Ford: Global plans key in pension moves

June 6, 2012
Ford: Global plans key in pension moves
Automaker decided to invest in new cars, dividends, expansion
By KEITH NAUGHTON / Bloomberg News
Ford Motor Co., which has a $15.4 billion unfunded pension liability, rejected offloading its retiree obligations as General Motors Co. is doing in favor of investing on global expansion, new models and paying dividends.

The second-largest U.S. automaker considered shifting its salaried pension plan to an outside company as GM is doing by purchasing an annuity with a Prudential Financial Inc. unit, Bob Shanks, Ford’s chief financial officer, said Monday.

GM said it will spend $3.5 billion to $4.5 billion to purchase the group annuity and offer pension buyouts to 42,000 salaried retirees.

“That’s a huge outlay,” Shanks said. “When we look at our spending plans, look at our plans for dividends, look at our plans for pension contributions, when we think about our growth plans, product plans. As we do all that, we don’t think we have excess cash.”

Ford is offering lump-sum pension payments to about 98,000 U.S. salaried retirees and former employees.

Shanks can’t say how much that may lower Ford’s global $74 billion pension liability because it’s unclear how many retirees will take the buyout.

GM said it aims to cut its pension obligation by $26 billion through offering buyouts and creating the annuity.

“We’ve looked at all sorts of options,” Shanks said. “It’s not like it’s rocket science, there’s only so many things you can do to de-risk a pension plan. We are comfortable with what we’ve done thus far.”

Ford is contributing $3.5 billion to its global pension plans this year and will begin making buyout offers to salaried retirees in August, Shanks said.

GM’s move to also offer lump-sum payments to retirees isn’t likely to have any impact on the take-rate at Ford, Shanks said.

“If it were me, it would be very personal,” Shanks said. “I’d have my own point of view about how I felt from a financial perspective. I’d have my point of view about how I felt about the health of the company because, obviously, by not taking a lump sum you’re assuming and depending on Ford continuing as an ongoing operation for the balance of your lifetime.”

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