GM and Ford Offer Retirees Lump-Sum Pension Payments

Auto retirees of the company have important investment decisions to make because they consider special retirement buyout program offered by General Motors ("GM") and Ford Motor Company ("Ford"). While the offers unprecedented sum buy-out will help the automakers in that Ford describes as a "long-term strategy for risk in the world of its funded pension plans," the act of transferring the risk of pension fund manager of the Fortune 10 employers in the hands of the retirees themselves.

The general plan retirement Motors

GM plans to eliminate traditional pensions for all current employees employed by the end of 2012, according to the Wall Street Journal.

The automaker giant is to take two exceptional measures to reduce pension costs. First, GM is offering cash payments standard 42,000 eligible salaried retirees who receive monthly pension checks. Not all retired employees are eligible for the package.

Second, GM's pension administration outsourcing for American retirees additional 76,000 employees. Prudential Financial Inc. will administer the new GM retirement program, which is funded by a group annuity contract. Pension payments to these retirees from GM, which are not expected to change in terms of monthly payments, starting in 2013 under the new plan. Unlike the redemption sum, annuitizing plan by Prudential does not require the approval of individual plan participants.

GM would pay between $ 3.5 and $ 4.5 billion as a cash contribution to its pension plans for U.S. employees to purchase retirement pension and increase levels of funding regimes. This action has no impact on GM's obligations to other benefits, including retiree health care, life insurance and discounts for vehicles.

The Ford Plan

Ford has 90,000 employees and retirees U.S. U.S. employees former employees the opportunity to voluntarily accept a lump sum payment of their pension assets. Ford will essentially meet their pension obligations to these retirees who choose to accept the offer. Payments, which starts later this year, will be paid from existing assets of pension funds. This offer is similar to the option of lump sum retirement payment available to U.S. employees that future retirees of July 1, 2012.

The Dilemma of retirees

Fitch Ratings, according to a press release in June 2012, expects that "the two companies with pension liabilities and cash flow could significantly important to consider adopting a new strategy as a way to reduce their exposure to the volatility level . massive pension commitments were forcing large companies for years ... and remain a major concern for investors. "

As the public and private employers to take steps to limit their exposure to pension liabilities, greater responsibility for retirement planning is transferred to the retired person. Economic pressures in the environment in today's job uncertainty may force some retirees to redirect large pension cash requirements of daily life, even at a cost of early withdrawal penalties.

Medical retirement benefits remain a major risk to public and private retirees also. Unlike pension obligations, which carry specific requirements of advanced funding, retirement benefits of health care is financed on a pay-as-you-go system and are not automatically granted. In too many cases, well-intentioned promises retiree medical care have no financial support. Employers are declining subsidies retirees medical and expansion of efforts to manage costs, according to a 2011 Survey of 500 employers Hewitt Aon.