GM may suffer future sales backlash from thousands of retirees
GM retirees have been loyal GM fans, often purchasing more than one car, not to mention convincing others in their family and friend networks to buy as well. Like the GM reitrement plan, though, those days may be over.
Call it what you will, but in recent emails both the General Motors Retiree Association (GMRA) and the National Retiree Legislative Network (NRLN) consider the ending of the GM retirement fund a definite breach in loyalty. No doubt it is a throwing under the bus; and if GM can do this to its own, then imagine what might happen to customers over time.
For sure, it’s not a great image message for GM. You might even justify the move by General Motors Company (NYSE: GM) as financially prudent. Nonetheless, this financial reengineering has still soured the attitudes of a majority of GM retirees who have been sending emails to the retiree organizations in a grass roots effort to even protest before the government. Reason is, this kind of financial re-engineering will also create more pension risks to the remaining pension plans by eliminating PBGC protections. It will also significantly reduce PBGC premium contributions from companies.
Fact is, Ford offered lump sum buyouts as well. However, Ford did not take the low road by palming the entire pension plan into an annuity-based entity like Prudential. Even Chrysler has stated that it has no intention of ending its pension plan for salaried retirees.
Of course, Prudential is not complaining, as they are being paid handsomely to take over. Perhaps that is why the monthly benefit is not easily matched by other life insurance companies, including Oxford Life and Security Benefits Corporation which sell indexed annuities with bonus growth and legacy preservation options. Problem is, while you wait a year or two to grow the amount toward an equivalent income, what are retirees supposed to draw from in the meantime? The only choice is savings or IRA; and that's supposed to supplement for the remainder of life.
Be apprised, only a life insurance company can guarantee an income in an annuity form; in this case, Prudential is a group annuity. However, many outside advisors like Mainstay Capital are chomping at the bit to get a hold of all those lump sum dollars to create bond ladders and portfolio mixes in an attempt to preserve legacy funds as well as growth.
According to the NRLN and the GMRA, General Motors is going to give Prudential $3.5 to $4.5 billion to replace its salaried retirees' pension plan with an annuity that will provide steady income, but not provide salaried retirees with the financial protection of ERISA and the PBGC if Prudential went belly up. For the record, on a solvency rating, Oxford Life and Security benefits are higher on the security chain, according to the Standard Analytical Service 2012 report.