American automobile manufacturer, Ford Motor Co. last week said a change in how it accounts for pensions will result in a $2 billion hit to its 2016 net income, according to a document filed with the Securities and Exchange Commission.
In late 2015, the automobile manufacturer changed how it values pensions and other retiree benefits by counting them in the year they were incurred instead of amortizing them over a number of years. Because of that change, Ford expects to lose $3 billion on pension plans and other retiree benefit plans in 2016.
Of the $3 billion, $900 million is associated with U.S. pension plans, $1.9 billion is for plans outside the U.S., and $200 million is for other retiree benefit plans globally, Ford said.
Since the loss is a special item, it will not impact Ford’s pretax profit, which Ford expects will be $10.2 billion, down from $10.8 billion a year ago.
Including this loss, Ford expects its pension plans will be unfunded by $8.9 billion at year end 2016. Its other retiree benefit plans will be unfunded by $5.9 billion. Both figures are up slightly from the same time a year ago.
Ford will report its fourth-quarter and full-year 2016 earnings on Thursday. A General Motors spokesman said the company does not use “mark-to-market” accounting for the remeasurement of pensions. GM will update the status of its pension plans when it reports fourth-quarter earnings on Feb. 7, he said.
