Ford’s Innovative Pension Play

Automaker aims to trim pension risk by buying out salaried retirees, former employees.

In a groundbreaking move to reduce Ford Motor’s pension obligations and related balance-sheet volatility, the company said it will offer salaried retirees and former salaried employees lump sums in lieu of future pension payments.

“This involves retirees in a plan that’s not terminating,” says Mike Archer, leader of intellectual capital for the North American retirement practice of consultancy Towers Watson, pictured at right. “We’re unaware of any other large plan that has done this.” Other organizations have offered lump sums to former employees who are vested in the pension plan but not yet retired, he says.

In response to a question about the discount rate Ford will use to compute the present value of the pension payments it has promised to retirees and former employees, Shanks said the calculation will be done “person by person.

“It’s done with actuarial data around each individual and how long they might be expected to live,” he said. “It’s not one rate, it will be thousands of rates.”

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