The Challenge of Transferring Pension Risk

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.

What 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.