Ford pension buyouts eyed cautiously

This summer is set to see the first wave of offers being given to Ford Motor Company's former employees to trade their monthly pensions for a one-time cash payment.

The move, a strategic decision that could cut a third of the outstanding obligations existing in Ford's nearly $50 billion pension liabilities, has Ford's former employees, mostly white-collar retirees, considering their options, according to the Chicago Tribune.

By August, as many as 15,000 former employees may receive a formal offer in the mail, detailing the exact amount they'll get if they voluntarily forgo all future payments. A postcard will arrive, followed by an informational kit containing their offer. They'll then have 90 days to make a decision.

Ford initially expected the pay-out plan to cover 90,000 former employees but that number has grown to 98,000. The offers will be made in waves of randomly selected employees,

Of the 98,000 eligible workers, 65,000 are Ford retirees or their surviving spouses. The rest are former employees who are vested in their pension plans and salaried workers who are also part of the United Auto Workers union, the Tribune reports.
A small number of hourly workers in Cleveland represented by the International Brotherhood of Electrical Workers and the International Association of Machinists will also receive deals.

And what to make of that offer? Leon LaBrecque, a financial analyst in Troy, Mich., has written a whitepaper on the subject and suggests that retirees carefully consider their options.

As he points out, the choice boils down to concerns about retirees' understanding of their own future health care costs, the risk they're willing to take (either by staying in the pension plan, or investing the lump sum on their own) and considering the extra headache and fees associated with self-managing their investment strategy.

Most notably, since Ford's general retirement plan is basically already an annuity, does it make sense for retirees to swap one annuity for another? 




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