GM Announces Termination of Pension Plan While this item concerns an employee benefits matter, we thought the development important enough to share with our income tax clients. The tax qualification work done by Ivins, Phillips & Barker was key in making the GM termination cost-effective. Please feel free to pass this on to your colleagues who deal in pension matters. * * * Below is a link to Friday’s press release about GM’s termination of its pension plan. Ford made a similar announcement a month ago. This is a hugely important event, and we expect a lot of companies to follow suit in the future. Ivins, Phillips & Barker advised GM on the necessary tax qualification aspects of the deal, which were key to making it financially feasible. Here’s why. In both cases, the termination is made financially feasible only by offering lump sums to retirees in pay status, to cash-out their annual pension benefits otherwise payable for life. A cash-out out of lifetime payments shrinks the commercial annuity that must be purchased in order to be allowed to terminate the plan. Cost savings are on the order of 20%. Until now, the IRS has said its regulations prohibit offering cash-outs to retirees in pay status. Ivins, Phillips & Barker got all parties to the necessary comfort level for GM to offer mid-stream cash-outs. (Ford Motors is doing the same thing, advised by a different law firm.) This is a very significant development for employers trying to shed their pension plan risk. We would be happy to discuss this further with any interested clients.
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