Clock ticks on Ford pension proposal

July 31, 2012
Clock ticks on Ford pension proposal
Automaker tries to slim $49B liability with lump-sum deals
By KARL HENKEL / The Detroit News
William Gryc is among about 98,000 Ford Motor Co. salaried retirees facing pension buyout offers, but this isn’t his first brush with lump-sum buyouts.

Gryc, of Hartland, was a Ford employee for nearly 15 years. Before that, he worked nearly two decades at General Motors Co. and took a pension buyout from GM in 1988 worth about $84,000.

The retired engineer finds himself in a similar position. But this time he isn’t sure if he’ll take the buyout, which is about 10 percent less than the $250,000 he anticipated.

“The first time, it worked out pretty well,” he said.

“At this point I’m not sure. I’m going to take some more time to evaluate it.”

The 69-year-old Gryc is part of the first wave of Ford salaried retirees receiving notification of a lump-sum buyout, Ford’s way of shedding up to one-third of its $49 billion U.S. pension liability.

Ford underfunded its $74 billion global pension liability by $15.4 billion at the end of 2011 and hopes many of its white-collar retirees will take the lump-sum payout to help close the funding gap and shore up its balance sheet, which could boost Ford’s cash flow and stock price.

The automaker is sending its white-collar retirees two letters: The first informs them that they are eligible for the lump-sum option; the follow-up letter includes Ford’s specific settlement offer.

Gryc and 15,000 to 20,000 fellow retirees have already begun to receive informational packets and expect to receive offers by Wednesday.

Gryc received his offer Monday; he said Ford did not detail exactly how his figure was calculated, though it is based on interest rates, life expectancy and actuarial tables the federal government uses to calculate pension obligations.

Other retirees not in the first wave will get their offers during the next year.

Retirees who receive an eligibility letter and a financial offer have a 90-day window in which to accept a buyout.

Marilyn Capelli Dimitroff, a certified financial planner who runs Capelli Financial Services Inc. of Bloomfield Hills, said as of Monday she had heard of only one Ford retiree who had received an offer.

“Folks are having more time to think about it,” she said. “But the thing that everyone’s looking for is, what is my offer?”

General Motors Co.’s lump sum pension offer to 42,000 salaried retirees expired July 20 — it’s not saying how many opted for a lump sum — and some financial advisers who counseled retirees predicted a near even split among retirees electing to take the buyout.

But Kevin Van Dyke, president at Bloomfield Hills Financial, says it’s likely a greater percentage of Ford retirees will take the lump sum.

The reason: As part of its changeover, GM will offload its white-collar pension liability to Prudential Insurance Co. of America starting in January, a safer move for those electing to stick with standard pensions. But Ford will retain responsibility for its pension liability, and pensions could be at risk if Ford defaults on its obligation.

This difference, however, hasn’t entered into Gryc’s decision-making process.

“It really didn’t enter into my consideration and even if I had decided to remain with the pension, my concern about Ford’s ability to keep paying would be minor,” he said.

In Gryc’s case, his wife, Joan, would receive 65 percent of his pension if he dies first. If she dies first, his children — living in an era when pensions will be more unpredictable — would get nothing from their father’s traditional pension, he said.

“I don’t feel my kids are going to have the same opportunity,” he said.

“That’s one of the reasons I’d like to be able to help them out.”

The result will likely be a win-win for Ford and retirees, said Van Conway, CEO of Birmingham-based advisory firm Conway MacKenzie: Retirees who accept the lump-sum offer will receive guaranteed money and Ford can rid itself of expensive pension obligations.

“The pensions were supposed to be sacred,” Conway said.

“But this will strengthen the balance sheet for Ford.”

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