Goodyear contributes $454 million, announces move to LDI
By Rob Kozlowski | February 12, 2013 3:11 pm
Goodyear Tire & Rubber Co., Akron, Ohio, contributed $454 million to its U.S. pension plans in 2012 and announced plans for a liability-driven investing strategy for its U.S. pension plans.
The strategy is part of the Goodyear's efforts to “eliminate defined benefit pension plans,” according to an investor presentation on Tuesday.
Darren R. Wells, Goodyear executive vice president and chief financial officer, said in an investor conference call on Tuesday the move to “pre-fund” and “derisk” the plans affects the approximately $1 billion in unfunded liabilities for plans that are currently frozen, and $1.7 billion in unfunded liabilities for any plans that might be frozen in the future. All numbers are as of Dec. 31.
Goodyear's U.S. salaried pension plans were frozen on Dec. 31, 2008, and U.S. hourly pension plans were closed to new employees covered by the United Steelworkers master labor contract on Aug. 29, 2009.
Mr. Wells said Goodyear's view is that it should take the step of “freezing in our other plans as well,” which will require discussions with the company's workforce.
“I think the closer we get to fully funded, the closer we're going to be to being fully invested in fixed income,” Mr. Wells said in a transcript of the call. “And I think the ultimate idea is that once the plans are fully funded that we would have an asset portfolio that would be made up of bonds that would closely mirror the bonds that are used to calculate our discount rate. So that if there is a move in the interest-rate curve, the gain on the assets would offset any loss related to discount rate and vice versa.”
In Goodyear's 10-K filing with the SEC on Tuesday, the company said it expects to contribute a total of $275 million to $325 million to its worldwide pension plans in 2013.
As of Dec. 31, the U.S. pension plans had assets of $4.1 billion and projected benefit obligations of $6.76 billion, for a funding ratio of 60.7%, according to the firm's 10-K filing.
The company's actual asset allocation as of Dec. 31 was 62% equities, 32% fixed income, 5% cash and short-term securities, and 1% alternatives. Its current targets are 70% equities and 30% fixed income.
Company spokesman Keith Price would not provide further information beyond what was in the conference call and said the firm would not discuss whether it is considering lump-sum payout offers as part of the overall strategy to reduce liabilities.