This excerpt taken from the GM DEF 14A filed Apr 27, 2007.
Frozen General Motors Supplemental Executive Retirement Plan (SERP) Benefits accrued prior to January 1, 2007
The accrued benefit for U.S. executive employees on the active rolls as of December 31, 2006, was frozen based on executive retirement plan formulas, credited service, and compensation history as of December 31, 2006. Eligibility for receipt of such frozen accrued benefits on and after January 1, 2007, will be based on an executive
meeting the vesting requirements established in the executive retirement program. Effective January 1, 2007, executives must be at least age 55 with a minimum of ten years of credited service to be vested in the executive retirement program.
Frozen accrued benefits for General Motors executives in the United States may be from both a tax-qualified plan that is subject to the requirements of ERISA and from a non-qualified plan that provides supplemental benefits under one of two formulas described below. The Board of Directors has delegated to the Executive Compensation Committee discretionary authority to grant additional eligible years of credited service to selected key executives under such terms and conditions as the Executive Compensation Committee determines for purposes of computing the frozen accrued non-qualified benefits for such executives. Retired executives’ tax-qualified benefits are pre-funded and paid out of the trust assets of the SRP. Non-qualified benefits are not pre-funded and are paid out of the Corporation’s general assets.
Two formulas (Regular and Alternative) are used to calculate the total of the frozen accrued tax-qualified and the frozen accrued non-qualified retirement benefit available to eligible U.S. executives. The Regular Formula determines frozen accrued benefits that are calculated based upon the average of the highest five years of base salary during the ten years preceding January 1, 2007, and also takes into account the executive’s eligible contributory and non-contributory service at GM as of December 31, 2006, as defined in the tax-qualified SRP. These frozen accrued benefits are subject to an offset of a portion of the maximum 2007 Social Security benefit.
The Alternative Formula determines frozen accrued benefits based upon average annual total direct compensation, calculated as the sum of (i) the average of the highest five years of base salary during the ten years preceding January 1, 2007, plus (ii) the average of the highest five years of bonus received that is attributable to the ten years preceding January 1, 2007 — each average calculated independently. For 2002 and 2006 an amount equal to the hypothetical cash value of a payout under the AIP was used to calculate the average of the highest five years of bonus received in the ten years before retirement for purposes of calculating Alternative SERP Formula. For retirement benefit calculation purposes, the original salaries for 2006 for Messrs. Wagoner, Henderson, Lutz, Gottschalk, and Devine were used.
The Alternative Formula also takes into account the executive’s eligible contributory (and non-contributory) service at GM as of December 31, 2006, as defined in the tax-qualified SRP, subject to a maximum of 35 years and provides for an offset of 100 percent of the maximum 2007 Social Security benefit. Only those executives who satisfy certain criteria, including not working for a competitor or otherwise acting in any manner that is not in the best interests of the Corporation, are eligible to receive frozen accrued benefits calculated under the Alternative Formula in lieu of frozen accrued benefits calculated under the Regular Formula. If the executive is eligible for the Alternative Formula, total tax-qualified and non-qualified retirement benefits calculated under both formulas are compared, and the executive receives whichever retirement benefit is greater. Benefits calculated under both the Regular and Alternative formulas are payable under a program that is non-qualified for tax purposes and not pre-funded. Non-qualified benefits under either the Regular or Alternative formulas can be reduced or eliminated for both retirees and active employees by the Executive Compensation Committee and/or the Board of Directors.
Executives who retired prior to January 1, 2007, were eligible to elect to receive retirement benefits in the form of a 65 percent joint and survivor annuity. For those who did so, single life annuity amounts were generally reduced by 5 percent to 12 percent, depending upon the age differential between spouses. In addition, certain executives grandfathered under the American Jobs Creation Act of 2004 may elect to receive a portion of their non-qualified retirement benefit paid in a lump sum, calculated using mortality tables and a 7 percent discount rate, with the remainder paid as either a single life or 65 percent joint and survivor annuity.