Ford Motor Co.'s pension deficit widened in 2012 by 21 percent and the Dearborn automaker vowed Tuesday to boost contributions to its underfunded pensions by $5 billion in 2013.
Despite the fact that Ford pumped $3.4 billion into its worldwide pension plans in 2012 ? over the $1.1 billion it infused in 2011 ? the underfunding of the automaker's pension plans widened.
Ford said its pensions are now underfunded by $18.7 billion worldwide, up from $15.4 billion. The automaker's U.S. pensions are underfunded by $9.7 billion, up from $9.4 billion.
Low interest rates mean that companies must recalculate the "discount rate" in determining pension funding.
"It's a real liability as of this minute but it's not something they have to worry about or pay now," said Van Conway, CEO of Birmingham-based advisory firm Conway MacKenzie in a telephone interview.
Ford dropped its discount rate 0.8 percent, accounting for the pension plan underfunding boost.
"Anyone that has a defined benefit plan is suffering from these record-low discount rates," Ford CFO Bob Shanks said in a teleconference with analysts and reporters Tuesday morning. "We do expect discount rates to start to increase as we move forward."
Ford said its pension plans earned 14.2 percent in 2012, up from 7.7 percent in 2011. Ford's pension plans beat the S&P 500 index, which was up 13 percent last year.
The automaker said in reviewing its 2012 performance that it "began actions to de-risk our funded pension obligations."
Ford offered pension buyouts to 98,000 qualifying white-collar retirees and former workers. Those buyouts will continue through the end of the year.
Ford did not disclose Tuesday how many have accepted the buyout, but said it spent $1.2 billion of its $3.4 billion in 2012 pension contributions on its lump-sum payout program.
U.S. automakers are putting billions into their pension plans to offload some of the risks, offering pension buyouts ? and in the case of General Motors Co., selling pension liabilities to an outside insurer.
But the United Auto Workers has shown no interest in agreeing to pension buyouts.
UAW Vice President Joe Ashton, who oversees the GM bargaining unit, said this month the union reviewed the pension buyout deal made to salaried workers.
But he said deciding on a similar offer for union retirees "would be a long-term process that we would have to look at." No such offer is on the table.
"God knows ? maybe by the next (contract) agreement (in 2015), it would be something that we would be ready to look at," Ashton said. "We'd be very concerned that an individual or many individuals would take the cash ? after working your whole life ? 30, 40 years ? and us negotiating those benefits, it would be tough for us to worry about our retirees."
UAW President Bob King said the union hasn't been interested because "the pension program we have does give a lot of security."
Last year, about 30 percent of GM's eligible U.S. salaried retirees opted for lump sum payments instead of regular monthly pension payments.
The automaker offered pension buyouts to 42,000 salaried retirees who left the automaker between Oct. 1, 1997, and Dec. 1, 2011.
That deal was part of a broader plan with Prudential that GM had estimated would cut its pension liability by $26 billion, and eliminate a significant drag on its bottom line.
GM moved about $29 billion in pension liabilities off its balance sheet through the buyout.
dshepardson@detroitnews.com
(202) 662-8735
Source: http://www.detroitnews.com/article/20130130/AUTO0102/301300317/1148/rss25
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