Among the highlights of General Electric's (GE) annual filing is further clarity on how the manufacturer trimmed retiree health plan obligations by $3.8 billion -- and it's largely the result of moving retirees off company-sponsored plans.
It's clear GE is in the midst of a radical industrial transformation -- the company now touts a $314.5 billion backlog, up 18% year over year. But GE's also transforming how it deals with the country's roiling health care environment.
"In 2015, we amended our principal retiree benefit plans affecting post-65 retiree health and retiree life insurance for certain production participants," GE said in its annual filing. "These plan amendments reduced our principal postretirement benefit obligations by approximately $3.3 billion."
GE's total health plan obligations on the year, meanwhile, dropped $3.8 billion, or by 58%. This represents material savings given the company's consolidated earnings decrease of $7.9 billion, or 83%, over the period. (With a market cap of roughly $300 billion, GE is one of the country's top 10 widely held stocks.)
GE has long maintained it's not alone in the broader corporate trend -- ushered in by the passage of the Affordable Care Act in 2010 -- to move retirees of institutional plans and onto private exchanges. (Time Warner (TWX), IBM (IBM) and Walgreens Boots (WBA) are among other major corporations who are opting to curb in-house coverage.)
The diversified manufacturer's most recent development in its broader initiative is moving post-65 hourly retirees off funded plans to an annual $1,000 stipend, aimed to help facilitate the transition to Towers Watson's (TW) OneExchange. GE is also in the process of curbing its retiree life insurance benefits, in which production workers who retire by June 23, 2019, will be offered reduced coverage, after which plans will be eliminated.
The $3.3 billion reductions from plan amendments also helped push down GE's spending for retiree principal benefit plans by 78% year over year to $174 million.
"There are about 40 million retirees in the U.S. today who purchase coverage directly from an insurance company," GE said in a July letter to employees, obtained by Real Money. "With this kind of purchasing power, OneExchange can offer a wide range of coverage options no single company can match (not even GE)."
Its largest labor unions were quick to react to last summer's developments, including the Teamsters and United Autoworkers, which filed a federal lawsuit in November, alleging the scrapped plans violate labor contract provisions. Meanwhile, a separate suit headed by two former GE employees is ongoing on the basis that cuts are inconsistent to language in previous editions of its employee handbook.
GE has said it "remains confident that the company acted properly and lawfully in making changes to retiree health benefits consistent with trends among other large companies."
GE's pension plans, meanwhile, were said to be 98% funded as of last month, according to its annual filing.