DETROIT – Retirement-eligible salaried employees at Ford were warned and advised about retiring this year to maximize a lump sum pension payment.
The company confirmed Wednesday that approximately 1,000 employees elected to retire by the Dec. 1 deadline.
"If you are considering retiring and choosing the lump sum option, it is important to understand the impact of higher interest rates on your individual lump sum amount, should you retire after Dec. 1, 2022," read the Ford memo, which also included a brief survey to help the company plan for employee retirements.
The warning – sent to employees in an email in September with the subject line "Important Information Regarding Your Pension" – specifically pointed out that anyone who is considering retiring and opting for a lump sum payment needs to look at the numbers.
Rising interest rates in 2022 will trigger a significant drop in the potential payout for those who choose the lump sum pension option next year.
How much will pension payments drop in 2023?
The lump sum for 2023, according to the Ford memo, would decrease by an estimated 20% to 25% relative to the lump sum values that Ford employees would get if they took it in 2022.
For example, if someone is looking at a $500,000 lump sum payout in 2022, the loss in 2023 could be in the range of $100,000 to $125,000.
Retirees who opt for the traditional monthly pension wouldn't see a change based on higher interest rates or inflation. Many pensions don't include cost of living adjustments that would boost a monthly pension check based on inflation, like Social Security does.
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Choosing a lump sum payout is an option, not a requirement.
Will Ford cut jobs next year?
These retirements are independent of recent actions by the company, which have included job reductions in parts of the company that focus on traditional internal combustion engine vehicles. While CEO Jim Farley divided the company into Ford Model e (electric) and Ford Blue (non-electric) units, it is Ford Blue trucks that generate the revenue needed to transform the Dearborn automaker.
Farley has indicated, however, that additional job cuts may be on the horizon in an attempt to be more competitive on costs of operating the company.
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Ford employs about 176,000 employees globally. The latest retirements will take down the total of salaried workers to 28,000 in the U.S., Ford spokeswoman Marisa Bradley told the Detroit Free Press, part of USA Today Network.
There is no one department affected by the retirements, she said. The company does not disclose specific details related to retirees, including how many take lump sum buyouts.
Financial analyst weighs in
Sam Huszczo, a chartered financial analyst in Southfield, Mich., said Wednesday that his firm had a lot of discussions with Ford clients about retiring in 2022 and taking the lump sum option.
"The main group of people who decided to take the lump sum offer were planning to retire in 2023 or 2024 anyway," he said. "And this was enough to push them over the edge to pull the trigger on retiring."
In some cases, he said, people felt anxious that they were making a major life decision that would impact the next 30 years of their lives but had just two months to decide what to do – all while having to work at the same time.
Many times, he said, Ford clients who were within three to five years of retiring decided not to retire after all, knowing that they'd be giving up their paychecks much sooner than expected. Often, Huszczo said, those clients who decided to stay expressed more faith in Ford's direction in the long run.
This article originally appeared on Detroit Free Press: 1,000 Ford workers retire amid interest hikes and pension loss warning