According to Ford’s 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 Ford’s 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 Ford’s net exposure; and
• Taking other strategic actions to reduce pension liabilities.
In 2011, Ford contributed $1.1 billion to its’ 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 its’ 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 its’ global pension obligations in total to be fully funded over the next few years, with variability on a plan-by-plan basis.
Ford’s 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.