Ford Motor Co. expects to spend $5 billion this year shoring
up its pension funds, almost as much as the auto maker spent last year building
plants, buying equipment and developing new cars.
The nation's second-largest auto maker is one of a who's who
of U.S. companies pouring cash into pension plans now being battered by record
low interest rates. Verizon Communications Inc. contributed $1.7 billion to its
pension plan in the fourth quarter and—highlighting companies' sensitivity to
this issue—Boeing Co. now reports "core earnings" to separate out
pension expenses.
"It is one of the top issues that companies are dealing
with now," said Michael Moran, pension strategist at investment adviser
Goldman Sachs Asset Management.
The drain on corporate cash is a side effect of the U.S.
monetary policy aimed at encouraging borrowing to stimulate the economy.
Companies are required to calculate the present value of the future pension
liabilities by using a so-called discount rate, based on corporate bond yields.
As those rates fall, the liabilities rise.
Of course, low interest rates also help companies. Ford, for
instance, can borrow money cheaply and use it to offer cut-rate loans or other
discounts to help sell its cars. Ford borrowed $1.2 billion to contribute to
its pension.
When interest rates rise again, the pension shortfalls
should narrow and could even become surpluses. But when that will happen is
difficult to predict. The Federal Reserve has committed to keeping rates low
for another two years at least.
Pension
plans became popular in the U.S. in World War II as a means of compensating
workers rather than using pay raises.
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