I'm not eligible for Fords retirement plan, but I am curious why the lump sum will be reduced? Can someone explain this ? This seems backwards, since interest rates are rising. Will this also affect the benefit if the retiree takes the monthly payment option?
How much is expected to be loss by the employee? What is the average lump sum in employees plan?
Come October 1 HTT gets to dip his hand in the pension jar... I wonder if he will take a lump sum? Come Jan 1 the lump sum will be 20-25% lower so more incentive to get out while the getting is good. On top of his pension he has an exit golden parachute probably negotiated on his climb to power. Get the landscapers out and make sure the Brinks truck will fit in the driveway! I personally don't think any of these a$$ hats deserve to be paid at these levels but they make the rules and benefit from them. They also sell themselves to Ford.
Two other things to consider:
If you take the monthly pension payments, they do not get adjusted for inflation and COLA. You are locked in at that payment.
If you take the lump, hopefully you can make it grow on your own. It's a gamble, as the market has shown in the past six months.
A very simple reason is that they are obligated to pay you a certain amount per month. They can give you a lump sum instead but it has to be of an amount that when put into nominal interest rate accounts at t-bill rates, it would equal the same monthly payment.
If interest rates are low it takes a larger lump sum to generate the interest income equal to what would have been your monthly pension payment. Higher interest rates means lower lump sum.
It uses the IRS minimum segment interest rates to DISCOUNT your monthly pension cash flows back to present value.
“Fords” hahahah
I think there was a very well written post on this subject in the past. You might want to search the old posts first. In short, lump sum is the present value of the single life monthly pension. The interest rate used for present value calculation is the IRS lump sum minimum 3 segment rates. Ford uses August rates of this year for next year's lump sum calculation. As IRS rates go up, the lump sum payout reduces. You can get this year and next year's payout in Sept time frame from NESC. The present value calculation involves your age, monthly pension, etc. So you will not get an exact number by asking in this site.
Monthly pension is not known to link to interest rate. The calculation of your pension is documented in general retirement plan handbook. It is based on your salary, years of services, age and option you pick.