Chapter 20 – Defined Benefit Pension Disclosures
GENERAL MOTORS CORPORATION AND SUBSIDIARIES (December 31, 2012)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18.Pensions and Other Postretirement Benefits
Employee Pension and Other Postretirement Benefit Plans
Defined Benefit Pension Plans
Defined benefit pension plans covering eligible U.S. hourly employees (hired prior to October 15, 2007) and Canadian hourly employees generally provide benefits of negotiated, stated amounts for each year of service and supplemental benefits for employees who retire with 30 years of service before normal retirement age. The benefits provided by the defined benefit pension plans covering eligible U.S. (hired prior to January 1, 2001) and Canadian salaried employees and employees in certain other non-U.S. locations are generally based on years of service and compensation history. Accrual of defined pension benefits ceased on September 30, 2012 for U.S. salaried employees and on December 31, 2012 for Canadian salaried employees. There is also an unfunded nonqualified pension plan covering primarily U.S. executives for service prior to January 1, 2007 and it is based on an “excess plan” for service after that date.
Pension Contributions
The funding policy for qualified defined benefit pension plans is to contribute annually not less than the minimum required by applicable law and regulations or to directly pay benefit payments where appropriate. At December31, 2012 all legal funding requirements had been met. We expect to contribute $97 million to our U.S. non-qualified plans and $823 million to our non-U.S. pension plans in 2013.
The following table summarizes contributions made to the defined benefit pension plans or direct payments to plan beneficiaries (dollars in millions):
Years Ended December 31,2012 / 2011 / 2010
U.S. hourly and salaried / $ / 2,420 / $ / 1,962 / $ / 4,095
Non-U.S. / 855 / 836 / 777
Total / $ / 3,275 / $ / 2,798 / $ / 4,872
We made a voluntary contribution in January 2011 to our U.S. hourly and salaried defined benefit pension plans of 61 million shares of our common stock valued at $2.2 billion for funding purposes at the time of contribution. The contributed shares qualified as a plan asset for funding purposes at the time of contribution and as a plan asset valued at $1.9 billion for accounting purposes in July 2011. This was a voluntary contribution above our funding requirements for the pension plans.
We continue to pursue various options to fund and derisk our pension plans, including continued changes to the pension asset
GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
portfolio mix to reduce funded status volatility.
Other Postretirement Benefit Plans
Certain hourly and salaried defined benefit plans provide postretirement medical, dental, legal service and life insurance to eligible U.S. and Canadian retirees and their eligible dependents. Certain other non-U.S. subsidiaries have postretirement benefit plans, although most non-U.S. employees are covered by government sponsored or administered programs.
OPEB Contributions
The following table summarizes contributions to the U.S. OPEB plans (dollars in millions):
Years Ended December 31,2012 / 2011 / 2010
Employer contributions / $ / 432 / $ / 426 / $ / 651
Plan participants' contributions / 4 / 13 / 53
Total contributions / $ / 436 / $ / 439 / $ / 704
For the year ended December31, 2011 we also contributed $1.9 billion to the independent HCT consisting of restricted cash of $0.8 billion and notes payable of $1.1 billion.
Defined Contribution Plans
We have a defined contribution plan for eligible U.S. salaried employees. This plan provides discretionary matching contributions which we instituted in October 2009. U.S. hourly employees hired after October 1, 2007 also participate in a defined contribution plan. Contributions are also made to certain non-U.S. defined contribution plans.
The following table summarizes our contributions to defined contribution plans (dollars in millions):
Years Ended December 31,2012 / 2011 / 2010
Total contributions / $ / 352 / $ / 297 / $ / 241
Significant Plan Amendments, Benefit Modifications and Related Events
U.S. Salaried Defined Benefit Pension Plan
In January 2012 we amended the salaried pension plan to cease the accrual of additional benefits effective September 30, 2012. This amendment resulted in a curtailment which decreased the pension liability and decreased the net pre-tax actuarial loss component of Accumulated other comprehensive loss by $309 million. Active plan participants receive additional contributions in the defined contribution plan starting in October 2012.
In August 2012 the salaried pension plan was amended to divide the plan to create a new legally separate defined benefit plan primarily for active and terminated vested participants. After the amendment the original salaried pension plan (Retiree Plan) covers the majority of retirees currently receiving payments. As a result of this amendment a remeasurement of the Retiree Plan on August 1, 2012 increased the pension liability and the net pre-tax actuarial loss component of Accumulated other comprehensive loss by $654 million, due primarily to a decrease in the discount rate from 4.21% to 3.37% on a weighted-average basis, partially offset by actual asset returns in excess of expected amounts.
In August 2012 lump-sum distributions of $3.6 billion were made from the Retiree Plan to 12,500 plan participants resulting in a partial plan settlement necessitating a plan remeasurement for the Retiree Plan on August 31, 2012. The settlement resulted in a pre-tax loss of $54 million. The effect on our financial condition was insignificant.
In November and December 2012 the Retiree Plan purchased group annuity contracts from an insurance company and paid a total annuity premium of $25.1 billion and the Retiree Plan settled two other previously guaranteed obligations, with separate
GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
insurance companies, totaling $1.9 billion. These agreements unconditionally and irrevocably guarantee the full payment of all annuity payments to the participants in the Retiree Plan and assume all investment risk associated with the assets that were delivered as the annuity contract premiums.
Through these annuity purchase transactions we have settled the remaining obligations of the Retiree Plan in their entirety resulting in a pre-tax settlement loss of $2.5 billion ($2.1 billion after tax) in Automotive cost of sales. The pre-tax loss is composed of existing losses in Accumulated other comprehensive loss of $377 million, and the premium paid to the insurance company of $2.1 billion. The tax benefit of $413 million is composed of the statutory tax benefit of $1.0 billion offset by tax expense of $596 million associated with the removal of prior period income tax allocations between Accumulated other comprehensive loss and Income tax expense (benefit).
In 2012 we provided short-term, interest-free, unsecured loans to the Retiree Plan to provide the plan with incremental liquidity to pay ongoing benefits and administrative costs. In August 2012 we loaned the Retiree Plan $2.0 billion with principal due within 90 days. In the three months ended December 31, 2012 $1.5 billion of the $2.0 billion loan was contributed to the Retiree Plan, $250 million was repaid to us and the remaining $250 million, which had been converted into a new interest-free loan, is due on or before April 15, 2013. In October 2012 we provided a loan of $180 million to the Retiree Plan that was repaid to us in December 2012. At December 31, 2012 $160 million of the remaining $250 million loan was deemed a contribution. Amounts loaned to the Retiree Plan in excess of the ultimate funding requirements will be repaid to us.
Canadian Salaried Defined Benefit Plans
In June 2012 we amended the Canadian salaried pension plan to cease the accrual of additional benefits effective December 31, 2012 and provide active employees a lump-sum distribution option at retirement. The remeasurement, amendments and offsetting curtailment increased the pension liability by $84 million, and resulted in a net decrease in the pre-tax components of Accumulated other comprehensive loss comprising net actuarial loss of $58 million, net actuarial curtailment gain of $20 million and prior service cost of $46 million. Active plan participants will receive additional contributions in the defined contribution plan starting in January 2013.
We also amended the Canadian salaried retiree healthcare plan to eliminate post-65 healthcare benefits for employees retiring on or after July 1, 2014. In conjunction with this change we amended the plan to offer either a monthly monetary payment or an annual lump-sum cash payment to a defined contribution plan for health care in lieu of the benefit coverage provisions formerly provided under the healthcare plan. These amendments decreased the OPEB liability by $28 million and resulted in a net increase in the pre-tax components of Accumulated other comprehensive loss comprising prior service credit of $51 million and net actuarial loss of $23 million.
Canadian HCT
In October 2011 pursuant to a June 2009 agreement between General Motors of Canada Limited (GMCL) and the CAW an independent HCT was implemented to provide retiree healthcare benefits to certain active and retired employees. Concurrent with the implementation of the HCT, GMCL was legally released from all obligations associated with the cost of providing retiree healthcare benefits to CAW retirees and surviving spouses by the class action process and to CAW active employees as of June 8, 2009. We accounted for the related termination of CAW hourly retiree healthcare benefits as a settlement and recorded a gain of $749 million in Automotive cost of sales. The settlement gain represents the difference between the healthcare plan obligation of $3.1 billion (as of the implementation date) and the fair value of the notes and restricted cash contributed totaling $1.9 billion, and recognition of Accumulated other comprehensive loss of $414 million.
Other Remeasurements
In March 2012 certain pension plans in GME were remeasured as part of our Goodwill impairment testing, resulting in an increase of $150 million in the pension liability and a pre-tax increase in the net actuarial loss component of Accumulated other comprehensive loss.
In September 2011 a plan which provides legal services to U.S. hourly employees and retirees was remeasured as a result of our labor agreement provisions which terminate the plan effective December 31, 2013. The negotiated termination has been accounted for as a negative plan amendment resulting in a decrease in the OPEB liability and a pre-tax increase of $266 million in the prior service credit component of Accumulated other comprehensive loss, which is being amortized through December 31,
GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
2013.
In March 2011 certain pension plans in GME were remeasured as part of our Goodwill impairment testing, resulting in a decrease of $272 million in the pension liability and a pre-tax increase in the net actuarial gain component of Accumulated other comprehensive loss.
Refer to Note 12 for additional information on our Goodwill impairment.
Pension and OPEB Obligations and Plan Assets
The following tables summarize the change in benefit obligations and related plan assets (dollars in millions):
Year Ended December 31, 2012Pension Benefits / Other Benefits
U.S. Plans / Non-U.S. Plans / U.S. Plans / Non-U.S. Plans
Change in benefit obligations
Beginning benefit obligation / $ / 108,562 / $ / 25,765 / $ / 5,822 / $ / 1,490
Service cost / 452 / 383 / 23 / 16
Interest cost / 4,055 / 1,110 / 234 / 63
Plan participants' contributions / — / 7 / 4 / 1
Amendments / (32 / ) / 139 / — / (52 / )
Actuarial losses / 8,432 / 2,774 / 622 / 13
Benefits paid / (8,422 / ) / (1,551 / ) / (436 / ) / (55 / )
Foreign currency translation adjustments / — / 682 / — / 30
Curtailments, settlements and other / (30,937 / ) / (8 / ) / 2 / 22
Ending benefit obligation / 82,110 / 29,301 / 6,271 / 1,528
Change in plan assets
Beginning fair value of plan assets / 94,349 / 14,541 / — / —
Actual return on plan assets / 10,332 / 1,344 / — / —
Employer contributions / 2,420 / 855 / 432 / 54
Plan participants' contributions / — / 7 / 4 / 1
Benefits paid / (8,422 / ) / (1,551 / ) / (436 / ) / (55 / )
Foreign currency translation adjustments / — / 389 / — / —
Settlements / (30,629 / ) / (207 / ) / — / —
Other / 35 / 163 / — / —
Ending fair value of plan assets / 68,085 / 15,541 / — / —
Ending funded status / $ / (14,025 / ) / $ / (13,760 / ) / $ / (6,271 / ) / $ / (1,528 / )
Amounts recorded in the consolidated balance sheets
Non-current assets / $ / — / $ / 73 / $ / — / $ / —
Current liabilities / (95 / ) / (343 / ) / (406 / ) / (84 / )
Non-current liabilities / (13,930 / ) / (13,490 / ) / (5,865 / ) / (1,444 / )
Net amount recorded / $ / (14,025 / ) / $ / (13,760 / ) / $ / (6,271 / ) / $ / (1,528 / )
Amounts recorded in Accumulated other comprehensive loss
Net actuarial loss / $ / (1,434 / ) / $ / (4,786 / ) / $ / (1,573 / ) / $ / (188 / )
Net prior service (cost) credit / 42 / (111 / ) / 135 / 118
Total recorded in Accumulated other comprehensive loss / $ / (1,392 / ) / $ / (4,897 / ) / $ / (1,438 / ) / $ / (70 / )
GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
Year Ended December 31, 2011Pension Benefits / Other Benefits
U.S. Plans / Non-U.S. Plans / U.S. Plans / Non-U.S. Plans
Change in benefit obligations
Beginning benefit obligation / $ / 103,395 / $ / 24,762 / $ / 5,667 / $ / 4,252
Service cost / 494 / 399 / 23 / 30
Interest cost / 4,915 / 1,215 / 265 / 186
Plan participants' contributions / — / 7 / 13 / 9
Amendments / (6 / ) / (10 / ) / (284 / ) / (2 / )
Actuarial losses / 8,494 / 1,530 / 548 / 343
Benefits paid / (8,730 / ) / (1,561 / ) / (439 / ) / (180 / )
Early retirement reinsurance program receipts / — / — / 29 / —
Foreign currency translation adjustments / — / (508 / ) / — / (128 / )
HCT settlement / — / — / — / (3,051 / )
Curtailments, settlements, and other / — / (69 / ) / — / 31
Ending benefit obligation / 108,562 / 25,765 / 5,822 / 1,490
Change in plan assets
Beginning fair value of plan assets / 91,007 / 14,903 / — / —
Actual return on plan assets / 10,087 / 686 / — / —
Employer contributions / 1,962 / 836 / 426 / 171
Plan participants' contributions / — / 7 / 13 / 9
Benefits paid / (8,730 / ) / (1,561 / ) / (439 / ) / (180 / )
Foreign currency translation adjustments / — / (258 / ) / — / —
Settlements / — / (34 / ) / — / —
Other / 23 / (38 / ) / — / —
Ending fair value of plan assets / 94,349 / 14,541 / — / —
Ending funded status / $ / (14,213 / ) / $ / (11,224 / ) / $ / (5,822 / ) / $ / (1,490 / )
Amounts recorded in the consolidated balance sheets
Non-current assets / $ / — / $ / 61 / $ / — / $ / —
Current liabilities / (99 / ) / (324 / ) / (411 / ) / (65 / )
Non-current liabilities / (14,114 / ) / (10,961 / ) / (5,411 / ) / (1,425 / )
Net amount recorded / $ / (14,213 / ) / $ / (11,224 / ) / $ / (5,822 / ) / $ / (1,490 / )
Amounts recorded in Accumulated other comprehensive loss
Net actuarial loss / $ / (1,352 / ) / $ / (2,498 / ) / $ / (1,003 / ) / $ / (177 / )
Net prior service credit / 15 / 19 / 251 / 76
Total recorded in Accumulated other comprehensive loss / $ / (1,337 / ) / $ / (2,479 / ) / $ / (752 / ) / $ / (101 / )
The following table summarizes the total accumulated benefit obligations (ABO), the fair value of plan assets for defined benefit pension plans with ABO in excess of plan assets, and the projected benefit obligation (PBO) and fair value of plan assets for defined benefit pension plans with PBO in excess of plan assets (dollars in millions):
GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
December31, 2012 / December31, 2011U.S. Plans / Non-U.S. Plans / U.S. Plans / Non-U.S. Plans
ABO / $ / 82,103 / $ / 28,880 / $ / 108,195 / $ / 25,404
Plans with ABO in excess of plan assets
ABO / $ / 82,103 / $ / 28,156 / $ / 108,195 / $ / 24,687
Fair value of plan assets / $ / 68,085 / $ / 14,702 / $ / 94,349 / $ / 13,738
Plans with PBO in excess of plan assets
PBO / $ / 82,110 / $ / 28,537 / $ / 108,562 / $ / 25,024
Fair value of plan assets / $ / 68,085 / $ / 14,704 / $ / 94,349 / $ / 13,739
The following tables summarize the components of net periodic pension and OPEB expense along with the assumptions used to determine benefit obligations (dollars in millions):
Year Ended December 31, 2012Pension Benefits / Other Benefits
U.S. Plans / Non-U.S. Plans / U.S. Plans / Non-U.S. Plans
Components of expense
Service cost / $ / 590 / $ / 411 / $ / 23 / $ / 16
Interest cost / 4,055 / 1,110 / 234 / 63
Expected return on plan assets / (5,029 / ) / (870 / ) / — / —
Amortization of prior service cost (credit) / (1 / ) / 1 / (116 / ) / (12 / )
Recognized net actuarial loss / 2 / 35 / 52 / 6
Curtailments, settlements and other losses / 2,580 / 71 / — / 11
Net periodic pension and OPEB expense / $ / 2,197 / $ / 758 / $ / 193 / $ / 84
Weighted-average assumptions used to determine benefit obligations
Discount rate / 3.59 / % / 3.70 / % / 3.68 / % / 3.97 / %
Rate of compensation increase(a) / N/A / 2.77 / % / 4.50 / % / 4.21 / %
Weighted-average assumptions used to determine net expense
Discount rate / 4.06 / % / 4.45 / % / 4.24 / % / 4.31 / %
Expected return on plan assets / 6.18 / % / 6.20 / % / N/A / N/A
Rate of compensation increase / 4.50 / % / 3.15 / % / 4.50 / % / 4.21 / %
______
(a) / As a result of ceasing the accrual of additional benefits for participants in the Retiree Plan in 2012, the rate of compensation increase does not have a significant effect on our U.S. pension plans.GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
Year Ended December 31, 2011Pension Benefits / Other Benefits
U.S. Plans / Non-U.S. Plans / U.S. Plans / Non-U.S. Plans
Components of expense
Service cost / $ / 632 / $ / 399 / $ / 23 / $ / 30
Interest cost / 4,915 / 1,215 / 265 / 186
Expected return on plan assets / (6,692 / ) / (925 / ) / — / —
Amortization of prior service credit / (2 / ) / (2 / ) / (39 / ) / (9 / )
Recognized net actuarial loss / — / — / 6 / —
Curtailments, settlements and other gains / (23 / ) / (7 / ) / — / (749 / )
Net periodic pension and OPEB (income) expense / $ / (1,170 / ) / $ / 680 / $ / 255 / $ / (542 / )
Weighted-average assumptions used to determine benefit obligations
Discount rate / 4.15 / % / 4.50 / % / 4.24 / % / 4.37 / %
Rate of compensation increase / 4.50 / % / 3.11 / % / 4.50 / % / 4.20 / %
Weighted-average assumptions used to determine net expense
Discount rate / 4.96 / % / 5.16 / % / 5.05 / % / 5.01 / %
Expected return on plan assets / 8.00 / % / 6.50 / % / N/A / N/A
Rate of compensation increase / 3.96 / % / 3.25 / % / 4.50 / % / 4.42 / %
Year Ended December 31, 2010
Pension Benefits / Other Benefits
U.S. Plans / Non-U.S. Plans / U.S. Plans / Non-U.S. Plans
Components of expense
Service cost / $ / 548 / $ / 386 / $ / 21 / $ / 32
Interest cost / 5,275 / 1,187 / 288 / 200
Expected return on plan assets / (6,611 / ) / (987 / ) / — / —
Amortization of prior service cost (credit) / (1 / ) / (1 / ) / 3 / (9 / )
Recognized net actuarial loss / — / 21 / — / —
Curtailments, settlements, and other losses / — / 60 / — / —
Net periodic pension and OPEB (income) expense / $ / (789 / ) / $ / 666 / $ / 312 / $ / 223
Weighted-average assumptions used to determine benefit obligations
Discount rate / 4.96 / % / 5.09 / % / 5.07 / % / 4.97 / %
Rate of compensation increase / 3.96 / % / 3.25 / % / 1.41 / % / 4.33 / %
Weighted-average assumptions used to determine net expense
Discount rate / 5.36 / % / 5.19 / % / 5.57 / % / 5.22 / %
Expected return on plan assets / 8.48 / % / 7.42 / % / 8.50 / % / N/A
Rate of compensation increase / 3.94 / % / 3.25 / % / 1.48 / % / 4.45 / %
U.S. pension plan service cost includes administrative expenses of $138 million,$138 million and $97 million for the years ended December31, 2012, 2011 and 2010. Weighted-average assumptions used to determine net expense are determined at the beginning of the period and updated for remeasurements.
Non-U.S. pension plan service cost includes administrative expenses of $28 million for the year ended December 31, 2012.
GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
The following table summarizes estimated amounts to be amortized from Accumulated other comprehensive loss into net periodic benefit cost in the year ended 2013 based on December 31, 2012 plan measurements (dollars in millions):
U.S. Pension Plans / Non-U.S. Pension Plans / U.S. Other Benefit Plans / Non-U.S. Other Benefit PlansAmortization of prior service (credit) cost / $ / (4 / ) / $ / 20 / $ / (116 / ) / $ / (15 / )
Amortization of net actuarial loss (gain) / 6 / 206 / 91 / 7
$ / 2 / $ / 226 / $ / (25 / ) / $ / (8 / )
Assumptions
Healthcare Trend Rate
As a result of previous modifications made to healthcare plans, there are no significant uncapped U.S. healthcare plans remaining, therefore, the healthcare cost trend rate does not have a significant effect on our U.S. plans. The implementation of the HCT at October 31, 2011 eliminated significant exposure to changes in the healthcare cost trend rate for non-U.S. plans.
December 31, 2010Assumed Healthcare Trend Rates
Initial healthcare cost trend rate / 5.6%
Ultimate healthcare cost trend rate / 3.4%
Number of years to ultimate trend rate / 8
Healthcare trend rate assumptions are determined for inclusion in healthcare OPEB valuation at each remeasurement. The healthcare trend rates are developed using historical cash expenditures and near-term outlook for retiree healthcare. This information is supplemented with information gathered from actuarial based models, information obtained from healthcare providers and known significant events.
The following table summarizes the effect of a one-percentage point change in the assumed healthcare trend rates for non-U.S. plans (dollars in millions):
Effect on 2011Aggregate Service
and Interest Cost / Effect on
December 31, 2010
APBO
Change in Assumption
One percentage point increase / $ / 31 / $ / 491
One percentage point decrease / $ / (25 / ) / $ / (392 / )
Investment Strategies and Long-Term Rate of Return
Detailed periodic studies conducted by outside actuaries and an internal asset management group, consisting of an analysis of capital market assumptions and employing Monte-Carlo simulations, are used to determine the long-term strategic mix among asset classes, risk mitigation strategies, and the expected long-term return on asset assumptions for the U.S. pension plans. The U.S. study includes a review of alternative asset allocation and risk mitigation strategies, anticipated future long-term performance of individual asset classes, risks evaluated using standard deviation techniques and correlations among the asset classes that comprise the plans' asset mix. Similar studies are performed for the significant non-U.S. pension plans with the assistance of outside actuaries and asset managers. While the studies incorporate data from recent plan performance and historical returns, the expected long-term return on plan asset assumptions are determined based on long-term, prospective rates of return.