The US Government Should Learn From Ford And GM's Pension Buyouts

factory ford assembly line

Photo: Wikimedia Commons

Ford wasn’t bailed out along with General Motors, but they are both making some savvy business decisions and the U.S. government should take notes. In an attempt to reduce the size of their future debt obligations, both companies plan to make offers to buyout employees’ pensions.This manoeuvre could end up saving both companies tremendously and clean up much of their balance sheets.

The U.S. government would be wise to employ this tactic with Social Security if they ever expect to make good on their debts to the American public.

The Detroit News reports:

“Ford Motor Co. said Thursday it will make offers as early as August to buy out the pensions of 98,000 U.S.-based salaried retirees and former white-collar workers.

The Dearborn automaker, in offering more details of a plan announced in April, is making the pension pitch as part of an unprecedented strategy to shed up to one-third of its $49 billion U.S. pension liability.

Ford hopes the lump-sum payout plan will help close the funding gap for its pension obligation and shore up its balance sheet, a move that could also boost its cash flow, credit rating and stock price. Ford’s $74 billion global pension liability was underfunded by $15.4 billion at the end of 2011.

It’s unclear how many workers will accept the offer, said Ford spokesman Jay Cooney.

‘The level of participation is difficult to predict, given the voluntary and unprecedented nature of the program,’ Cooney said. ‘It is a highly personal decision and will depend largely on an individual’s unique set of circumstances.’

‘It’s absolutely and completely voluntary,’ he added.”

More from the Free Press:

“GM is offering pension buyouts to 42,000 salaried workers, and in a move that’s breathtaking in its size, is paying an insurance company to take over $26 billion in pension obligations expected to remain after the buyouts this year.

‘The size of the transaction alone makes it unique within corporate America and the pension industry,’ said Aon Hewitt, the global human resources consultant.

GM is paying $29 billion to Prudential Insurance Company of America to take over the $26 billion of pension obligations. “We will never have to deal with it again,” CFO Dan Ammann said. “This ‘de-risks’ the balance sheet.”

Investors loved the idea, announced midday Friday, and GM stock rose more than 10(per cent) before closing, as the market sank, at $22.01, down 19 cents and well off the 52-week high of $32.08.”

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