Ford Motor Co. expects to spend $5 billion this year shoring up its pension funds, almost as much as the auto maker spent last year building plants, buying equipment and developing new cars.
The nation's second-largest auto maker is one of a who's who of U.S. companies pouring cash into pension plans now being battered by record low interest rates.
Verizon Communications Inc.contributed $1.7 billion to its pension plan in the fourth quarter and—highlighting companies' sensitivity to this issue—Boeing Co. now reports "core earnings" to separate out pension expenses.
"It is one of the top issues that companies are dealing with now," said Michael Moran, pension strategist at investment adviser Goldman Sachs Asset Management.
The drain on corporate cash is a side effect of the U.S. monetary policy aimed at encouraging borrowing to stimulate the economy. Companies are required to calculate the present value of the future pension liabilities by using a so-called discount rate, based on corporate bond yields. As those rates fall, the liabilities rise....
Today, many of the companies contributing to the pensions are struggling with the costs but don't offer defined benefit plans to new workers....
Andrew Liveris, chief executive of Dow Chemical Co., which posted a loss of $716 million for the fourth quarter, said the company faces a "massive pension headwind" because of the change in the discount rate that added $2.2 billion to its pension liability.
Pension expense this year is going to rise between $250 million and $300 million.
"Other companies have got it, and so we're not alone, but clearly those are big numbers for us," Mr. Liveris said.