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DETROIT | Thu., May 31, 2012 6:54am EDT (Reuters) — Ford Motor Co. will pursue its boldest attempt yet to tackle a nearly $50 billion risk to its business when it begins offering lump-sum pension payout offers to 98,000 white-collar retirees and former employees this summer.
The voluntary buyouts have the potential to lop off one-third of Ford's $49 billion U.S. pension liability, a move that could shore up the company's credit rating and stock price. It is unclear to Ford, retirees and analysts just how many people will gamble on the offer, which pension experts described as unprecedented in its magnitude and scope.
The offers are the latest in a series of steps Ford and its larger rival General Motors Co. have taken to cut pension risks. Since 2000, Ford's U.S. pension liability has increased almost 50%. Several companies have asked Ford how the buyout offers will be rolled out, a sign that others may follow suit if Ford is successful.
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.
The offer shifts the responsibility of managing those funds from Ford to the retiree. It is rare for a company to amend an existing pension plan.
"I feel schizophrenic at times," said Rick Popp, Ford's director of employee benefits. "There are times when I think it will be very popular. Other times, I think nobody will take it. To us, it's an opportunity."
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.
The 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.
Consideration of the offers, which have not been mailed to former employees yet, will rely on each worker's health, projected lifespan and finances - subjects that can be difficult to broach.
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.
(Reporting By Deepa Seetharaman; additional reporting by Jilian Mincer in Paris; editing by Matthew Lewis)
© 2011 Thomson Reuters.
