March 16 (Bloomberg) -- Ford Motor Co., the automaker moving to close a growing deficit in its pension, will shift more of its plan’s assets to fixed income to shield against changes in interest rates.
The shortfall for Ford’s U.S. pension plans would have dropped by $2.3 billion or risen by $2.8 billion as of the end of 2012 if interest rates went up or down by 1 percentage point, according to a presentation yesterday. Ford’s target is for the change in the pension deficit to be $400 million or less.
Ford is working to diffuse pension risks after the shortfall for its worldwide plans widened by $3.3 billion last year to $18.7 billion, even after the Dearborn, Michigan-based company contributed more than required. The pension liabilities and size of its deficit affect Ford’s credit rating, borrowing costs and stock price, Treasurer Neil Schloss told analysts on a conference call yesterday.
“For companies like us and the other large industrials that have large plans where their shortfalls are meaningful relative to their market cap, pension de-risking should be a big piece of their overall capital strategy,” Schloss said in an interview after the call.
Ford plans to “walk toward” a long-term target for 80 percent of its U.S. plan assets to be in fixed income securities, Schloss said. The company ended last year with 55 percent of assets in fixed income, up from 30 percent before 2007, he said. Ford didn’t give specifics on when it may reach the 80 percent target.
Lower discount rates, which determine the present value of future obligations, widened Ford’s pension shortfall by $8.9 billion last year. That more than offset $1.8 billion in net asset returns and $3.8 billion in contributions. Ford plans to contribute $5 billion to its pensions this year, $3.4 billion of which will be discretionary.
Ford rose 0.1 percent to $13.45 yesterday in New York. The shares have advanced 3.9 percent this year, compared with a 9.4 percent gain for the Standard & Poor’s 500 Index.
--Editors: James Callan, Ben Livesey