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Ford Motor Co (NYSE:F) will finally bite the bullet on its mounting pension liabilities and offer lump sum pension buyouts to about 98,000 retirees and former employees.
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A current estimate of Ford’s U.S. pension liability puts it at around $49 billion. The above buyouts, which are voluntary, may clip a third of that if they are successful.
Ford’s global liability is put at above $74 billion, with a funding shortfall of $15.4 billion at the end of 2011.
Ford’s buyout plan was approved by the government in March. CFO Bob Shanks said the approval came after Ford showed the deal would give “an incremental favorable option to the plan participant.” Interestingly, neither Shanks nor Ford were forthcoming on further details of how this would work.
Ford’s plans got a leg up with a change in law that allowed companies to use the corporate bond rate instead of the 30-year T-bond in calculating the commuted value of the pension – this makes it cheaper for Ford to make the buyout offers. “We think if we can get at least a meaningful number of employees, this will take billions of dollars of obligations potentially off the table,” Shanks told Reuters in an interview
These offers effectively shift the burden of management of the pension fund from the company to the retiree. “This is a major decision for every employee who receives that offer,” said Howard Freers, chairman of the Ford Retired Engineering Executives. “Do I take the lump sum or stay where I am? That’s totally, totally dependent on what that offer is, how long they project you will live and whether or not you’re in good health.”
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