General Electric Co said on Monday it was freezing pension plans for about 20,000 U.S. employees with salaried benefits, as the industrial conglomerate makes another drastic move to cut debt and reduce its pension deficit by up to $8 billion.
Since taking over a year ago, Chief Executive Officer Larry Culp has carved out a number of measures to streamline the company and raise cash to pare debt. He has also chopped the company’s dividend to a penny.
GE and its finance arm had total borrowings of about $105.8 billion as of June 30, with industrial net debt at $54.4 billion.
The company said it will also freeze supplementary pension benefits for about 700 U.S. employees who became executives before 2011. GE’s pension plan has been closed to new entrants since 2012.
GE said the freeze is effective Jan. 1, 2021, and both moves are expected to help lower net debt between $4 billion and $6 billion.
Boston-based GE said there would be no change for retirees already collecting pension benefits.
“Returning GE to a position of strength has required us to make several difficult decisions, and today’s decision to freeze the pension is no exception,” Chief Human Resources Officer Kevin Cox said.
Shares rose 2.6% to $8.79 in premarket trading.
The company said it will offer a limited-time lump-sum payment option to about 100,000 former employees who have not yet started their monthly pension plan payments.
GE expects to record a non-cash pension settlement charge in the fourth quarter, but did not specify the amount.
The company also said it would pre-fund about $4 billion to $5 billion of its requirements for 2021 and 2022 under the Employee Retirement Income Security Act by using a portion of the $38 billion cash it is collecting from the sale of its various businesses.
The company also said it was on track to achieve its leverage goal of less than 2.5 times net debt to EBITDA (earnings before interest, tax, depreciation and amortization) by the end of 2020.