HIGHLAND PARK, Mich. - The Chrysler Corp. pension fund became fully funded for the first time since 1957 during the fourth quarter of 1994, beating by a full year its established goal of full funding by year-end 1995.
The final $600 million contribution in December, which capped a nearly two-year effort to reach full funding status in the $11 billion plan, was made four years after the plan had a deficit of $4.4 billion.
Gary C. Valade, Chrysler executive vice president and chief financial officer, said achieving full funding was made possible largely by the improved financial condition of the third largest U.S.-based automaker. Chrysler's net income skyrocketed 54% in the third quarter to $651 million on a 23% increase in revenue, and analysts expect profits to continue rising.
Mr. Valade said the company accelerated its funding schedule early last year and made total 1994 contributions of $2.5 billion, capped by the fourth quarter's $600 million contribution. "That was very exciting to us, since it has been decades since the pension fund was fully funded," Mr. Valade said. "Our retirees can be more secure in the promises we have made that the money will be there in the pension fund."
Chrysler's pension fund has been heavily underfunded for years, and the climb to fully funded status came from the low point in 1991 when the plan was $4.4 billion in the red. By the end of 1993, the unfunded liability was $2.2 billion.
Thomas P. Capo, treasurer, said funding the pension plan was an "important obligation and a top priority" at Chrysler for the past few years as a way to "clean up the balance sheet."
He said the assets contributed to the fund were allocated to Chrysler's existing 49 active and index fund managers, and did not cause any shift in asset allocation or prompt the hiring of new money managers.
"We believe in using fewer larger money managers than in using lots of smaller managers," he said.
In September, Chrysler's asset allocation was 65% stocks, 31% fixed income, 2% cash and 2% in annuity contracts.
Marvin Behm, auto analyst at Duff & Phelps, Chicago, said reaching fully funded status is important for Chrysler both from the credit rating aspect as well as from a business standpoint.
But, of equal importance, the cyclical nature of the automobile business makes funding the pension plan important in the event of an economic downturn.