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Low Rates Force Companies to Pour Cash Into Pensions
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U.S. companies are required to use a discount rate that reflects current corporate bond yields for future pension liabilities for workers. The low interest rate environment supported by the Fed increases these liabilities. Some companies including Ford Motor see increases in the liabilities even though steps are taken to reduce the amount on the balance sheet. This is a major problem for companies with defined benefit plans- for Ford, GM, Chrysler, Boeing, Dow Chemical, Verizon, AT&T and other large companies. Ford plans to put $5 billion in its pension fund in 2013, close to what it will spend on plants, equipment and developing new models. In 2012 Ford's unfunded pension liability increased to $18.7 billion. Ford reduced pension liabilities by $1.2 billion through buyouts for salaried workers. Having to reduce the discount rate from 4.6% to 3.84% ended up increasing Ford's liabilities for pensions on the balance sheet. Boeing faces a similiar problem.It plans to put $1.5 billion in cash in the fund to reduce unfunded liabilities in 2013, following $1.6 billion it put in 2012. This still leaves the unfunded pension liabilities at 26% for Boeing.
Large American companies and unfunded pension liabilities in a low interest rate environment with lower discount rates
02/03/2013
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Ford Motor and unfunded pension liabilities
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Ford Motor's unfunded pension liabiliies reached $18 billion in 2013 after the company reduced the discount rate to reflect lower corporate bond yields. Ford plans to put $5 billion in its pension plan in 2013, close to what it is spending on plants, equipment and new models.
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Low Rates Force Companies to Pour Cash Into Pensions
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Low Rates Force Companies to Pour Cash Into Pensions
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Andy Kessler: The Pension Rate-of-Return Fantasy
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