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Ford Pension Buyouts begin in August 2012

Exclusive: Ford readies first set of landmark pension buyouts

As early as August, between 12,000 and 15,000 U.S.-based workers will receive the first wave of offers to swap their monthly pension checks for a one-time payment.

At the end of 2011, the gross pension liabilities of both GM and Ford rose to record levels, Citi analyst Itay Michaeli said. Ford finished 2011 with a global pension obligation of $74 billion, nearly double the company's $40 billion stock market value.

Ford's global pension plan was underfunded by $15.4 billion as of end 2011. This shortfall, which widens and contracts based on asset returns and interest rates, is typically viewed as debt by credit ratings agencies.

Take the next stepThe voluntary buyouts will not change the pension shortfall, but lowering the overall size of the obligation will help Ford align plan assets with liabilities. Like many businesses, both GM and Ford have taken steps to shift their pension assets to steady, fixed-income investments and are pouring in cash to fund those plans.

Ford benefits from a change in U.S. pension law this year that allows companies to use a corporate bond rate in calculating lump-sum payments, rather than the 30-year Treasury rates. That would make it less expensive to make those offers, said Jonathan Barry, a partner at benefits consulting firm Mercer.

Employees will each receive a postcard followed by an informational kit with their offer. After that, they have 90 days to make a final decision on the one-time offer.

Retirees represented by the UAW account for the bulk of Ford's U.S. pension liability, but changes to those plans must be negotiated with the union.

During contract talks last year, GM won an agreement from the UAW to discuss pension buyouts. That same option was discussed during talks between Ford and the UAW, but Ford did not receive a similar guarantee.

Click here for full story:
http://www.reuters.com/article/2012/05/31/us-ford-pension-idUSBRE84T1KW20120531
Story Date: 05-31-12

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