Photographer: Akos Stiller/Bloomberg
General Electric, once one of the mightiest, most well-respected American corporations, announced that it's freezing pensions, for about 20,000 U.S. employees and offering pension buyouts to 100,000 former employees, according to the Pension Rights Center.
This signals a sad ending to the once commonly held practice of companies offering pension plans to their employees to afford them a comfortable and secure retirement.
GE’s was the epitome of a success story in corporate America. In its 127-year history, the company was responsible for creating revolutionary technologies, earning amazing profits. However, now mired in problems, the company has been accused by Bernie Madoff whistleblower, Harry Markopolos, of alleged fraud.
GE was an original member of the Dow Jones Industrial Average. Its scientists invented and perfected products such as light bulbs, X-rays, refrigerators, televisions, commercial jet engines and nuclear power plants. The company also became a leader in financial services and attracted the best and brightest scholars and bankers.
The company rose to its zenith under the stewardship of legendary CEO Jack Welch.
Welch became a household name—one of the first celebrity CEOs. For two decades, he was heralded as the pinnacle of success. Under his reign, GE was one of America’s most prominent companies with a $600 billion valuation in 2000. Over 300,000 employees worked at GE in 150 U.S. factories and at 176 manufacturing plants in over 30 other countries. GE’s pension plan made it possible for 485,000 employees to retire. Evolving from products into services, GE Capital, its financial division, led the company’s growth.
After Welch retired, a succession of new CEOs and business challenges, GE's fortunes had faded and the company became a shadow of its former glory. With less revenue and profits, GE still has substantial pension liabilities for its 600,000 retirees, workers and beneficiaries. The pension is underfunded by $27 billion. A Barclay’s research analyst, Julian Mitchell wrote, "The impact on employee engagement/morale of some of these pension measures is unlikely to be positive, but in a situation of 'corporate battlefield surgery,' this tends to be a typical, if unfortunate casualty."
The most recent body blow was from whistleblower Harry Markopolos, who alleged that GE was engaged in fraudulent business practices. In an extensive report, he accused GE of making fraudulent financial filings to cover up its huge obligations. Markopolos is collaborating with an unnamed hedge fund, which is using his information to sell short GE’s stock price. They hope to benefit as the share price declines. GE’s share price has plummeted from a high of $50 in January 2000 to under $9 today.
Unfortunately, most American workers do not have corporate pension plans to rely upon. However, many do offer 401(k)s. With the withering away of pensions, it is another challenge for people to accumulate sufficient funds to retire with dignity and general comfort.
