Why Ford Employees Should Pay Attention to Segment Rates in 2025

You may have seen conversations or internal memos referencing interest rates and their impact on your Ford pension. These concerns are valid—segment rates are once again becoming a central topic for retirement planning.

Segment rates generally show an upward trend versus 2024. This upward trend has implications for lump sum pension payouts, as higher segment rates tend to result in lower lump sum amounts.

The economic outlook, including inflation and the potential for the Federal Reserve to raise interest rates, can influence segment rates. Concerns surrounding inflation can lead to pressure on the Federal Reserve to raise rates, which in turn affects segment rates.

What Are Segment Rates and Why Do They Matter?

Segment rates are calculated by the IRS, based on average yields of high-quality corporate bonds. These rates are used to determine the present value of defined benefit pensions, like the one offered by Ford, if you choose a lump sum payout instead of a monthly pension.

Ford’s pension uses three IRS-defined“segments” to estimate your lump sum value:‍

• ‍Segment 1: Short-term liabilities (first 5 years)
• ‍Segment 2: Mid-term liabilities (years 6–20)‍
• Segment 3: Long-term liabilities (years 21+)
  

When these rates go up, the lump sum value of your future payments goes down, because your future pension costs less to fund using today’s dollars. That’s what we’ve seen in recent years, and 2025 could follow the same trend.

What’s Happening Now?

A 2022 email to retirement-eligible Ford salaried workers specifically pointed out that anyone who is considering retiring and opting for a lump sum payment needs to look at the numbers, as interest rates increased dramatically in 2022, resulting in a dramatic drop in the lump sum pension option. The lump sum in 2023 would go on to decrease by an estimated 20% to 25% relative to the lump sum values that a Ford employee who retired would see if they took the lump sum in 2022.

Fast forward to today: segment rates remain elevated. As of March 2025, the IRS-published rates that Ford uses for lump sum calculations were:

• ‍Segment 1: 4.50%‍
• Segment 2: 5.33%‍
• Segment 3: 5.86%
  

Compared to prior years when these rates hovered closer to 3%, today’s levels have materially reduced the value of lump sum options for Ford employees.

*Source: IRS Minimum Present Value Segment Rates (IRS.gov)

What Does This Mean for Ford Employees?

If you're planning to retire in 2025—or even considering it within the next 12–24 months—now is a critical time to evaluate your retirement strategy. With interest rates continuing to trend upward, your lump sum payout may shrink further if you delay retirement past key cut-off dates.

If you're several years away from retiring, these fluctuations may not impact you just yet. However, it's still important to understand how segment rates work so you can plan strategically when your time comes.

Lump Sum vs. Monthly Pension: What’s Right for You?

Ford offers a choice between a one-time lump sum payout and traditional monthly pension payments. Each option has pros and cons.

Lump Sum Advantages:

• Full access to your money upfront
• Flexibility to invest or spend on your terms
• Ability to pass remaining funds to heirs
  

Lump Sum Risks:

• Potential to outlive your savings
• Investment risk in market downturns
• No guaranteed monthly income
  

Monthly Pension Advantages:

• Steady, reliable income for life
• Insulated from interest rate changes
• Less investment worry
  

Monthly Pension Risks:

• No control over investment performance
• Limited ability to leave funds toheirs
• Inflation may erode purchasing power

Income Annuities: A Middle Ground

Some Ford retirees use a portion of their lump sum to purchase an income annuity from a private insurance company. This option creates a predictable monthly income while keeping the rest of the lump sum liquid and under their control. It’s a useful strategy for people who want the best of both worlds: stability and flexibility. Keep in mind annuities often come with various fees, including administrative fees, mortality and expense risk fees, and surrender charges.

Act Now: Evaluate Your Retirement Plan

Your Ford pension is a valuable benefit. Understanding how it fits into your broader financial plan, especially in light of rising interest rates, is essential. The best choice for you depends on your age, years of service, retirement timeline, and personal financial goals.

It’s strongly recommended that you work with a financial advisor who understands Ford’s unique pension structure and how segment rates impact your benefit. Not all advisors are familiar with the intricacies of Ford’s plan—choose one with experience.

Ready to Talk?

Let’s schedule a call to review your pension options and help you determine the best time to retire. Acting now may mean thousands more in your pocket when you do retire.

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Advisory services are provided by Farther Finance Advisors LLC, an SEC-registered investment advisor. Investing insecurities involves risk, including the possible loss of principal. Before investing, consider your investment objectives and Farther Finance Advisors LLC's charges and expenses.

Disclaimer: Farther is an independent company and is not affiliated with, endorsed by, or sponsored by Ford Motor Company. Any references to Ford are for informational purposes only.
The tax rate information referenced in this article is based on data from the IRS as of January 2025. Please note that rates and regulations may have changed since then. For the most current information, consult the official IRS website or a tax professional.