Ford 2009 Annual Report Download - page 60

Management’s Discussion and Analysis of Financial Condition and Results of Operations
58 Ford Motor Company | 2009 Annual Report
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 2009, the U.S. actual return on
assets was 14.4%, which was higher than the expected return of 8.25%. The year-end 2009 weighted average discount
rates for the U.S. and non-U.S. plans decreased by 64 and 27 basis points, respectively. These differences resulted in
unamortized losses of about $2 billion (excluding Volvo). These losses 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 losses do not exceed this threshold and recognition will begin at a future measurement date.
See Note 18 of the Notes to the Financial Statements for more information regarding costs and assumptions for
employee retirement benefits.
Sensitivity Analysis. The December 31, 2009 pension funded status and 2010 expense are affected by year-end 2009
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
expense of our pension plans and/or obligation. We cannot predict these changes in discount rates or investment returns
and, therefore, cannot reasonably estimate whether adjustments to our expense or obligation 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 and demographic experience, which may have an effect on the amount and timing of future payments.
Assumptions and Approach Used. The assumptions used in developing the required estimates include the following
key factors:
• Discount rates. We base the discount rate assumption primarily on the results of a cash flow matching analysis,
which matches the future cash outflows for each plan to a yield curve comprised of high quality bonds specific to the
country of the plan. Benefit payments are discounted at the rates on the curve and a single discount rate specific to
the plan is determined.
• Health care cost trends. Our health care cost trend assumptions are developed based on historical cost data, the
near-term outlook, and an assessment of likely long-term trends.
• Salary growth. The salary growth assumptions reflect our long-term actual experience, outlook and assumed
inflation.
• 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.