To resolve a $15.4 billion unfunded pension liability, Ford Motor Co. decided to expand worldwide, offer new models and pay dividends rather than offload its retiree obligations, which General Motors Co. has done. Last Monday, Ford CFO Bob Shanks said that the automaker thought about moving its salaried pension plan to an outside company.
GM has done just that by buying an annuity with a Prudential Financial Inc. unit. GM said that it will invest an amount between $3.5 billion to $4.5 billion to buy the group annuity and provide pension buyouts to 42,000 salaried retirees. Shanks described it as a “huge outlay.”
He explained that Ford estimates that it doesn’t have excess cash after considering its spending plans, its dividends, and its pension contributions, as well as its plans for growth and for its products.
What Ford is offering to around 98,000 U.S. salaried retirees and former employees are lump-sum pension payments. Shanks declined to say how the move will affect the Ford’s global $74 billion pension liability since it’s uncertain just how many retirees will opt for the buyout.
GM has announced that it seeks to reduce its pension obligation by $26 billion by offering buyouts and making the annuity. Shanks explained that Ford studied all its options and that it is “comfortable” with its current plan. For this year, Ford is contributing $3.5 billion to its global pension plans. This August, Ford will start to make buyout offers to salaried retirees. Shanks said that GM’s move to also offer lump- sum payments to retirees probably won’t affect the take-rate at Ford.