More Pension Plan Sponsors Adopt De-Risking Strategies

Ford, General Motors and Verizon are among a growing number of U.S. companies taking measures to reduce the risk in their pension plans and, according to Ari Jacobs of Aon Hewitt, increase the liquidity of their assets.

Institutional Investor

December 5, 2013

By Robert Stowe England

This month Ford Motor Co. expects to complete a program offering 90,000 former U.S. salaried employees a lump-sum payment in place of a pension annuity. Bob Shanks, Ford’s chief financial officer, said in a statement when Ford adopted the de-risking strategy for its defined benefit plans in April 2012 that it was being undertaken to “reduce our pension obligations and balance sheet volatility.” Offers began to go out in August 2012 to retired salaried workers, as well as to former employees who are not yet retired but whose pension contributions are vested.

Employees have taken up the offer in sufficient numbers to settle $3.4 billion in pension obligations at a cost of $689 million as of September 30. The payouts were made from plan assets to former employees who accepted the offer. While Ford’s U.S. pension plans were underfunded by $9.7 billion at the end of 2012, the shortfall has been reduced this year by higher interest rates, higher returns on assets and an additional $2.7 billion in plan contributions during 2013, plus the lump-sum program. Ford declines to say by how much, but Shanks told Reuters in July that the funding gap for the company’s U.S. plans should be closed by the end of 2015.

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Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

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