Exclusive: Ford readies first set of landmark pension buyouts

DETROIT (Reuters) - Ford Motor Co will pursue its boldest attempt yet to tackle a nearly $50 billion risk to its business when it begins offering lump-sum pension payout offers to 98,000 white-collar retirees and former employees this summer.

The voluntary buyouts have the potential to lop off one-third of Ford's $49 billion U.S. pension liability, a move that could shore up the company's credit rating and stock price. It is unclear to Ford, retirees and analysts just how many people will gamble on the offer, which pension experts described as unprecedented in its magnitude and scope.

"We think if we can get at least a meaningful number of employees, this will take billions of dollars of obligations potentially off the table," Chief Financial Officer Bob Shanks told Reuters in an interview.

A growing concern for decades as U.S. automakers lost market share to foreign-based automakers in their home country, pension costs became an albatross for the U.S. industry with the sector's downturn five years ago.

The offers are the latest in a series of steps Ford and its larger rival General Motors Co have taken to cut these risks. Since 2000, Ford's U.S. pension liability has increased almost 50 percent. Several companies have asked Ford how the buyout offers will be rolled out, a sign that others may follow suit if Ford is successful.

The No. 2 U.S. automaker sketched out its pension buyout offer for current retirees when it released first-quarter earnings in April, but until now had offered few details.

As early as August, between 12,000 and 15,000 U.S.-based workers will receive the first wave of offers to swap their monthly pension checks for a one-time payment.

The offer shifts the responsibility of managing those funds from Ford to the retiree. It is rare for a company to amend an existing pension plan.

"I feel schizophrenic at times," said Rick Popp, Ford's director of employee benefits. "There are times when I think it will be very popular. Other times, I think nobody will take it. To us, it's an opportunity."

At the end of 2011, the gross pension liabilities of both GM and Ford rose to record levels, Citi analyst Itay Michaeli said. Ford finished 2011 with a global pension obligation of $74 billion, nearly double the company's $40 billion stock market value.

Ford's global pension plan was underfunded by $15.4 billion as of end 2011. This shortfall, which widens and contracts based on asset returns and interest rates, is typically viewed as debt by credit ratings agencies.

The voluntary buyouts will not change the pension shortfall, but lowering the overall size of the obligation will help Ford align plan assets with liabilities. Like many businesses, both GM and Ford have taken steps to shift their pension assets to steady, fixed-income investments and are pouring in cash to fund those plans.

The idea of the voluntary buyouts came after a meeting between Ford's top financial executives and in-house pension experts three years ago. In the midst of the financial downturn, Ford's then-CFO Lewis Booth met with Shanks, Ford Treasurer Neil Schloss and in-house pension experts to consider ways to slash the company's pension liability.

Ford received governmental approval to make the lump-sum payments in March. Shanks said the approval came after Ford showed the deal would give "an incremental favorable option to the plan participant." Shanks and Ford declined to elaborate.

Ford shares have lost 16.4 percent since mid-February. The stock closed down 1.7 percent at $10.66 on Wednesday.

WEIGHING MORTALITY

Earlier this month, Popp and Schloss met with retired Ford engineers in Dearborn, Michigan. Over a lunch of roast pork and whitefish, they fielded questions about the lump-sum offer and how the plan would roll out.

Consideration of the offers, which have not been mailed to former employees yet, will rely on each worker's health, projected lifespan and finances - subjects that can be difficult to broach.

"Some of it was half-heartedly and jokingly talking about mortality," Popp said, referring to the meeting. "It is something that you don't sit around and talk about that often."

Ford benefits from a change in U.S. pension law this year that allows companies to use a corporate bond rate in calculating lump-sum payments, rather than the 30-year Treasury rates. That would make it less expensive to make those offers, said Jonathan Barry, a partner at benefits consulting firm Mercer.

Initially, Ford said the deal would be offered to about 90,000 workers, but the final tally came in higher. Ford has already hammered out the buyout figures for all the eligible employees and plans to roll out the plan in stages. Each wave of retirees will be randomly selected.

Employees will each receive a postcard followed by an informational kit with their offer. After that, they have 90 days to make a final decision on the one-time offer.

"This is a major decision for every employee who receives that offer," said Howard Freers, chairman of the Ford Retired Engineering Executives, which hosted the lunch. "Do I take the lump sum or stay where I am? That's totally, totally dependent on what that offer is, how long they project you will live and whether or not you're in good health."

Ford employees and Deloitte experts will conduct group and one-on-one meetings in-person and by phone to discuss the buyouts during the next year around the United States.

"I don't know how to emphasize any stronger that I can't even start thinking about a decision or anything like that until I have a piece of paper in my hand," said the 85-year-old Freers.

'ISN'T FOR EVERYBODY'

Of the 98,000 eligible workers, 65,000 are Ford retirees or their surviving spouses. The rest are former employees who are vested in their pension plans and salaried workers who are also part of the United Auto Workers union.

A small number of hourly workers in Cleveland represented by the International Brotherhood of Electrical Workers and the International Association of Machinists will also receive deals.

Retirees represented by the UAW account for the bulk of Ford's U.S. pension liability, but changes to those plans must be negotiated with the union.

During contract talks last year, GM won an agreement from the UAW to discuss pension buyouts. That same option was discussed during talks between Ford and the UAW, but Ford did not receive a similar guarantee.

Ford executives emphasized that the company is not offering a financial incentive to take the buyout.

"This isn't for everybody," Popp said. "We're real open about that. If people don't think it's for them, then please don't take it."

(Reporting By Deepa Seetharaman; additional reporting by Jilian Mincer in Paris; editing by Matthew Lewis)

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