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 being offered by both General Motors ("GM") and Ford Motor Company ("Ford"). While the unprecedented lump-sum buy-out offers will assist the auto makers in what Ford describes as a "long-term strategy to de-risk its global funded pension plans," the action will transfer the risk of managing pension funds from these Fortune 10 employers into the hands of the pensioners themselves.

The General Motors Pension Plan

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

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

Second, GM is outsourcing pension administration for an additional 76,000 U.S. salaried retirees. Prudential Financial Inc. will administer the new GM pension program, which is being funded through a group annuity contract. Pension payments to these GM retirees, which are not expected to change in terms of monthly benefits, will begin in 2013 under the new plan. Unlike the lump-sum buyout, annuitizing the plan through Prudential does not require approval from the individual plan participants.

GM is expected to pay between $3.5 and $4.5 billion as a cash contribution to its U.S. salaried pension plans in order to purchase the annuity and increase pension plan funding levels. This action does not impact GM's obligations for other benefits, including retiree health care, life insurance and vehicle discounts.

The Ford Plan

Ford is offering 90,000 U.S. salaried retirees and U.S. salaried former employees the opportunity to voluntarily accept a lump-sum payment of their pension assets. Ford will essentially settle their pension obligations to those retirees who choose to accept the offer. Payouts, which will begin later this year, will be paid from existing pension fund assets. This offer is similar to the lump-sum pension payout option available to U.S. salaried future retirees as of July 1, 2012.

The Retiree Dilemma

Fitch Ratings, according to a June 2012 press release, expects that "companies with both significant pension obligations and considerable cash might consider adopting a fresh strategy as a way to reduce their exposure to plan volatility. Massive pension liabilities have been constraining large companies for years... and remain a major concern for investors."

As public and private employers take steps to limit their exposure to pension liabilities, more responsibility for retirement planning is being shifted to the individual retiree. Economic pressures in today's uncertain job environment may force some retirees to redirect large cash pension payouts to the demands of daily living, even at a cost of early withdrawal penalties.

Retiree medical benefits remain a major area of risk for private and public retirees also. Unlike pension obligations, which carry specific advance funding requirements, retiree health care benefits are funded on a pay-as-you-go system and do not automatically vest. In too many cases, the well-intended promises of retiree medical care have no financial backing. Employers are decreasing retiree medical subsidies as well as expanding cost management efforts, according to a 2011 Aon Hewitt survey of 500 employers.

In Summary

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

While Chrysler has not announced similar plans, watch for other large plan sponsors to play follow-the-leader. State and municipal governments may take notice as well, since they are grappling with a $1 trillion pension funding gap.

Will ERISA litigation result from these unprecedented pension plan changes? Only time will tell.

ABOUT THE AUTHOR: Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or http://www.erisa-benefits.com.

June 15, 2012

Mark Johnson, Ph.D., J.D., a highly experienced ERISA expert, is founder of ERISA Benefits Consulting Inc. http://www.erisa-benefits.com/ As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778. ERISA Benefits Consulting, Inc by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.

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How to Make the Most of Your Social Security Disability Payments

Are you receiving Social Security Disability payments? If so, then there are a certain things that you need to know in order to make sure that you are getting the most out of your payments. Often times, individuals who first begin receiving payments of this sort are not quite sure how to maximize their new source of income. If you are one of the many Americans who find him or herself relying on Social Security disability Insurance, then the following advice ought to prove helpful. These are just a couple of steps that you can take to make sure that you are getting what you need.

First, and perhaps most important, make sure to speak with a representative from your local Social Security office before you submit your application. The reason for this is that often times these applications can be rather involved and filled with legal jargon. This being the case, it is often difficult for the untrained individual to understand the intricacies of the application process. Additionally, a representative will be able to make sure that you get the full amount for which you qualify. The last thing you want is to submit an application only to end up receiving less than the amount that you are due. Finally, a well-informed representative will be able to explain to you some of the additional features of the Social Security Disability Insurance program that you might not have been aware of otherwise.

Second, you will want to make sure that you are well-prepared to spend your disability payments wisely. Social Security Disability Insurance is intended to help defray some of the costs of medical care and will not always suffice as a replacement for your normal income. Therefore, it is important to have a financial plan in place so that the benefits you are receiving meet your particular needs. One way to accomplish this is by simply stopping in to your local bank. Many banks offer complementary financial reviews for their customers with licensed financial consultants. Having a professional evaluate your financial situation will go a long way in ensuring that you have a solid understanding of how best to appropriate the payments that you receive.

Applying for Social Security Disability can be a daunting task, but it doesn't have to be. While it can be difficult to know precisely what steps to take to make sure that your money is working for you in the way that you need it to, there are ways to get the information you need. Naturally, everyone who utilizes this safety net wants to get back the money that they have earned through their hard work and paid into the program. By following these two simple steps, you can be well on your way to making sure that you are covered in your time of need.

Do you need legal assistance with your Colorado Springs social security disability? We're here to help. Call today or visit us at http://www.allisontylerlaw.com/.

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Key Pointers In Selling Annuity Payments

Annuity payments are the by-product of structured settlements, in an attempt to compensate the injured party and dismiss a case filed against the defendant. They are usually released periodically through a third party company, which helps maintain the settlement and manage the finances of both entities involved. More often than not, plaintiffs prefer the orderly and scheduled payment releases that are provided by brokers, as they are tax free and legal. But, there are instances when periodic releases are too far apart, or bigger incentives are required by the petitioner, and this prompts them to entertain the option to sell annuity payments for a lump sum. Although seemingly reasonable, there are great risks attributed to lump sum payments and it is possible that they will not meet the true economic value of the annuity settlement. So instead of getting more, the plaintiff actually gets less - which puts him in a compromised position.

If one must give up his annuity, it is best that he only sells a part of the structured settlement - not the whole. There are brokers out there who accept such terms without demanding interests or huge service fees. It is essential that the plaintiff canvasses the market thoroughly to find the best quote. He should also seek the counsel of an attorney or financial planner, so that he will know his rights and options. State lawyers are free of charge and there are those who can be paid on an hourly rate. Aside from guidance, lawyers will also represent the plaintiff in his claim, take care of the paperwork and get the sale court-approved. Obviously, the transaction will take time. So don't believe a broker when he says he can offer you instant disbursement for the annuity sale. He is clearly doing something illegal and is not looking out for your best interest.

Partial sale of your structured settlement can be likened to a cash advance or loan. They are not much, but, they do give you that guarantee of retrieving your annuity payments eventually. When the sale is done and you receive the requested amount, the broker will start retaining a portion of the structured settlement until such time that the amount owed is covered. Then you, as the rightful owner, can recover it and resume acceptance of the periodic annuity payments and spend them according to your preference.

It is strongly discouraged for anyone to turn over their claims on the settlement and sell annuity payments as a whole, since the disparity between the present and future intrinsic value of the annuity cannot be avoided. Besides, no broker would ever pay too much for these types of investments. As such, the only one who stands to gain from the whole transaction is the buyer. If you need quick cash, then approach family and friends for credit, and present your annuity as payment guarantee. If they can't help you, pawn something of value that you possess and just buy it back when you have the money. There are several other courses you can take. You don't have to wager your future today.

For more information on how to sell annuity payments and for more information on annuity payments, visit our website http://www.fairfieldfunding.com/sell-annuity.html.

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