U.S. Automakers Cut Retirees Loose
GM and rival Ford Motor, rebounding from their near-death experiences during the financial crisis, are eager to rid their balance sheets of the huge pension obligations that Wall Street views as onerous debts weighing on their credit ratings and stock prices, Bloomberg News reported yesterday. So this spring they came up with an ambitious solution: buy out the lifetime pension payments due 140,000 salaried retirees. With both carmakers suddenly flush with profits—GM and Ford made $9.2 billion and $20.2 billion, respectively, in 2011—it seems like a smart way to remove decades of uncertainty from their finances. Yet because the buyouts are based on actuarial assumptions about what each retiree’s pension stream is worth using IRS projections about inflation, many ex-employees worry they may outlive their payments. GM says its $134 billion pension obligation is the largest of any company worldwide and was underfunded by $25.4 billion at the end of 2011. Ford’s $74 billion pension liability was underfunded by $15.4 billion at the end of last year.