The world of pensions, already becoming a bit of a holdover from a different era in America, took a new twist late last week with word that Ford Motor Company (speaking of that different era) has figured out a clever way to clear up its obligations to current retirees.
It's called a lump-sum payment. And it's not that much unlike the deals you see pushed on those late-night TV ads with the bus full of singing Vikings, offering folks to cash in their structured settlements and annuities. Or, like a gigantic 401(k) payout for those who've lost their jobs.
Under the plan, 90,000 salaried retirees, plus former employees who are due pensions, will be offered the golden ticket, a voluntary, one-time, lump-sum cash payment. In exchange, the retired workers will have to agree to waive all their rights to future payments. Exact details weren't released, but the whole plan is set to begin by July 1. What those employees choose to do with their cash, also up to them.
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Inventive? Yes. A sign of the times. Perhaps. Ford, like other major employers in the country, recognizes the long-term liability that an extensive pension plan holds – especially after years of crummy market returns and increased issues with the entire defined benefit scene.
Ford, the sole member of the Big Three (once again, speaking of a long-ago era) who did not accept a government bailout package, managed to ride out the past few years with plenty of good planning and an increased focus on the international market.
As part of the same announcement, Ford noted that it had made first-quarter profit of $1.4 billion, down about 50 percent from what it made the same time last year. The seemingly endless financial problems in Europe were a big part of the profit drop; Americans are actually buying cars once again, and it evidently seemed like a good time for the company to explore a pretty radical direction to stave off future obligations.
Granted, Ford's existing, unionized employees are not part of that picture – the UAW has fought long and hard to keep those obligations on the books – but the idea is that cashing out now, with existing pension plan funds, will be better for Ford's balance sheets. Ford's worldwide pension obligations were nearly $74 billion last year, with the plan underfunded by more than $15 billion.
The company did recently inject $3.8 billion into its global pension plan, putting more money into bonds; last year's contribution was $1.5 billion.
What might Ford's move mean for other employers facing similarly clouded pension futures? Professional consultants Towers Watson said that the plan might actually work for other big companies, though there's a load of regulatory and legal issues to consider. They also note that it's the first time a company has both offered a deal to its retirees but still offered to keep its existing obligations intact for current employees.
They also suggest that the onus is on workers to see if this entirely voluntary program is right for them – can retired autoworkers get the right kind of financial advice, even with a very large check burning a hole in their pocket, and convert it over to annuities or other products designed to replicate the slow-and-steady nature of a monthly pension?
Close to the company's home in Dearborn, Mich., Detroit Free Press financial columnist Susan Tompor offered potential "lottery winners" some advice to be prudent with their decisions and – like so many other Americans, begin the challenging but necessary process of thinking about their lifetime financial needs, their longevity projections, their health risks – and decide if the lump sum is a better deal than future checks.
As a parting shot, considering the near-daily tales of the out-of-control pension deficit issues in Illinois, see if you Chicagoland residents can sleep soundly knowing that former mayor Richard M. Daley will apparently receive a $180,000 annual pension himself. We guess you have to know who to talk to, to get a deal like that.
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