Retirement Plans

Pension Accounting Change Boosts Ford’s Results

One of the Big Three adopts mark-to-market accounting for its pension obligations.
Matthew HellerJanuary 7, 2016

Ford Motor said Thursday it is making a change in its accounting for its huge pension obligations that will boost its 2015 pre-tax profit by $1.5 billion and level the playing field with the other Big Three automakers.

The change to mark-to-market accounting means Ford will now recognize pension and other post-retirement employee benefits remeasurement gains and losses in the year incurred (generally in the fourth quarter) rather than amortizing them over many years.

Other large corporations, including AT&T, have adopted mark-to-market in recent years, but Ford is the first automaker to do so. With the change, Ford’s 2015 pre-tax profit, excluding special items, is expected to increase by about $1.5 billion and is now expected to be $10 billion to $11 billion.

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

“The change better aligns our operating results with our operating cash flow and makes our results more comparable to our major competitors’,” Ford CFO Bob Shanks said in a news release.

General Motors and Fiat Chrysler wiped away most of their pension and healthcare obligations through fresh-start accounting following their 2009 bankruptcies.

As Bloomberg reports, Ford is “eager to rid its balance sheet of pension obligations that investors view as debts weighing on its credit rating and stock price. Through its contributions, investments, and buyouts offered to more than 90,000 salaried workers in 2012, Ford has reduced risk by cutting its unfunded obligations.”

Since the company in 2012 announced a strategy to fully fund and de-risk its global pension plans, it has contributed $11 billion of earnings to the plans, paid $4 billion in lump sums to retirees who gave up their pensions, and shifted more of its pension assets to fixed income investments.

As a result, Forbes said, Ford’s global pension plans went from being $19 billion underfunded at the end of 2012 to $9.8 billion at the end of 2014.

“Because we’re nearly finished with that strategy … we’re at that point where we can make this change,” Shanks told the Wall Street Journal.

Understanding Which ERP Modules Your Business Needs – And When