The DuPont Co. has told 18,000 former workers they have from Sept. 12 until Oct. 21 to trade their future pensions -- for up-front cash, or for an earlier but smaller monthly annuity -- instead of waiting until they reach retirement age to collect traditional pension checks. (Latest update: see Why Now? below)
It's "worrisome" to have to choose, says Olivia Mitchell, head of the Wharton Pension Research Council at the University of Pennsylvania. DuPont pensions "are backed by the Pension Benefit Guaranty Corp. But PBGC also has limits, and is facing solvency questions," she noted.
"Do people really think they can invest the money better by themselves? People tend to understimate the fees, and the charges. If they do take a lump sum, and if they can roll it over into a well-managed retirement plan or a deferred annuity, and wait awhile before they start to take the money, that may be a good option. It really depends on their personal situation."
What's in it for DuPont, Mitchell added, is clear: "The people who 'lump it out' are no longer obligations" for the company to keep funding in the future.
"This 'pot of gold' may be tempting. but there are so many risks with making sure the money will last," added the Pension Rights Center's Leavelle. "Will they be okay with the fluctuating stock market? What are the tax implications? Some IRA managers charge really large fees. The employees should make sure they fully investigate all the possibilities before they step away from the company's pension."
WHY NOW? The government is pressuring the nation's surviving pension funds to tighten their liability calculations, notes Skaggs. While well-meaning, and long-delayed, this also has the effect of pressing companies to set aside more money for pensions -- which they'd sooner avoid.
From this article in GoingConcern.com about a "lump-sum" buyout offer by another company: "The IRS helped to fuel the trend toward lump-sum offers when it said in July that it would put off using new mortality-rate calculations based on longer lifespans until 2017. That suddenly made it cheaper for companies to offer pension buyouts now than in the future. The new assumptions that people will live longer will make lump-sum offers more expensive to companies."
EARLIER: DuPont has not yet detailed who will take responsibility for paying everything DuPont owes bondholders, pensioners and pollution clean-up, from current and former plant operations. "DuPont remains committed to making contributions to the Plan consistent with the company's funding policy and the funding requirements under U.S. laws and regulations," the company told employees in a statement.
DuPont shareholders last month ratified a plan by DuPont boss Edward Breen, Dow Chemical Co. CEO Andrew Liveris and major shareholders to combine their companies.
Over the next two years, Dow DuPont plans to split into three firms -- one to sell both companies' pesticides and engineered crop seeds, one to focus mostly on Dow's other chemical plants, and one for DuPont's remaining businesses. DuPont has built or bought and later sold or spun off a long list of businesses, including Chemours chemicals, Axalta paints and Invista fabrics, among others.