Ford Motor Co. said April 27 it will offer 90,000 U.S. salaried retirees and former employees the option to take their monthly pension benefit as a lump-sum payment.
The magnitude of the program, which is part of Ford's long-term strategy to "de-risk" its pension plan, is the largest ever offered "by a U.S. company for ongoing pension plans," the automaker said.
Pension experts say the program may be the first of its kind. Typically, lump-sum payments are offered as an option only when an employee terminates employment and is eligible for a pension benefit.
"Historically, lump sum distributions, which allow plan participants to exchange receiving periodic annuity payments for a single lump-sum payout, have been offered to participants only upon separation from active employment," benefit consultant Towers Watson said in a statement.
When individuals take a lump-sum payment rather than continued monthly benefits, Ford no longer will face such risks as paying more than expected if the individuals live longer than expected. In addition, Ford no longer would face the risk of making additional unexpected contributions to its plans in the future to pay benefits if investment returns slump.
"Providing the option of a lump-sum payment to current salaried U.S. retirees and former employees will reduce our pension obligations and balance sheet volatility," Ford Executive vice president and Chief Financial Officer Bob Shanks said in a statement.
At year-end 2011, Ford's U.S. pension plans—including plans covering salaried and retired employees and union employees and retirees—had a funded ratio of 80.7 percent, with $39.41 billion in assets and $48.82 billion in liabilities. That compares with a funded ratio of 85.8 percent at year-end 2010, when the U.S. plans had $39.96 billion in assets and $46.65 in billion in liabilities.
Ford said payouts will start later this year and will be funded from existing pension plan assets.