Ford 2006 Annual Report Download - page 94
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Notes to the Financial Statements
92
NOTE 23. RETIREMENT BENEFITS (Continued)
Plan obligations and costs are based on existing retirement plan provisions. No assumption is made regarding any
potential future changes to benefit provisions beyond those to which we are presently committed (e.g., in existing labor
contracts).
In general, our plans are funded, with the main exceptions being certain plans in Germany and U.S. defined benefit
plans for senior management. In such cases, an unfunded liability is recorded.
The expense for our worldwide defined contribution plans was $50 million in 2006, $83 million in 2005 and $80 million
in 2004. This includes the expense for company matching contributions to our primary employee savings plans (United
States and Canada) of $0 in 2006, $44 million in 2005 and $40 million in 2004. Company matching contributions were
suspended in July 2005.
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 ("H-S-M-D-D-V 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. U.S. salaried employees hired on or after June 1, 2001 are
covered by a separate plan that provides for annual company allocations to employee-specific notional accounts to be
used to fund postretirement health care benefits. We also provide company-paid postretirement life insurance benefits to
U.S. salaried 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.
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 are retirement eligible 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 reduction in 2006 and ongoing expense of about $400 million annually as well as a decrease
in the year-end 2005 OPEB obligation of about $3 billion.
Effective January 1, 2008 for U.S. salaried employees hired before June 1, 2001, we will replace health care coverage
(including prescription drugs and dental) for retirees and surviving spouses who are age 65 and older or Medicare eligible
with a new Health Reimbursement Arrangement ("HRA"). Each such surviving spouse, retiree and his or her eligible
spouse will be provided an annual amount of up to $1,800 in an HRA account. The HRA may be used to help offset
health care, dental, vision and hearing costs. This benefit change resulted in a decrease in the year-end 2006 OPEB
obligation of about $500 million and a reduction in 2006 and ongoing expense of about $80 million annually.
As previously reported, we entered into an agreement with the UAW ("Agreement") in December 2005 to increase
retiree health care cost sharing as part of our overall cost reduction efforts. On July 13, 2006, we received the necessary
court approval of a settlement of a lawsuit challenging proposed modifications to the H-S-M-D-D-V Program and cost
savings began to accrue as of that date. The Agreement provides for increased cost sharing of health care expenses by
retirees presently covered under the H-S-M-D-D-V Program ("Plan Amendment") and establishes an independent Defined
Contribution Retiree Health Benefit Trust ("UAW Benefit Trust") which will serve as a non-Ford sponsored Voluntary
Employee Benefit Association. The UAW Benefit Trust will be used to mitigate the reduction in health plan benefits for
certain eligible present and future retirees, surviving spouses and other dependents. This settlement agreement will
remain in effect until September 14, 2011, at which point either Ford or the UAW may provide notice of a desire to
terminate the Agreement.