfred Kibe, one of the executives on the 2012 30 Under 40 List, talks about GM's groundbreaking transaction.

By Dave Lindorff | Updated on December 07, 2012
Alfred Kibe, director of capital planning and pensions funding in the treasury Department of General Motors, says he is driven by the idea of challenge. It certainly had to be challenging for this Kenyan native, who earned a degree in electrical engineering at the University of Nairobi, to switch specialties and cross the globe to go for an M.B.A. in finance at the University of Pennsylvania’s Wharton School of Business. Kibe says General Motors gave him even more opportunities to challenge himself as the company’s program of rotating people in and out of positions had him managing bank relations, business development, auto finance and most recently capital planning and pension funding.

It was this latest assignment, Kibe says, that has been his greatest challenge. He recently led the negotiations to transfer some $26 billion in GM pension obligations to salaried employees into a lump sum and annuitization transaction with Prudential Insurance. The deal, completed on Nov. 1, is the largest such pension risk transfer on record and represents a huge reduction in pension liability risk for the world’s biggest automaker.

Alfred Kibe of GMWhat was it GM did with the pension risk transfer? We have a company that has about $130 billion in pension obligations, so any movement in interest rates generates enormous risk to our liabilities that can then flow through to the company’s P&L. The challenge was to reduce that risk in a way that works first for the retirees and second for the company. We had to leave the retirees in at least as good a position as before the change. The cost to GM was $2.6 billion on a cash basis, though after factoring in certain administrative savings, the net cost was $2.1 billion.

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