Ford Expects $2 Billion Hit from New Pension Accounting Method

Ford Motor Co. says its net income for 2016 will drop by $2 billion because of a change in late 2015 in its method of accounting for pension and other retiree benefit payments.

Ford now counts such payments in the year in which they were incurred rather than amortizing them over several years as it did previously. The cost is a special item that won’t affect the company’s expected $10.2 billion pretax profit.

The result of the accounting change for 2016 will be $3 billion in pretax charges: $900 million for U.S. pension plans, $1.9 billion for pension plans elsewhere and $200 billion for other retiree benefit programs worldwide.

In a U.S. Securities and Exchange Commission filing, Ford says its pension plans and other retiree benefit plans were underfunded by $8.9 billion and $5.9 billion, respectively, at the end of last year. The company is scheduled to report year-end results for 2016 next Thursday.

General Motors Co. doesn’t use the same accounting method to handle its pension obligations. GM will update the status of its pension liabilities on Feb. 7 when it reports financial results for 2016.