Retirement Plans

Ford to Take $3 Billion Pretax Charge in 2016

The loss reflects an accounting change intended to give investors a clearer view of the operating performance of Ford's business units.
Matthew HellerJanuary 20, 2017
Ford to Take $3 Billion Pretax Charge in 2016

Ford Motor said Friday it expects to take a $3 billion pretax charge to its fourth-quarter earnings due to the change in pension accounting it made a year ago.

On an after-tax basis, Ford said, the remeasurement loss will reduce its full-year net income by about $2 billion in 2016.

The automaker last year joined other companies including Verizon Communications and AT&T in shifting to “mark-to-market” pension accounting. The change means that instead of amortizing the $3 billion loss over many years, Ford now recognizes all such gains and losses in the same year they occur.

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“Including the impact of this remeasurement loss, we expect our underfunded status at year-end 2016 for our pension plans and [other post-retirement employee benefit] plans to be about $8.9 billion and $5.9 billion, respectively,” Ford said in a regulatory filing.

At year-end 2015, the underfunded status of its pension plans and OPEB plans was $8.2 billion and $5.7 billion, respectively.

Ford said the increase in the underfunding of its pension plans primarily reflects the effect of lower discount rates, particularly in Europe. “Declines in interest rates have the effect of increasing the current value of pension obligations, which contributes to pension-plan underfunding and affects the plans’ expenses,” The Wall Street Journal explained.

Ford has said its switch to mark-to-mark accounting would help give investors a clearer view of the operating performance of its business units, as well as making its results more comparable to those of its auto-industry competitors.

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