Ford Motor Co. (NYSE:F) plans to invest $3.8 billion this year in its global pension plan, and will place more plan assets into bonds as the automaker steps up efforts to diminish its pension risks in an unstable market, Reuters reports.
The planned investment, which is more than double its 2011 contribution of $1.5 billion, was described in Ford’s annual securities filing on Tuesday. Mirroring the goals of some foreign funds, the company also reported plans to invest 80 percent of its U.S. pension plans in bonds within “the next several years,” according to the filing.
Ford’s large cash contribution and the switch to bonds comes in response to challenges created by extremely low interest rates, a changeable market, and anticipation of lower investment returns.
“With the lower returns, over time you need to be putting more into the plan to meet your liabilities,” said Morningstar analyst David Whiston. “Your liabilities don’t change. You still have to fund the plan.”
In 2011, assets in Ford’s pension plan earned 7.7 percent, decidedly more than the flat U.S. stock market, but less than the expected 8 percent return. The company’s long-term return forecast is now 7.5 percent.
Ford said in the filing that it anticipated its pension assets would match future benefit obligations in the next few years. According to Citigroup analyst Itay Michaeli, if Ford completely funds its pension plans by around 2015, the stock could jump to $24 a share, nearly double its current level.
Other major companies, including Boeing Co. (NYSE:BA) and Alcoa. (NYSE:AA), are also planning to pour large amounts of cash into their pension plans this year. Cash from Ford’s automotive operations will fund its payout.
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