Ford: Pension buyout offers to 98K may start in August

June 1, 2012 at 8:22 am

Ford: Pension buyout offers to 98K may start in August
By Jaclyn Trop
The Detroit News

Ford Motor Co. said Thursday it will make offers as early as August to buy out the pensions of 98,000 U.S.-based salaried retirees and former white-collar workers.

The Dearborn automaker, in offering more details of a plan announced in April, is making the pension pitch as part of an unprecedented strategy to shed up to one-third of its $49 billion U.S. pension liability.

Ford hopes the lump-sum payout plan will help close the funding gap for its pension obligation and shore up its balance sheet, a move that could also boost its cash flow, credit rating and stock price. Ford’s $74 billion global pension liability was underfunded by $15.4 billion at the end of 2011.

It’s unclear how many workers will accept the offer, said Ford spokesman Jay Cooney.

“The level of participation is difficult to predict, given the voluntary and unprecedented nature of the program,” Cooney said. “It is a highly personal decision and will depend largely on an individual’s unique set of circumstances.”

“It’s absolutely and completely voluntary,” he added.

The first wave of offers will reach 12,000 to 15,000 randomly selected workers by the end of the summer. Ford will roll out the rest of the offers over 12 months, Cooney said.

Hourly workers comprise the remaining two-thirds of Ford’s U.S. pension obligation.

Retirees will have 90 days to decide to accept the one-time offer of a lump-sum payment based on interest rates, life expectancy and actuarial tables the federal government uses to calculate pension obligations.

Ford can calculate the payout amounts using a corporate bond rate instead of the 30-year Treasury rates, thanks to a change in U.S. pension law this year.

The decision by Ford executives to offer the payouts was not controversial, said Rick Popp, Ford’s director of employee benefits.

“Was there debate?” Popp said. “It was more about: ‘Can we do this? Is it possible?'”

“It could take millions or billions of dollars of obligations off our books,” he added.

General Motors Co., also facing a pension burden, is reportedly considering pension payouts. “We’re looking at opportunities for our de-risking strategy,” said GM spokesman Dave Roman.

Retirees had mixed reactions when Ford first announced a broad brush of the plan in April.

“I think clients are excited to see the offer,” said Kevin Van Dyke, president at Bloomfield Hills Financial. “I think at first there was a certain amount of skepticism. (People thought) if it’s a good move for Ford, then it can’t be a good move for me.”

The offer likely makes most sense for higher earners, who are more at risk if Ford defaults on its pension obligation, Van Dyke said. Retirees will consider factors including longevity, risk tolerance and succession planning when evaluating the offer.

“It’s not a good or a bad deal across the board,” he said.

Reducing Ford’s pension liability will appeal to investors and help the company achieve its goal of maintaining its investment-grade credit rating, which it regained in May. Moody’s Corp. became last week the second ratings house to upgrade Ford’s debt from junk bond status for the first time since 2005, one month after Fitch Ratings did the same.

“We don’t see the program as a risk,” Cooney said of the pension buyout plan. “From our standpoint, it’s proactive.”


About the buyouts

Who is eligible: 98,000 Ford salaried retirees and former white-collar workers in the U.S.
The offer: The lump-sum payment will be based on interest rates, life expectancy and actuarial tables the federal government uses to calculate pension obligations.
When: By summer’s end, offers will reach 12,000 to 15,000 randomly selected workers. The rest will be rolled out over 12 months.
Deadline: Retirees will have 90 days to decide once they receive the offer.

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