Ford 2009 Annual Report Download - page 124
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Notes to the Financial Statements
122 Ford Motor Company | 2009 Annual Report
NOTE 18. RETIREMENT BENEFITS (Continued)
Significant Concentrations of Risk. Significant concentrations of risk in our plan assets relate to equity, interest rate,
and operating risk. In order to ensure assets are sufficient to pay benefits, a portion of plan assets is allocated to equity
investments that are expected over time to earn higher returns with more volatility than fixed income investments which
more closely match pension liabilities. Within equities, risk is mitigated by constructing a portfolio that is broadly
diversified by geography, market capitalization, manager mandate size, investment style and process.
In order to minimize asset volatility relative to the liabilities, a portion of plan assets are allocated to fixed income
investments that are exposed to interest rate risk. Rate increases generally will result in a decline in fixed income assets
while reducing the present value of the liabilities. Conversely, rate decreases will increase fixed income assets, partially
offsetting the related increase in the liabilities.
Operating risks include the risks of inadequate diversification and weak controls. To mitigate these risks, investments
are diversified across and within asset classes in support of investment objectives. Policies and practices to address
operating risks include ongoing manager oversight (e.g., style adherence, team strength, firm health, and internal risk
controls), plan and asset class investment guidelines and instructions that are communicated to managers, and periodic
compliance and audit reviews to ensure adherence.
Ford securities comprised less than 5% of the total market value of our assets in major worldwide plans during 2009
and 2008.
Expected Long-Term Rate of Return on Assets. The long-term return assumption at year-end 2009 is 8.25% for the
U.S. plans, and 7.75% for the U.K. and Canadian plans, and averages 7.17% for all non-U.S. plans. A generally
consistent approach is used worldwide to develop this assumption. This approach considers various sources, primarily
inputs from a range of advisors for long-term capital market returns, inflation, bond yields and other variables, adjusted for
specific aspects of our investment strategy by plan. Historical returns also are considered where appropriate.
At December 31, 2009, our actual 10-year annual rate of return on pension plan assets was 6.3% for the U.S. plans,
2.6% for the U.K. plans, and 3.4% for the Canadian plans. At December 31, 2008, our actual 10-year annual rate of
return on pension plan assets was 6% for the U.S. plans, 3.4% for the U.K. plans, and 3.7% for the Canadian plans.