American Axle sends pension buyout offers
Phillip Brown worked at American Axle for 15 years before taking a buyout for early retirement from the Detroit auto supplier in 2008.
Now, the 43-year-old Detroit resident has received another buyout offer from the company — this time for his pension plan, which he also plans to accept.
“I’m satisfied,” said the former assembly line repairman. “I just have to invest really well. It helps me for the future.”
Brown, who plans to use the money toward bills and moving to a new apartment or home, is one of about 6,000 former American Axle hourly and salary employees to recently receive pension buyout offers from the company, which announced the voluntary program in a Sept. 22 filing to the U.S. Securities and Exchange Commission.
Christopher M. Son, American Axle director of investor relations, corporate communications and marketing, said the program was offered to former employees who were fully vested in their pension plans and to retirees not already receiving monthly payments.
Son said American Axle does not have an estimate of how many employees are expected to take the one-time lump-sum instead of their traditional pension plans.
“It could be zero percent. It could be 60 percent,” he said.
The offers vary depending on a worker’s earnings, years with the company and other factors.
The one-time lump sum cash payment, which follows similar pension buyouts from Ford Motor Co. and General Motors Co. to some retirees in recent years, will be made in December. American Axle expects to incur a non-cash charge in the fourth quarter of 2014. The amount of the non-cash charge will be based upon participation rates, the value of plan assets and discount rates as of Dec. 31.
American Axle, according to its 2013 report to the SEC, has “significant pension” obligations. To begin 2014, American Axle’s pension plans were underfunded by $42 million, with $755.4 million in benefit liabilities. The company, according to the filing, did not make any cash payments in 2013 due to “significant pension contributions” of $225.4 million to its pension trust in 2012.
Leon LaBrecque, managing partner of Troy-based investment advisor firm LJPR LLC, said companies — large and small — see offering pension buyouts as a way of “cleaning up the balance sheet.”
LaBrecque said while everyone’s situation and offer is different, eligible employees should take three things into consideration when deciding on a pension buyout: life expectancy, dependence on monthly payments and risk tolerance.
If individuals take the lump sum, they no longer have guaranteed money and have the responsibility of managing that money.
If they decide to continue their traditional pension plans, they risk the company going bankrupt. Also, if the individual unexpectedly dies, the company becomes the beneficiary instead of his/her family.
John Quiroz, a former American Axle worker of 16 years, said he plans to take the buyout because he’s afraid his pension could be eliminated if the company goes bankrupt like some suppliers did during the 2008-2009 downturn.
“I don’t believe it’s going to be there when I retire,” said the 56-year-old Detroit resident who now works at a stamping plant. “I’m going to grab it now.”
Dean Thurman, co-founder and senior partner of InvestWise Financial LLC, said pension buyouts are “the way of the future” and more employees and retirees are going to have to decide on how they want to manage their money.
“If you stick with a pension, that’s a lifelong decision,” he said. “It’s the most important financial decision of their life.”
Numerous Michigan companies, including American Axle, GM and Chrysler, have frozen traditional pension plans for certain employees in recent years and switched to a 401(k)-type retirement fund.
American Axle closed Thursday at $17.15 per share, up 15 cents from its previous close, and down 47 cents since the Sept. 22 pension buyout filing.
American Axle’s buyout offer period opened Oct. 2 and closes Nov. 12. Former employees with questions regarding their offer or why they didn’t receive an offer should contact the company at (888) 511-2953.