Goodyear freezes U.S. hourly pension plans, vulcanizes DB plans with $1.15 billion

Goodyear Tire & Rubber Co., Akron, Ohio, announced on Thursday it has contributed $1.15 billion to its U.S. defined benefit pension plans since the beginning of 2014 and will freeze its U.S. hourly pension plans on April 30.

The contributions come as part of an effort by the company to fully fund its U.S. pension funds, Richard J. Kramer, Goodyear's chairman, president and CEO, said in an investor call Thursday.

The contribution comes from “100% cash generated from operations,” Mr. Kramer said, according to a transcript of the call.

“For more than a decade, we've been dealing with the volatility associated with legacy operations,” Mr. Kramer said. “Even so, we've always maintained our commitment to meet these obligations. Now, we're pleased to have fulfilled that responsibility.”

The contribution, which fully funds the company's U.S. hourly pension plans according to Mr. Kramer, allows the company to freeze that plan to future benefit accruals effective April 30. The hourly plans were closed to new employees covered by the United Steelworkers master labor contract on Aug. 29, 2009. U.S. salaried plans have been frozen since Dec. 31, 2008.

Now that the U.S. pension plans are frozen and fully funded, spokesman Keith Price said the company is considering making a lump-sum offer to vested participants who have yet to retire. He added Goodyear is not considering a bulk annuity purchase similar to the high-profile buyouts by General Motors and Verizon.

The company announced last February its intention to switch to a liability-driven investing strategy for its pension funds and to make the $1.15 billion contribution this year. Freezing the U.S. hourly pension funds allows the target allocation for the plans to move “to a portfolio of substantially all fixed-income securities designed to offset the future impact of discount rate movements,” according to the annual report.

The actual allocation of the U.S. pension funds as of Dec. 31 according to the annual report was 55% fixed income, 41% equities, 3% cash and short-term investments, and 1% alternatives.

The previous year the allocation was 62% equities, 32% fixed income, 5% cash and short-term securities, and 1% alternatives.

As of Dec. 31, the U.S. pension funds had total assets of $4.8 billion compared to $5.98 billion in projected benefit obligations, resulting in a shortfall of $1.18 billion, or an 80.3% funding ratio. The company contributed $1 billion to its U.S. pension funds in 2013.