With a pension system deficit that increased to 21 percent across the world, automaker Ford Motor Co. admitted this week that it is facing challenges, largely due to low interest rates on corporate bonds.
The Detroit News reported that the company has promised to up its contributions in 2013 to $5 billion, hoping to offset a widening gap.
Despite its international issues, Ford's pension investments did particularly well in 2012, earning 14.2 percent – up from a 7.1 percent return in 2011.
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In 2012, the company contributed some $3.4 billion to its international pension plans, more than triple the amount it added in 2011, yet global underfunding has now reached approximately $18.7 billion, up from $15.4 billion.
In the U.S., the pension deficit is up just slightly, to $9.4 billion. The company has dropped its discount rate to 0.8 percent.
"Anone that has a defined benefit plan is suffering from these record-low discount rates," said Bob Shanks, Ford's CFO, in a meeting with reporters earlier this week. "We do not expect discount rates to start to increase as we move forward."
In 2012, the company offered a one-time, lump-sum cash buyout to a group of white-collar retirees, hoping to cut its long-term pension obligations; the company would not say how many workers took advantage of the offer, but admitted that $1.2 billion of its 2012 pension contributions went towards the buyout program.
UAW officials say they have little interest in participating in a program if it were offered to their members, stating that their existing pension system provides a good level of security to retired workers.
Fellow automaker General Motors also offered a similar buyout program in 2012 and found about a 30 percent acceptance rate, a move which partially helped GM to eradicate $26 billion of its pension liability by transferring its pension management to a group annuity managed by Prudential.
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