Ford Motor Co.'s $64 billion pension plan is piling into bonds to reduce risk and lock in higher interest rates after a surge in yields and the biggest stock gain since 1997 sliced its funding shortfall by about half.
The second-largest American automaker, which boosted debt investments to about 70% of its U.S. plan assets last year from 55% in 2012, is now looking to lift that allocation to 80%.
“Companies are now getting on the bandwagon,” Ford Treasurer Neil Schloss said in a telephone interview from the company's headquarters in Dearborn, Mich.
U.S. pension plans, which control $16 trillion, shifted out of equities and into bonds in the third quarter at the fastest rate since 2008, latest data compiled by the Federal Reserve show. The plans were more willing to own stocks after the Fed dropped interest rates close to zero and pushed down yields to record lows with its bond buying to support the U.S. economy crippled by the financial crisis.
After the 30% rally in the Standard & Poor's 500 index brought the biggest corporate pension plans on the verge of closing shortfalls for the first time since before the crisis, they're now pouring back into fixed-income assets to lower risk as the Fed's move to taper stimulus causes yields to rise.
The deficit for Ford's pension plan, which risked forcing the carmaker to seek a federal bailout in 2009, has plummeted to about $10 billion from $18.7 billion at the end of 2012. Ford's shortfall also declined as increasing earnings helped the carmaker to make more cash contributions to its pension fund.
As companies close those deficits, more of their plans are buying bonds, allowing them to match liabilities and eliminate the risk of potential deficits.
While renewed pension fund demand for bonds might help temper further losses in bonds, “We, inherently as it relates to the pension plan, won't care” if yields rise once the company has bought a bond to match a specific pension liability, Mr. Schloss said.
Separately, Ryder System Inc., Miami, is increasing the debt allocation in its $1.6 billion pension fund to about 45% this year from about 30%, Treasurer Dan Susik said in a telephone interview.
