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Certain Ford Retirees Face Major Pension Decision
Originally published on Wed May 16, 2012 9:05 am
DAVID GREENE, HOST:
And now to big money that's tied up in a company's pension fund. Tens of thousands of white-collar Ford retirees will soon have a big decision to make: Should they stay in the auto company's pension plan, or take their chances with a lump sum payout instead? The offer is believed to be the first of its kind for such a large, ongoing pension fund.
Michigan Radio's Lindsey Smith reports.
LINDSEY SMITH, BYLINE: In Michigan, there are more than 30 clubs for Ford retirees. Charles White runs two of them. He says the voluntary lump sum option Ford is offering is the conversation at retiree club meetings right now.
CHARLES WHITE: Retirees are going to have to make a decision about mortality, about death, their own. That's not something we do every day.
SMITH: Ford is offering White and about 90,000 other white collar retirees a lump-sum payout of their remaining pensions. White is on the fence when it comes to taking the lump sum, because he doesn't have the terms of the offer yet. No one will until August. That's when Ford will randomly draw the first round of candidates for the lump-sum option. Ford's pension liability in the United States is a whopping $49 billion. The employees eligible for this lump-sum offer represent about a third of that liability. Ford doesn't expect to make any money off the lump-sum option, but if the company gets some of that liability off its balance sheet, it might look better to investors.
Sheldon Stone is a partner at Amherst Capital and specializes in corporate turnarounds.
SHELDON STONE: There's less risk involved on the part of the company, which would mean a greater return, or a more likely return, or both, for investors.
SMITH: Ford is eager to prove to investors and all the ratings agencies that it's worthy of moving up from junk rating to investment grade. Doing that would mean lower borrowing costs and major bragging rights for a domestic auto company that mortgaged almost every asset it had to avoid bankruptcy and a federal bailout. Stone says the plan could help Ford reach its goal.
STONE: If the take rate is high, I think it could.
SMITH: Ford says it has no clue how many retirees will take the offer.
Leon LaBrecque is CEO of LJPR, an independent wealth management firm, and he's been working with Ford retirees since 1985. There will be some retirees who think they can invest their pension money better than Ford. But LaBrecque assumes the lump-sum option will likely only benefit one in four retirees.
LEON LABRECQUE: The people who should take it are ones who would probably, you know, die before they'd get their money back out.
SMITH: And that worries him. What if the Ford pension fund is left with a bunch of really healthy retirees, people who are likely to live longer and cost the company more money over time than those who take the lump sum?
Retirees like this foursome, unwinding over tall glasses of ice tea and Coke after 18 holes of golf at the Oak Ridge Clubhouse, about 40 miles north of Detroit. Allan Yee retired from Ford in 2007. He and his wife have been talking about the option.
ALLAN YEE: My first impression was probably not, but if they give me an offer that knocks my socks off, then I'll consider it.
SMITH: A typical white collar Ford worker who retired now at age 64 could bring home around $3,000 a month. But take home money from pensions varies widely. Yee says a million dollar lump-sum offer would knock his socks off. Fellow retiree Robert Matsui nods his head.
ROBERT MATSUI: I can't imagine them offering me the kind of money it would take to make me take it, because, you know, I'm going to live a few years.
(SOUNDBITE OF LAUGHTER)
MATSUI: You know, I'm hoping to at least live 20, 25 more years.
SMITH: Ford is not offering any incentive to take the lump sum. So Matsui and Yee predict few will actually to take it. But if they're wrong, and Ford's successful, it could be a model for other large corporations with growing legacy costs.
For NPR News, I'm Lindsey Smith. Transcript provided by NPR, Copyright National Public Radio.