Ford took another step today to solve its huge problem with unfunded global pension plans, by announcing that it will offer to about 90,000 eligible U.S. salaried retirees and U.S. salaried former employees the option to receive a voluntary lump-sum payment for their pensions.
Worldwide Ford has $15.4 billion in underfunded pension liabilities; including $9.4 billion in the U.S. Ford is in the process of closing many of its plans to new entrants and looking to move this huge liability off its balance sheet. Ford says it will be years before its pension plans are fully funded.
If a person takes the lump-sum payment, the company’s pension obligation to the individual will end. This is uncharted territory, likely the first time a program of this type and magnitude has been offered by a U.S. company for ongoing pension plans, so no financial estimates of the costs and benefits of the program were given.
In his usual candid way, Bob Shanks, now Ford executive vice president and chief financial officer with the retirement of Lewis Booth said that the company has assumptions, but he has no idea if they are valid, so he will wait to discuss the impact.
Payouts will start later this year and will be funded from existing pension plan assets, so it will not hurt the balance sheet. This is in addition to the lump-sum pension payout option available to U.S. salaried future retirees as of July 1, 2012.
Ford generated positive cash flow of $900 million in the first quarter, the eighth consecutive quarter of positive performance. First quarter liquidity actions also included the successful amendment and extension of the company’s revolving credit facility, resulting in commitments of $9 billion through November 2015 and an additional $300 million through November 2013.