Ford Announces Strategy to Reduce DB Plan Risk
February 22, 2012 (PLANSPONSOR.com) – Ford Motor Co. announced a
long-term strategy to reduce the risk of its funded defined benefit (DB)
plans.
According to Fordfs annual securities filing, the strategy includes
minimizing the volatility of the value of its pension assets relative to
pension liabilities and the need for unplanned use of capital resources to
fund the plans.
The strategy will reduce balance sheet, cash flow, and income exposures
and, in turn, reduce Fordfs risk profile. The key elements of the strategy
include:
• Limiting liability growth in the DB plans by closing
participation to new participants;
• Reducing plan deficits through discretionary cash
contributions;
• Progressively rebalancing assets to more fixed income
investments, with a target asset allocation to be reached over the next
several years of about 80% fixed income investments and 20% growth assets,
which will provide a better matching of plan assets to the characteristics
of the liabilities, thereby reducing Fordfs net exposure; and
• Taking other strategic actions to reduce pension liabilities.
In 2011, Ford contributed $1.1 billion to itsf worldwide funded pension
plans and made $400 million of benefit payments directly by the company
for unfunded plans.
During 2012, Ford expects to contribute from automotive cash and cash
equivalents $3.5 billion to itsf worldwide funded plans (including
discretionary contributions to its U.S. plans of $2 billion), and to make
$350 million of benefit payments directly by the company for unfunded
plans, for a total of about $3.8 billion.
Ford stated in the securities filing that it expects itsf global
pension obligations in total to be fully funded over the next few years,
with variability on a plan-by-plan basis.
Fordfs DB plans were underfunded by $15.4 billion as of December 31,
2011, compared with being underfunded by $11.5 billion on December 31,
2010. The deterioration primarily reflects sharply lower discount rates,
with the U.S. weighted-average discount rate declining to 4.64% at the end
of 2011 from 5.24% at the end of 2010.
Tara Cantore
editors@plansponsor.com