US conglomerate General Electric (GE) is planning to freeze the pension benefits of more than 20,000 of its employees as part of its efforts to reduce its pension deficit and its staggering debt.
The company made the announcement on Monday, revealing its new strategy to bring its business back up after suffering losses in its power-equipment business.
According to a statement released this week, GE expects that it should be able to reduce its pension deficit by around $5 billion to $8 billion through the freezing of pension benefits. This, in turn, would reduce its standing debt by around $4 billion to $6 billion.
GE's Chief Human Resources Officer Kevin Cox mentioned in the statement that the decision to freeze the pension of the company's employees was a very difficult one to make. However, the measure is apparently necessary to ensure that the company can get back on its feet and return to its "position of strength."
Apart from the freezing of the pension benefits of 20,000 of its employees, the company also plans to freeze US supplementary pension benefits of around 700 of its employees.
Former employees who haven't yet received their pensions will reportedly be offering an option to receive a lump-sum payment. The offer will be time-limited and around 100,000 eligible employees have to make a decision before the offer's deadline.
GE also announced that it is preparing a fund of about $4 billion to $5 billion that will be used to pay for its employees' pension benefits when they are reinstated. The fund is meant to meet the company's estimated minimum requirements for pension plans for its 2020 and 2021 year.
The amounts that will be distributed will be based on the figures outlined by the Employee Retirement Income Security Act, the federal tax and labor law that dictates the baseline standards for pension plans in the private sector.
The plan to freeze employee pension benefits is part of GE CEO Larry Culp' s massive restructuring plan. GE is currently facing major cash flow problems, partly exacerbated by its mounting debt and the failure of its power business. As of June this year, GE's total debt stands at around $105.8 billion.
Following the news of its action to freeze employee pension benefits, GE saw it's stock prices rise by as much as 3 percent in early trading. The company's stocks have so far managed to recover since the start of the year, gaining more than 17 percent since January.