Ford 2005 Annual Report Download - page 91

Ford Motor Company Annual Report 2005 88 Ford Motor Company Annual Report 2005 89
Notes to the Financial Statements
NOTE 23. RETIREMENT BENEFITS (Continued)
Postretirement Health Care and Life Insurance Benefits
We, and certain of our subsidiaries, sponsor plans to provide selected health care and life insurance benefits for retired
employees. The Ford UAW Hospital-Surgical-Medical-Drug-Dental-Vision Program covers hourly employees represented by the
UAW, and the Ford Salary Health Care Plan covers substantially all other Ford employees in the United States hired before
June 1, 2001. We also offer company-paid postretirement life insurance benefits to U.S. salary employees hired before
January 1, 2004 and all U.S. hourly employees. Our employees generally may become eligible for benefits when they retire;
however, benefits and eligibility rules may be modified from time to time.
In December 2003, we announced a new postretirement health care plan for U.S. salary employees hired on or after
June 1, 2001. The plan provides for annual company allocations to employee-specific notional accounts to be used to fund
postretirement health care benefits.
Effective January 1, 2007 for U.S. salaried employees hired before June 1, 2001 we established a company contribution limit
set at 2006 levels for retiree health care benefits. U.S. salaried employees hired on or after June 1, 2001 participate in a defined
contribution retiree health care plan. In addition, for U.S. salaried employees hired before January 1, 2004 who retire on or after
June 1, 2006, company-paid retiree life insurance benefits are limited to $50,000 (employees hired on or after January 1, 2004 do
not receive company-paid life insurance benefits). These benefit changes resulted in a decrease in the year-end 2005 other
postretirement employee benefit ("OPEB") obligation of about $3 billion.
In December 2005, we reached an agreement with the UAW that would increase retiree health care cost sharing. As part of the
agreement, an independent defined contribution Voluntary Employee Benefit Association trust would be established for the
purpose of mitigating the financial impact of increased cost sharing to retirees. This trust would be funded primarily through (i)
wage diversions from active hourly employees, (ii) specified cash contributions aggregating $108 million to be made by us over
several years, and (iii) potential cash contributions to be made by us based on any price appreciation above $8.145 per share of a
notional amount of 8,750,000 shares of Ford Common Stock. The agreement is subject to court approval of a proposed settlement
of a purported class action challenging our decision to modify the retiree health care plan; additional retirees have expressed their
objection to the agreement by moving to intervene in the pending lawsuit and filing a follow-on suit of their own.
In 2003, we agreed to relieve Visteon of its responsibility for the OPEB liability related to service prior to our spinoff of
Visteon at June 30, 2000 for the Visteon Hourly Employees. This resulted in a one-time charge to expense in 2003 of $1.6 billion,
and the forgiveness of associated Visteon promissory notes previously included in plan assets. Pursuant to this agreement, the
expense associated with service after June 30, 2000 for Visteon Hourly Employees was charged to Visteon. OPEB expense for
former salaried Ford employees who transferred to Visteon and met certain age and service conditions at June 30, 2000 was also
charged to Visteon.
In 2005, an agreement was reached with Visteon which included forgiving a receivable related to Visteon's remaining UAW
OPEB obligation and a portion of Visteon's salary obligation for former Ford employees and retirees. The total receivable
forgiven was about $800 million, of which $600 million was recorded in 2004 as an allowance for doubtful receivables. At
December 31, 2005, we had a long-term receivable of $140 million representing Visteonʼs remaining responsibility for the benefits
of the Visteon salaried employees. For additional discussion of this agreement, see Note 4.
On December 8, 2003, the President signed into law the Medicare Prescription Drug Improvement and Modernization Act of
2003. The law provides for a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit at least
actuarially equivalent to the benefit established by the law. We provide retiree drug benefits that exceed the value of the benefits
that will be provided by Medicare Part D, and our retireesʼ out-of-pocket costs are less than they would be under Medicare Part D.
Therefore, we have concluded that our plan is at least "actuarially equivalent" to the Medicare Part D plan and that we will be
eligible for the subsidy. We have reflected the impact of the subsidy by reducing our 2005 and 2004 expense by $290 million and
$250 million, respectively.