De-risking helps Ford settle $700M in pension obligations in third quarter
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Ford Motor Co. on Thursday reported that it settled about $700 million in pension plan obligations during the third quarter as part of its trailblazing pension de-risking program.
In all, the Dearborn, Mich.-based automaker has settled $3.4 billion in obligations through the program, which it launched last year and will be concluded by the end of 2013.
Under the program, which Ford said is 80% complete, the company offered 90,000 U.S. salaried retirees and former employees the option to take their monthly pension benefit as a lump sum payment.
When Ford announced the program in April 2012, experts described it as the first of its kind.
Until then, lump-sum payments had been offered as an option only when an employee terminated employment and was eligible for a pension benefit.
Through its approach, Ford reduced the risks associated with offering a defined benefit plan. That is because when individuals take a lump-sum payment rather than monthly payments, Ford doesn't face risks such as paying more if individuals live longer than expected.
In addition, with fewer pension plan participants, Ford faces reduced exposure to paying unexpected contributions to its plans in the future if investment returns slump.
Also, fewer pension plan participants means smaller premiums paid to the federal Pension Benefit Guaranty Corp.
Since Ford unveiled its program, more than a dozen other major employers have launched similar annuity-to-lump-sum-benefit conversion programs.
At year-end 2012, Ford's U.S. pension plans had a funded ratio of 81.3%, with $42.40 billion in assets and $52.13 billion in liabilities. That compares with a funded ratio of 80.7% at year-end 2011, when the U.S. plans had $39.41 billion in assets and $48.82 billion in liabilities.
