Ford Says Pension Gap Shouldn't Require New Funds

August 13, 2002 ( - Ford officials say they won't have funnel cash into their pension plan through 2006, if certain conditions hold constant.

In its quarterly public report, the automobile manufacturer said that as long as its investment return and other actuarial assumptions remain unchanged and there are no alterations in benefit levels under present plans, it won’t have to make any contributions for at least four years.

On January 1, the market value of the company’s pension plan assets exceeded projected obligations by $596 million, according to the filing. However, based on a negative 6.7% return for the first half of 2002, the company estimates its US pension plans were underfunded by $3.2 billion as of June 30.

Gap Plug?

While a significant amount, that gap stands in some contrast to competitor General Motors, which about a month ago noted that flat pension fund returns would widen that firm’s underfunded gap of $9 billion to about $12.7 billion by year-end in the absence of additional contributions.

Ford said in the report that if full-year 2002 investment returns remain at a negative 6.7% —  meaning zero return during the second half of the year —  the company’s 2003 pension expense would increase about $125 million after-tax compared with 2002.
The company is using a discount rate of 7.25% to determine its obligations, according to the filing. 

However, the company said it reviews its pension assumptions regularly and makes contributions beyond those legally required.

MORE on the impact of poor returns on the bottom line at  The Great Oz Exposed
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