Ford 2004 Annual Report Download - page 86

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NOTES TO THE FINANCIAL STATEMENTS
The expense for our worldwide defined contribution plans was $80 million in 2004, $37 million in 2003 and $23 million in
2002. This includes the expense for company matching contributions to our primary savings plans (U.S. and Canada) of $40
million in 2004 and $0 in 2003 and 2002. The 2004 increase in savings plan expense was due to reinstatement of company
matching contribution on salaried employee contributions in the U.S. and Canada.
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 Healthcare Plan covers substantially all other Ford employees in the U.S. hired before June 1, 2001. 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. 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 2003, we agreed to relieve Visteon of its responsibility for the postretirement health care and life insurance liability related to
service prior to our spin off 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 the agreement, the expense associated with service after June 30, 2000 for Visteon Hourly Employees is charged to
Visteon. Postretirement health care and life insurance expense for former salaried Ford employees who transferred to Visteon and
met certain age and service conditions at June 30, 2000 is also charged to Visteon.
At December 31, 2004, we had a long-term receivable of $835 million representing Visteon’s responsibility for the postretirement
health care and life insurance benefits of the Visteon Employees pursuant to the 2003 agreement. The receivable increased with
expense charged to Visteon during 2004 and is expected to decrease as Visteon or the Visteon Voluntary Employees Beneficiary
Association trust (“Visteon VEBA”) makes cash payments to us directly, in case of a payment from Visteon, or to us as Ford Plan
Administrator, in case of a payment from the Visteon VEBA.
Visteon has agreed to make a series of cash payments to the Visteon VEBA so that by December 31, 2049, the assets in the Visteon
VEBA will equal Visteon’s postretirement healthcare and life insurance liability for the Visteon Employees on that date. The cash
payments to the Visteon VEBA will commence no later than January 2, 2006 for the Visteon Hourly Employees and
January 1, 2011 for the Visteon Salaried Employees.
At December 31, 2004, there was objective evidence that Visteon would be undertaking structural and strategic changes to its
operations. Based on this and other considerations, we recorded a valuation allowance of $600 million against the receivable from
Visteon in order to reflect our assessment of its recoverability. The receivable will be analyzed for recoverability on an on-going
basis as future postretirement health care and life insurance expenses are allocated to Visteon. The effect of the valuation allowance
is not included in the table below.
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 retirees’ 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 2004 expense by $250 million. We also
recorded an unrecognized gain, which reduced our benefit obligation by $1.8 billion at December 31, 2003.
The measurement date for substantially all of our worldwide postretirement benefit plans is December 31. Our expense for
defined benefit pension, postretirement health care and life insurance benefits was as follows (in millions):
NOTE 22. Retirement Benefits (Continued)
Pension Benefits Health Care
U.S. Plans Non-U.S. Plans and Life Insurance
2004 2003 2002 2004 2003 2002 2004 2003 2002
Service cost $ 636 $ 600 $ 556 $ 554 $ 492 $ 377 $ 542 $ 521 $ 427
Interest cost 2,445 2,442 2,453 1,332 1,170 977 1,964 2,004 1,801
Expected return on assets (3,219) (3,202) (3,646) (1,651) (1,382) (1,265) (289) (37) (85)
Amortization of:
Prior service costs 502 472 529 106 135 137 (220) (179) (145)
(Gains)/losses and other 23 33 (130) 204 148 25 610 532 310
Separation programs 1 - 107 78 128 39 - - 16
Visteon pre-spin liability - - - - - - - 1,646 -
Allocated costs to Visteon (107) (88) (62) - - - (228) (314) (228)
Net expense/(income) $ 281 $ 257 $ (193) $ 623 $ 691 $ 290 $ 2,379 $ 4,173 $ 2,096