GM Ditching Pension Plans for 401(k) Contributions

General Motors is getting rid of its annual pension contribution system for its employees. In its place, future retirement contribution will be made into a 401(k) plan, the Wall Street Journal is reporting.

As part of the plan, salaried GM workers will also not be given a raise this year, but will get an additional week of vacation, the report says.

Overall, the change will effect nearly 75 percent of the company's 26,000 salaried workforce.

The Wentzville plant currently employs about 1,400 people and by the time the new General Motors facility opens in 2014, that figure could rise to as many as 3,000.

How many of the current Wentzville workers are on salary is not known.

The pension change go into effect in October and will only apply to workers hired before 2001. Around 7,000 workers hired after 2001, the Wall Street Journal reports, already receive retirement contributions though a 401(k) plan.

“They are going to keep all of their pension benefits that they already earned,” GM Vice President of Global Human Resources Cindy Brinkley told Bloomberg. “In October, GM will start making new contributions into the retirement-savings plan.”

According to the Detroit Free Press, Brinkley declined to disclose the size of bonuses or the amount by which pension benefits would change.

From the report: 

Globally, GM's pension obligations in its plans topped $128 billion at the end of 2010. The plans are underfunded by more than $22 billion, according to the automaker's annual securities filing with U.S. regulators.

Last week, Larry Tucker, Wentzville's manager of marketing and business development, said if all goes to plan, GM should open the new Chevrolet Colorado plant in August 2014.

According to the New York Post, the pension changes comes as GM prepares to announce a record profit of around $8 billion for last year. The company, the report says, is looking for ways to reduce its pension obligations and overall costs, while improving quality and productivity throughout the company.

According to HSH.com, a mortgage and consumer loan information providor, a key difference between a traditional pension plan and a 401(k) plan is that traditional pension plans are completely paid for by the employer and employees do not participate in the investment decisions of the plan. A typical 401(k) plan is mostly paid for by the employee and the plan is self-directed.