Ford 2005 Annual Report Download - page 94

Notes to the Financial Statements
NOTE 23. RETIREMENT BENEFITS (Continued)
A one percentage point increase/(decrease) in the assumed health care cost trend rates would increase/(decrease) the
postretirement health care benefit obligation by approximately $4.9 billion/$(3.9) billion and the service and interest component of
health care expense by $490 million/$(380) million. The actual retiree health care cost trend for 2005 was 2%, primarily reflecting
lower than expected drug costs and continued administrative efficiencies (e.g., competitive sourcing and pricing). The actual
retiree health care cost trend for 2004 was 9%.
Plan Contributions
Our policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations, and
union agreements. We do from time to time make contributions beyond those legally required.
Pension. In 2005, we made $2.5 billion of cash contributions to our funded pension plans. During 2006, we expect to
contribute $1.5 billion to our worldwide pension plans, including about $300 million of benefit payments paid directly by us for
unfunded plans. Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major
U.S. pension plans in 2006.
Health Care and Life Insurance. In 2005, we contributed $200 million to our previously established VEBA for U.S. hourly
retiree health care and life insurance benefits. During 2006, we do not expect to contribute to the VEBA.
Estimated Future Benefit Payments
The following table presents estimated future gross benefit payments and subsidy receipts related to the Medicare Prescription
Drug Improvement and Modernization Act of 2003 (in millions):
Pension Benefits
U.S. Plans Non-U.S. Plans Health Care and Life Insurance
Benefit Payments Benefit Payments Benefit Payments Subsidy Receipts
2006 ...........................................................................................................
.
$ 2,870 $ 1,370 $ 1,750 $ (80)
2007 ...........................................................................................................
.
2,940 1,230 1,850 (90)
2008 ...........................................................................................................
.
3,010 1,250 1,950 (100)
2009 ...........................................................................................................
.
3,050 1,290 2,040 (110)
2010 ...........................................................................................................
.
3,070 1,330 2,120 (110)
2011 - 2015................................................................................................
.
15,410 7,340 11,630 (680)
Plan Asset Information
Pension. Our investment strategy for pension assets has a long-term horizon and is tolerant of return volatility, in keeping with
the long-term nature of the liabilities. The target asset allocation for our major plans worldwide generally is 70% equities, 30%
fixed income. The present allocation to alternative investments (e.g., private equity) is below 1%. All assets are externally
managed and most investment managers have discretion to invest globally within their respective mandates. A diverse array of
investment processes within asset classes reduces volatility. Most assets are actively managed; manager skill and broad mandates
have generally produced long-term returns in excess of common market indices. Ford securities comprised less than five percent
of the total market value of our assets in major worldwide plans (including U.S., U.K., Canada, Germany, Sweden, Netherlands,
Belgium, and Australia) during 2005 and 2004.
Investment managers are permitted to use derivatives as efficient substitutes for traditional securities and to manage exposure
to foreign exchange and interest rate risks. Interest rate and foreign currency derivative instruments are used for the purpose of
hedging changes in the fair value of assets that result from interest rate changes and currency fluctuations. Derivatives may not be
used to leverage or to alter the economic exposure to an asset class outside the scope of the mandate to which an investment
manager has been appointed.
The equity allocation shown at year-end 2005 and 2004 includes public equity securities, private equity investments, and
REITS. Direct real estate investments shown separately reflect a liquidation strategy that has been in place for several years.
Other assets include cash held for near-term benefit funding; cash held by investment managers for liquidity purposes is included
in the appropriate asset class balance.
Ford Motor Company Annual Report 2005 92 Ford Motor Company Annual Report 2005 93