From In-Portal Developers Guide

GM and Ford Offer Retirees Lump-Sum Pension Payments

Auto company retirees have important investment decisions to make as they consider special pension buy-out programs to be had by both Automobile ("GM") and Ford Motor Company ("Ford"). Even though the unprecedented lump-sum buy-out offers will assist your vehicle makers in what Ford describes as being a "long-term strategy to de-risk its global funded pension plans," the action will transfer the potential risk of managing pension funds readily available Fortune 10 employers to the hands in the pensioners themselves.

The General Motors Retirement living

GM promises to eliminate traditional pension plans for all current salaried employees by the end of 2012, based on the Wall Street Journal.

The giant auto maker is taken two unusual steps to bring down pension costs. First, GM is providing lump-sum cash payments to 42,000 eligible salaried retirees who receive monthly pension checks. Not all salaried retirees are eligible for that lump-sum offer.

Second, GM is outsourcing pension administration for one more 76,000 U.S. salaried retirees. Prudential Financial Inc. will administer the brand new GM Click here, that's being funded by way of a group annuity contract. Pension payments about bat roosting GM retirees, who are not supposed to change in relation to monthly benefits, will become in 2013 within the new plan. Unlike the lump-sum buyout, annuitizing the plan through Prudential does not require approval through the individual plan participants.

GM is anticipated to spend between $3.5 and $4.5 billion being a cash contribution to its U.S. salaried pension plans so that you can choose the annuity and increase retirement living funding levels. This action will not impact GM's obligations for other benefits, including retiree healthcare, insurance coverage and vehicle discounts.

The Ford Plan

Ford offers 90,000 U.S. salaried retirees and U.S. salaried former employees the ability to voluntarily pay a lump-sum payment with their pension assets. Ford will essentially settle their pension obligations to people retirees that like to simply accept the sale. Payouts, which will begin later this coming year, will likely be paid from existing pension fund assets. This offer is exactly like the lump-sum pension payout option available to U.S. salaried future retirees as of July 1, 2012.

The Retiree Dilemma

Fitch Ratings, as outlined by a June 2012 website article, expects that "companies with both significant pension obligations and considerable cash might consider adopting a brand new strategy as a way to reduce their contact with plan volatility. Massive pension liabilities have been constraining large companies for a long time... and grow a significant concern for investors."

As public and private employers make a plan to limit their experience pension liabilities, more responsibility for retirement planning will be now use the consumer retiree. Economic pressures in the present uncertain job environment may force some retirees to redirect large cash pension payouts to the demands of everyday living, even for early withdrawal penalties.

Retiree medical benefits remain a significant part of risk web hosting and public retirees also. Unlike pension obligations, which carry specific advance funding requirements, retiree medical care benefits are funded on the pay-as-you-go system and never automatically vest. In lots of cases, the well-intended promises of retiree medical treatment have zero budgets. Employers are decreasing retiree medical subsidies along with expanding cost management efforts, in accordance with a 2011 Aon Hewitt survey of 500 employers.

In conclusion

The GM and Ford moves are significant due to the auto makers' role as leading U.S. employers, along with the magnitude of their efforts to transfer pension risks business balance sheets. GM plans to settle around $26 billion in pension obligations, with Ford following at around $18 billion.