Report: Ford Could Erase Pension Gap by 2015

Ford Motor Co. could cut its U.S. pension shortfall in half this year and eliminate it entirely by the end of 2014, according to Reuters.

The news agency notes that Ford plans this year to inject $5 billion into its pension plans worldwide. The cash, coupled with higher interest rates, should enable the company to reduce its $9.7 billion pension gap in the U.S. to as little as $4 billion by year end, analysts say.

Reuters says Ford could erase the gap entirely with another cash infusion of at least $1 billion in 2014, coupled with a steady rise in interest rates.

Eliminating the need to make annual pension payments would allow Ford to funnel more of its cash flow into developing new products and factory capacity, reducing other debt or hiking dividends, analysts note. This year's pension payments are only slightly less than the company's entire budget last year for products, factories and other capital investments, according to Reuters.

Companies project future pension liabilities in terms of a discount rate indexed to corporate bond rates. Higher rates mean lower future liabilities, thereby reducing the amount that companies must contribute to pension funds now.

Experts tell Reuters the discount rate, which was 3.96% in December, could reach 5.04% by year-end and perhaps 5.64% at the end of 2014. Ford told analysts earlier this week that a one-point increase in the discount rate would reduce its pension liability in the U.S. by $2.3 billion.