Ford Motor Company (F)’s Pension Problem Could Improve Quickly

While this likely won’t save Ford much money, it will reduce the risk of its pension plan simply by handing out lump sums and immediately reducing the massive size of the pension plan on the books. It essentially pushes the risk onto its retired employees, who could potentially spend their lump sum retirement too quickly or be affected by other macroeconomic events that Ford will now partially avoid.

On the other hand, Ford Motor Company (NYSE:F) retirees who are worried about losing pension payments due to bankruptcy or other issues can have peace of mind by securing their money ahead of time – and those in Detroit are all likely weary of bankruptcy by now. Ultimately this can be a win-win situation, and is the type of management decision we are accustomed to at Ford over the last few years.

Bottom line
Excellent management is one of many reasons I bought into Ford stock before I bought into General Motors Company (NYSE:GM) in an attempt to profit from the rebounding automotive industry. Ford’s underfunded pension is in much better shape than GM’s, in my opinion, and will likely be resolved in 2015. That will remove one of the largest overhangs on Ford stock and also provide billions of cash flow to put into use elsewhere, such as share buybacks, increased dividend, or R&D to develop more successful vehicles.

All in all, when you buy a stock you’re putting trust in management to run the company well and distribute profits – Ford’s management has proven time and time again that your investment is in safe hands.

The article Ford’s Pension Problem Could Improve Quickly originally appeared on Fool.com and is written by Daniel Miller.

Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.

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