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July 21, 2010

One Innovative Way to Fill a Pension Gap

In perhaps one of the most humorous and creative strategic moves, Diageo, a whiskey producer (best known for its Johnny Walker whiskey) set aside 2 million barrels of its product worth $645 million to help fund the company’s pension shortfall.  It’s the first known case I can find where a company is using its product to fund a pension.
The product, according to this article, was set aside to be managed by a third party pension provider.  The whiskey will be sold as it matures, converted to cash, and distributed to the beneficiaries of the pensions.  This transfer can still occur even if the company is liquidated, as the pension assets (including the whiskey) are protected by a Chapter 7 bankruptcy.
This is a useful strategy for companies that have product with a decent shelf life.  Unfortunately, automobile manufacturers, insurance companies, and other service-based companies cannot copy this strategy.  Furthermore, the government cannot come close to copying this strategy as they do not provide anything efficient or of much value to our society.
I give credit to Diageo for finding an innovative, cash neutral way to fill a potential pension problem.  This could be a precedent for other companies to follow.  One thing is for certain, the responsibility to retire comfortably is not impossible, if the individual takes responsibility for this most important goal, and not outsource it to someone else.

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