Ford 2007 Annual Report Download - page 41

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2007 Annual Report 39
• Expected contributions. The expected amount and timing of contributions is based on an assessment of minimum
requirements, and additional amounts based on cash availability and other considerations (e.g., funded status,
avoidance of Pension Benefit Guaranty Corporation ("PBGC") penalty premiums, U.K. Pension Protection Fund
levies, and tax efficiency).
• Retirement rates. Retirement rates are developed to reflect actual and projected plan experience.
• Mortality rates. Mortality rates are developed to reflect actual and projected plan experience.
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).
The effects of actual results differing from our assumptions and the effects of changing assumptions are included in
unamortized net gains and losses. Unamortized gains and losses are amortized over future periods and, therefore,
generally affect our recognized expense in future periods. Amounts are recognized as a component of net expense over
the expected future years of service (approximately 12 years for the major U.S. plans). In 2007, the U.S. actual return on
assets was 11%, which exceeded the expected return of 8.5%. The year-end 2007 weighted average discount rates for the
U.S. and non-U.S. plans increased by 39 and 69 basis points, respectively. These differences resulted in an unamortized
gain of about $6 billion (excluding Jaguar and Land Rover). These gains are only amortized to the extent they exceed 10%
of the higher of the market-related value of assets or the projected benefit obligation of the respective plan. For the major
U.S. plans, the gains do not exceed this threshold and recognition will begin at a future measurement date.
See Note 24 of the Notes to the Financial Statements for more information regarding costs and assumptions for
employee retirement benefits.
Sensitivity Analysis. The December 31, 2007 pension funded status and 2008 expense are affected by year-end 2007
assumptions. These sensitivities may be asymmetric and are specific to the time periods noted. They also may not be
additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual
sensitivities shown. The effect of the indicated increase/(decrease) in selected factors is shown below (in millions):
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The foregoing indicates that changes in the discount rate and return on assets can have a significant effect on the
funded status of our pension plans, stockholders' equity and expense. We cannot predict these changes in discount rates
or investment returns and, therefore, cannot reasonably estimate whether adjustments to our stockholders' equity in
subsequent years will be significant.
Other Postretirement Employee Benefits
Nature of Estimates Required. The estimation of our obligations, costs and liabilities associated with OPEB, primarily
retiree health care and life insurance, requires that we make use of estimates of the present value of the projected future
payments to all participants, taking into consideration the likelihood of potential future events such as health care cost
increases, salary increases and demographic experience, which may have an effect on the amount and timing of future
payments.