Our Time - GE 2004 Annual Report
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Notes to Consolidated Financial Statements Note 6: Pension Benefits

We sponsor a number of pension plans. Principal pension plans, together with affiliate and certain other pension plans (other pension plans), detailed in this note represent about 99% of our total pension assets.

PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension Plan.

The GE Pension Plan provides benefits to certain U.S. employees based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Certain benefit provisions are subject to collective bargaining.

The GE Supplementary Pension Plan is an unfunded plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees.

OTHER PENSION PLANS in 2004 included 34 U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. These defined benefit plans generally provide benefits to employees based on formulas recognizing length of service and earnings.

PENSION PLAN PARTICIPANTS

(In thousands)   Principal pension plans   Other pension plans  
Active employees   141   47  
Vested former employees   174   35  
Retirees and beneficiaries   205   22  
Total   520   104  

Details of the cost of our pension plans follow.

COST OF PENSION PLANS

  Total
(In millions) 2004   2003   2002  
Expected return on plan assets $ (4,258 ) $ (4,245 ) $ (4,245 )
Service cost for benefits earned   1,438     1,375     1,245  
Interest cost on benefit obligation   2,516     2,390     2,288  
Prior service cost   317     252     221  
Net actuarial loss (gain) recognized   242     (544 )   (905 )
Total cost $ 255   $ (772 ) $ (1,396 )
  Principal pension plans
(In millions) 2004   2003   2002  
Expected return on plan assets $ (3,958 ) $ (4,072 ) $ (4,084 )
Service cost for benefits earned   1,178     1,213     1,107  
Interest cost on benefit obligation   2,199     2,180     2,116  
Prior service cost   311     248     217  
Net actuarial loss (gain) recognized   146     (609 )   (912 )
Total cost $ (124 ) $ (1,040 ) $ (1,556 )
  Other pension plans
(In millions) 2004   2003   2002  
Expected return on plan assets $ (300 ) $ (173 ) $ (161 )
Service cost for benefits earned   260     162     138  
Interest cost on benefit obligation   317     210     172  
Prior service cost   6     4     4  
Net actuarial loss (gain) recognized   96     65     7  
Total cost $ 379   $ 268   $ 160  

ACTUARIAL ASSUMPTIONS are described below. The discount rates at December 31 were used to measure the year-end benefit obligations and the earnings effects for the subsequent year.

ACTUARIAL ASSUMPTIONS

  Principal pension plans   Other pension plans (weighted average)
December 31   2004   2003   2002   2001   2004   2003   2002   2001  
Discount rate   5.75 % 6.00 % 6.75 % 7.25 % 5.28 % 5.54 % 5.87 % 6.55 %
Compensation increases   5.00   5.00   5.00   5.00   4.02   3.85   3.90   4.27  
Expected return on assets   8.50   8.50   8.50   9.50   7.61   7.61   7.62   8.19  

To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. For the principal pension plans, we apply our expected rate of return to a market-related value of assets, which stabilizes variability in assets to which we apply that expected return.

We amortize experience gains and losses and effects of changes in actuarial assumptions and plan provisions over a period no longer than the average future service of employees.

FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as we may determine to be appropriate. We have not made contributions to the GE Pension Plan since 1987. We will not make any contributions to the GE Pension Plan in 2005; any GE contribution to that plan would require payment of excise taxes and would not be deductible for income tax purposes. In 2005, we expect to pay approximately $115 million for the GE Supplementary Pension Plan benefit payments and administrative expenses ($102 million in 2004), and expect to contribute approximately $340 million to other pension plans ($370 million in 2004).

BENEFIT OBLIGATIONS are described in the following table. Accumulated and projected benefit obligations (ABO and PBO) represent the obligations of a pension plan for past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on current compensation levels. PBO is ABO increased to reflect expected future compensation.

PROJECTED BENEFIT OBLIGATION

  Principal pension plans   Other pension plans  
(In millions) 2004   2003   2004   2003  
Balance at January 1 $ 37,827   $ 33,266   $ 4,863   $ 3,475  
Service cost for benefits earned   1,178     1,213     260     162  
Interest cost on benefit obligations   2,199     2,180     317     210  
Participant contributions   163     169     31     25  
Plan amendments       654     15     2  
Actuarial loss(a)   969     2,754     371     164  
Benefits paid   (2,367 )   (2,409 )   (230 )   (148 )
Acquired plans           1,169     551  
Exchange rate adjustments and other           448     422  
Balance at December 31(b) $ 39,969   $ 37,827   $ 7,244   $ 4,863  
(a) Principally associated with discount rate changes for principal pension plans.
(b) The PBO for the GE Supplementary Pension Plan was $3.3 billion and $2.7 billion at year-end 2004 and 2003, respectively.

ABO balances for our pension plans follow.

ACCUMULATED BENEFIT OBLIGATION

December 31 (In millions) 2004   2003  
GE Pension Plan $ 35,296   $ 33,859  
GE Supplementary Pension Plan   1,916     1,619  
Other pension plans   6,434     4,422  

Following is information about our pension plans in which the accumulated benefit obligation exceeds the fair value of plan assets:

PLANS WITH ASSETS LESS THAN ABO

December 31 (In millions)   2004     2003      
Funded plans with assets less than ABO:        
Plan assets $ 3,943   $ 2,640      
Accumulated benefit obligations   5,075     3,460      
Projected benefit obligations   5,825     3,852      
Unfunded plans covered by book reserves:(a)                
Accrued pension liability   2,948     2,456      
Accumulated benefit obligations   2,628     2,201      
Projected benefit obligations   4,001     3,330      
(a) Primarily related to the GE Supplementary Pension Plan.

Pension Plan Assets are described below.

FAIR VALUE OF ASSETS

  Principal pension plans   Other pension plans  
(In millions) 2004   2003   2004   2003  
Balance at January 1 $ 43,879   $ 37,811   $ 3,035   $ 2,064  
Actual gain on plan assets   4,888     8,203     292     264  
Employer contributions   102     105     370     183  
Participant contributions   163     169     31     25  
Benefits paid   (2,367 )   (2,409 )   (230 )   (148 )
Acquired plans           868     373  
Exchange rate adjustments and other           286     274  
Balance at December 31 $ 46,665   $ 43,879   $ 4,652   $ 3,035  

Our pension plan assets are held in trust, as follows:

PLAN ASSET ALLOCATION

  Principal pension plans  
  2004   2003  
December 31   Target Allocation     Actual Allocation     Actual Allocation  
Equity securities   51–63 %   63 %   60 %
Debt securities   21–27     19     20  
Real estate   4–8     6     7  
Private equities   5–11     6     7  
Other   3–7     6     6  
Total         100 %   100 %

Plan fiduciaries of the GE Pension Plan set investment policies and strategies for the GE Pension Trust. Long-term strategic investment objectives include preserving the funded status of the trust and balancing risk and return. These plan fiduciaries oversee the investment allocation process, which includes selecting investment managers, commissioning periodic asset-liability studies, setting long-term strategic targets and monitoring asset allocations. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.

GE Pension Trust assets are invested subject to the following additional guidelines:

  • Short-term securities must be rated A1/P1 or better,

  • Real estate may not exceed 25% of total assets (6% of trust assets at December 31, 2004),

  • Investments in securities not freely tradable may not exceed 20% of total assets (11% of trust assets at December 31, 2004), and

  • GE stock is limited by statute when it reaches 10% of total trust assets (7.0% and 6.3% at the end of 2004 and 2003, respectively).
  Other pension plans (weighted average)  
  2004   2003  
December 31   Target Allocation     Actual Allocation     Actual Allocation  
Equity securities   62 %   65 %   63 %
Debt securities   30     27     32  
Real estate   3     3     2  
Other   5     5     3  
Total         100 %   100 %

Our recorded assets and liabilities for pension plans are as follows:

PREPAID PENSION ASSET (LIABILITY)

  Principal pension plans   Other pension plans  
December 31 (In millions) 2004   2003   2004   2003  
Funded status(a) $ 6,696   $ 6,052   $ (2,592 ) $ (1,828 )
Unrecognized prior service cost   1,260     1,571     45     36  
Unrecognized net actuarial loss   7,481     7,588     1,662     1,184  
Net amount recognized $ 15,437   $ 15,211   $ (885 ) $ (608 )
Amounts recorded in the Statement of Financial Position:                        
Prepaid pension asset $ 17,629   $ 17,038   $ 158   $ 20  
Accrued pension obligation(b)   (2,192 )   (1,827 )   (2,061 )   (1,040 )
Intangible assets           57     49  
Accumulated other comprehensive income           961     363  
Net amount recognized $ 15,437   $ 15,211   $ (885 ) $ (608 )
(a) Fair value of assets less PBO, as shown in the preceding tables.
(b) For principal pension plans, represents the GE Supplementary Pension Plan liability.

Estimated future benefit payments for our pension plans are as follows:

ESTIMATED FUTURE BENEFIT PAYMENTS

(In millions) Principal
pension plans
  Other
pension plans
 
2005 $ 2,350   $ 250  
2006   2,400     250  
2007   2,400     275  
2008   2,500     275  
2009   2,500     300  
2010–2014   13,500     1,600  

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