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"The trouble with most people is that they think with their hopes or fears or wishes rather than with their minds."
— Will Durant
The concept of guaranteed lifetime income dates as far back as Ancient Rome, when veterans of the Imperial Roman Army were given a permanent revenue source in exchange for their service. Suffice to say, the pension concept has evolved quite substantially since that time. The first U.S. company to offer the private pensions that autoworkers are familiar with today was American Express in 1875.
Pensions were of tremendous benefit to retirees and were a critical element that many depended on for a successful retirement. But the pension obligations started to grow so large they became burdensome for companies to sustain—so much so that many companies found they'd overcommitted themselves and were not able to fulfill the promises they'd made to their employees. Many retirees learned the hard way that there wasn't much of a back-up plan in place for them if their company were to fail.
Many in the auto industry might be familiar with Studebaker, the car manufacturer out of South Bend, Indiana. In 1963, Studebaker terminated its pension plan, causing four thousand autoworkers to lose some or all of their pension benefits.
Over the next decade, more and more plans were failing, and finally, in 1974, ERISA created the Pension Benefit Guaranty Corporation (PBGC). The PBGC would provide a back-up plan to give retirees greater assurance that their pensions would last for their lifetime. We will discuss the PBGC in more detail in the next chapter—though, as you'll see later in this chapter, the pension landscape has changed dramatically in recent years.
In 1978, Congress enacted the Revenue Act, which created the defined contribution structure of saving for retirement. Your 401(k) is an example of this. In the 1980s, these defined contribution plans started to gain popularity as companies began shifting away from the defined benefit pension plans and more toward the defined contribution system of saving for retirement. This shifted the burden of saving and investing from the company to the employee.
As an autoworker, you could have the best of both worlds, as you might have both a defined benefit pension and a 401(k) savings plan.
The Lump Sum Pension
Let's discuss why companies like Ford, General Motors, and Stellantis give you the option to take a lump sum payment upon retirement, instead of beginning a monthly pension payment.
For simplicity, let's say you started working at your company at age thirty, and their pension plan says that if you work until age sixty-five, the company will pay you $5,000 a month for the rest of your life. It also says you have the option to take a reduced benefit, in which they will pay you and your spouse that money for the rest of your lives, even if you were to pass away first.
Because they have made that promise, you are now a creditor of the company. These lifetime payments represent a future liability on the books that only goes away once you (and possibly your spouse) pass away. As public companies, these future pension liabilities are reflected as a debt item on their balance sheet. Multiply that by thousands upon thousands of retirees, and those future pension liabilities become an outrageous number.
Ford, General Motors, and Stellantis must predict, for all the workers they have on the books, approximately how long each of them is likely to live and how much the company can earn on money set aside until then. Then they fund the plan based on these calculations. The companies also need to show the results of that analysis—their future pension liabilities—as a debt on the company balance sheet.
But why are they offering a present-day lump sum in exchange for my pension?
Let's think of it from your company's perspective. One million dollars is nothing to them. They'd rather not have that future liability sitting there on their balance sheet for the next two to three decades (or possibly longer). They'd much rather write you a check, kiss you out the door, and be off the hook than deal with an increasing future financial obligation they're unable to control.
Companies of this size like control and predictability. It's important to bear in mind that the obligation to pay you gets larger or smaller as it remains on the company balance sheet based on three primary factors that are out of their control:
Discount Rate
The first factor that can make the anticipated obligation larger or smaller is the current interest rate, or as actuaries call it, the discount rate. The higher the interest rate, the easier it is for a company to make money on the money they've set aside to fund pensions. Conversely, when rates fall, companies need to set aside more money today to meet the same future obligation.
The General Agreement on Tariffs and Trade Rate (GATT Rate) is the 30-year Treasury Bond interest rate, and it has historically been used as a benchmark for calculations of lump sum distributions from defined benefit plans. Most modern pension plans now use a segmented yield curve published monthly by the IRS, but the principle is the same: higher rates produce smaller lump sums; lower rates produce larger lump sums.
What's Changed Since 2019 — A Lot
When we wrote the original edition of this book in 2019, interest rates had been falling for nearly three decades. We warned readers that rates appeared to have bottomed out and were likely to begin rising. That call turned out to be correct—but the magnitude and speed of the rise that followed exceeded almost everyone's expectations.
Here's what happened, in plain language:
2019–2021: Historic Lows
Rates remained at historic lows. The COVID-19 pandemic pushed the Federal Reserve to cut its benchmark rate to near zero. Pension lump sums during this period reached all-time highs.
2022–2024: The Rate Shock
As inflation surged to 40-year highs, the Federal Reserve embarked on the most aggressive rate-hiking cycle in modern history. The federal funds rate went from effectively 0% in March 2022 to 5.25%–5.50% by mid-2023—a move of more than 500 basis points in roughly 18 months. Long-term Treasury yields followed.
2024–2026: Gradual Recovery
With inflation moderating and the labor market cooling, the Fed began cutting rates in late 2024 and has continued cutting through 2025 and into 2026. Long-term rates have come down meaningfully from their peaks, which means lump-sum values have begun recovering. However, it's important to understand that the long end of the yield curve—which drives pension calculations—may not fall as dramatically as short-term rates. For more on this dynamic, see our analysis of how interest rates affect your lump sum.
The Lump-Sum Impact
Big Three retirees who retired in 2021 versus those who retired in 2023 received radically different lump sums for the same monthly pension benefit. Many retirees we worked with saw lump-sum values drop 25% or more during this window. For a deeper dive into how these calculations work, see our article on how interest rates impact your pension lump sum.
$1,000,000
Early 2022
$750,000
Late 2023
This massive swing occurred purely because of the rate environment—even though the underlying monthly pension benefit hadn't changed at all.
The Seesaw, Updated
We've always described this as a seesaw: on one side is the future liability of the company offering the pension; on the other side is interest rates. When rates go down, the liability goes up. When rates go up, the liability goes down. Your lump sum is the mirror image of that liability—when rates go up, your lump sum shrinks, and vice versa.
For most of 2022 and 2023, that seesaw violently tipped against retirees. Many delayed retirement watching their lump sums shrink monthly. Others rushed to retire before the next adjustment. Both responses—accelerating or delaying retirement based purely on interest rate movements—are dangerous.
As of this writing in 2026, the rate environment is shifting again. Cuts have begun, but the path forward is uncertain. Inflation could re-accelerate. Geopolitical events could move bond markets overnight. Trying to time your retirement around the discount rate is a losing game, because by the time you see the rate move, the lump-sum recalculation has often already happened—and you can't un-retire if you guess wrong.
What you can do is understand where your plan's lump-sum recalculation cycle falls. Most Big Three plans use a "stability period" and a "lookback month" to set the rates used for your lump sum, typically locking in for an entire calendar year. Knowing your plan's specific calculation methodology—and the rate environment it's pulling from—is far more valuable than trying to predict where rates are headed.
The Bottom Line on Rates
The original edition of this book taught readers that higher rates mean smaller lump sums. That principle hasn't changed. What has changed is the lived reality:
- Retirees now have direct experience with how violently this seesaw can swing.
- Lump-sum values today are lower than the 2020–2021 peaks but higher than the 2023 lows.
- The Fed's posture is currently easing, which may be modestly favorable for lump sums going forward—but past performance, especially in interest rates, is no guarantee of anything.
Life Expectancy
The next factor that affects the obligation is life expectancy. This is the easiest to understand: the longer you live, the longer they have to pay. And people are living longer than ever—though the pandemic temporarily disrupted this trend.
In 1980, your company could reasonably expect a seventy-year-old male retiree to live just another 11.9 years. Some would live longer, some would pass away sooner, but with the law of large numbers on their side, this would be an accurate planning number.
The COVID-19 pandemic caused a temporary decline in U.S. life expectancy from 2020 through 2022, but mortality data from 2023 onward has shown a rebound. The long-term trend—that retirees today live longer than their parents and grandparents did—remains intact. Today, a healthy seventy-year-old male can reasonably expect to live well into his mid-eighties, with many living considerably longer.
The Society of Actuaries periodically updates its mortality improvement scales. Each time mortality tables are released reflecting longer lifespans, the corresponding pension liabilities for these companies increase—sometimes by 4% to 8% in a single update. From the company's perspective, this is a recurring negative surprise on the balance sheet.
But isn't the average life expectancy more like seventy-nine for men and eighty-two for women?
Yes, but whenever you see average life expectancy, that's typically the average from birth. When you look at the life expectancy for the age you've reached, you're in a select group of people who have been healthy enough to live as long as you, and the statistical weighting of those who have already passed has been eliminated.
For a married couple at age sixty-five, there is still a greater-than-50% chance that one of them will live into their early nineties.
Investment Earnings
The third factor that affects whether the company's future pension obligations will be larger or smaller is the potential for future investment earnings. Companies don't know with any certainty what they are going to earn on their investments, and that can be an important variable.
To illustrate: large U.S. corporate pensions like Ford's and GM's hold tens of billions of dollars in plan assets. When pension assets earn their target rate of return, that growth offsets a meaningful portion of future obligations. In strong years for the markets, companies don't have to contribute as much. In weak years, they may need to inject additional capital to keep the plan funded.
When you hear that a pension is "underfunded," it simply means the plan doesn't have the requisite assets to fund the future liabilities at current discount-rate assumptions.
Real-World Stats: A Dramatic Reversal
When the original edition of this book was written, U.S. corporate pensions were broadly underfunded—a chronic problem dating back to the 2008 financial crisis. That picture has changed dramatically.
Because of the 2022–2023 surge in interest rates, the discount rates used to value pension liabilities jumped sharply—at peak, well above 5%, compared to the ~3% range in 2019–2021. Higher discount rates reduce the present value of future pension obligations, which means liabilities shrank faster than asset values declined during the 2022 market downturn.
The result: by 2023 and 2024, the aggregate funded status of large U.S. corporate pension plans reached its strongest level in over two decades. Many plans crossed into a fully funded or overfunded position for the first time since the early 2000s.
For example, Ford disclosed in its 2024 Annual Report that its funded plans remain fully funded in aggregate, reflecting an ongoing de-risking strategy.
What does this mean for you, the retiree?
- Your company's pension is likely more solvent today than it was when you started working. That's good news for the security of your monthly benefit if you elect it.
- Companies are using this strong funded status to "de-risk"—which we'll discuss in detail next. This is the single biggest structural change in the corporate pension landscape since this book was first written.
The Balance Sheet (and the De-Risking Era)
There's an old joke that Ford and GM are actually just pension companies that happen to be funded by an automobile operation.
Think of that from an investor standpoint. It's not good. Wall Street analysts hate uncertainty and large liabilities. That's why your company gives you the choice at retirement of taking a lump sum or taking monthly payments.
It's also why many companies are aggressively offloading their pension liabilities to insurance companies through transactions known as pension risk transfers (PRTs). This trend has accelerated dramatically since this book was first published in 2019, and Big Three retirees should understand it.
A Brief History of Pension Risk Transfers
General Motors completed a landmark pension transfer to Prudential Financial, paying roughly $29 billion to permanently transfer approximately $25 billion in U.S. pension obligations off its books. At the time, this was one of the largest such transactions in U.S. history.
Multiple large U.S. employers continued executing PRT transactions, gradually shedding obligations.
The combination of strong funded status (thanks to higher rates) and continued pressure from Wall Street triggered a wave of mega-transfers across the Fortune 500. Major U.S. employers—including AT&T, Lockheed Martin, and others—moved tens of billions of dollars in pension obligations to insurance companies.
Ford's 2024 Annual Report reflects continued pension de-risking activity. In October 2025, Ford-sponsored U.K. pension schemes completed £4.6 billion in buy-ins with Legal & General, securing benefits for more than 35,000 U.K. members. Note: This covered U.K. employees, not U.S. Big Three retirees.
Why This Matters For You
If your pension is ever transferred to an insurance company, several things change:
The PBGC no longer protects it
The PBGC only insures employer-sponsored pensions. Once your pension is moved to an insurance company, you're now relying on the insurance company's claims-paying ability and your state's insurance guaranty association—not the federal PBGC backstop.
The terms of your monthly benefit shouldn't change
PRT transactions are typically structured so that retirees receive the same monthly amount, on the same schedule, with the same survivor benefits—just with a different name on the check.
Your creditor changes
Instead of being a creditor of your employer, you become a creditor of an insurance company. For most retirees, this is actually a strengthening of their position, because insurance companies are more heavily regulated and reserve-funded for exactly this kind of obligation.
It changes how you think about the lump-sum decision
If you suspect your plan may be transferred during your retirement, the "I trust my company to be there" argument shifts to "I trust the insurance company they pick to be there." For some retirees, that calculus pushes them toward the lump-sum option.
The bottom line: these companies are in the business of manufacturing cars, not managing pensions. They are under enormous pressure from Wall Street to lessen the uncertainty of large, long-tail liabilities—and the regulatory and financial environment of the past few years has handed them the perfect opportunity to act.
It's not a scam, and they're not out to get you. They would simply rather rid themselves of these enormous future liabilities—either by paying you a lump sum upfront or by transferring the obligation to an insurance company. Either way, they get it off their books for good.
Truth be told, they are hoping that as many people as possible elect to take the lump sum payment upon retirement. When that happens, the company makes the lump sum payment, and the obligation is eliminated entirely—no insurance company, no PBGC, no future liability. Just a one-time check.
The Lump Sum Calculation
One of the major concerns we hear from retirees facing the lump sum decision is that their company is out to get them. They don't trust the big corporation and feel there's some sort of ulterior motive behind this offer.
In our opinion, that's not the case. One exercise that helps retirees understand this is to run a calculation of what the present value of all those future payments would be. You can do this yourself by searching "Present Value of Future Payments Calculator" online and entering your monthly payment and life expectancy.
Example Calculation
If you plug in $60,000 annually over 25 years:
At 5% discount rate
~$845,000
At 3% discount rate
~$1,044,000
That $200,000 swing—purely from a 2-percentage-point change in the discount rate—is exactly what played out in real life for retirees between 2021 and 2023.
This helps illustrate that it's not a trick. It's a mathematical calculation done by your company—driven by interest rates, mortality assumptions, and actuarial methods—to come up with a fair offer to employees who were loyal to them over their careers.
The math isn't the enemy. The volatility of the inputs is. And understanding how interest rates, longevity assumptions, and your plan's specific calculation methodology interact is the difference between making this decision blind and making it with both eyes open.
"Each time interest rates go up, your pension lump sum value goes down. Each time they fall, it rises. The pendulum swings—sometimes violently—and trying to time your retirement around it is a losing game."