DuPont quietly offered about 9,500 of its U.S.retirees a chance to exchange their pensions for a lump-sum buyout or small monthly annuity.
The Wilmington-based company made the offer last week, just days before it completed a nearly $150 billion merger with The Dow Chemical Co. Now operating as DowDuPont, the consolidated business has dual headquarters in Delaware and Midland, Michigan.
Pensioners whose plans had vested are eligible for the buyout or annuity and have between Sept. 11 and Oct. 20 to accept the offer. Payments will be made at the end of November or early December, said Dan Turner, a company spokesman.
By accepting the lump sum or annuity, pensioners can receive funds instead of waiting until they reach 62 to collect a traditional pension.
"The offer is generally targeted to former employees who are fully vested in their pension benefits, but do not yet meet the age requirements under the plan to collect them," Turner said.
Last fall, DuPont made the same offer to about 18,000 retirees whose plans had vested.
DuPont has about 134,000 former workers on its pension plan, so about 7% of that number would be eligible for the buyout or annuity. If DuPont can get those ex-employees off its books, it would help close a pension gap that exceeded $8 billion at the start of the year.
DuPont had about $16.7 billion of assets and a pension obligation of $24.8 billion at the end of 2016, according to Securities and Exchange Commission filings. Dow's pension plan's assets total $21.1 billion against its obligations of $30.3 billion
The combined $55 billion in pension obligations could cause a headache for the new DowDuPont and three spinoffs that will be created within the next two years. DowDuPont will be split up in the next 18 to 24 months into three separate, independent publicly traded companies. Two of the new companies will be based in Delaware, while the third will be in Midland.
Both companies have taken steps to reduce their pension obligations ahead of the merger. In February, Dow announced plans to contribute $500 million to its pension fund before the end of the year.
DuPont has been particularly aggressive in trying to close its pension gap. The company announced in May that it will borrow $2.7 billion to shore up the pension fund. Separately, DuPont will make a mandatory payment of $230 million to the pension, bringing its total contribution to nearly $3 billion. The entire amount will be raised through a combination of short-term borrowings, bond offerings and cash.
Last year, DuPont announced it will stop contributing to active employees' pension plan in November 2018. DuPont estimates the change will reduce its long-term employee benefits obligation by about $550 million. It also eliminated the $50 million it pays annually to maintain the plan.
The lump sum payments might help DuPont. But a number of lobbying groups, including the AARP, the National Retiree Legislative Network and the Pension Rights Center, have raised concerns about lump sum payments for retirees.
Lump sums are problematic, especially if a retiree lives longer than expected. About 21% of retirees who opted for a lump sum over a pension plan said they already spent it all, according to a poll by New York insurer MetLife. The February 2017 poll also found that 35% of those who still have some of the money worry it will run out.
"If they are being offered a lump sum, they should be very careful about what that means," Norman Stein, a professor of pension and employee benefits at Drexel University told The News Journal earlier this year.
Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or firstname.lastname@example.org.