Pension legislation equals significant savings for Goodyear
Goodyear Tire & Rubber has expressed its approval of the legislation approved by the United States Congress and signed by Barack Obama on 6 July, not least because it should save the company some US$375 million over the next five years. The savings are related to pensions – a sensitive topic for many Goodyear employees following the significant changes made to the tyre maker’s pension plan in recent years, yet the company states the legislation will offset historically low interest rates and enable companies to invest in business growth and creating jobs.
“We are pleased that Congress saw that a pension plan’s ability to pay benefits to retirees over multiple decades is unrelated to the federal government’s actions to keep interest rates historically low,” said Richard J. Kramer, Goodyear chairman and chief executive officer.
The largest US tyre maker opines that company pension contributions have been “inflated” due to a “dramatic and unforeseen increase in pension liabilities” stemming from the US Federal Reserve’s “policy of low interest rates.” This new legislation, passed as part of the Moving Ahead for Progress in the 21st Century Act, is viewed by Goodyear as a measure that “temporarily lessens this artificial funding distortion and ensures defined benefit pension plans are viable and secure for years to come.”
Goodyear is said to have had an approximately $2 billion shortfall in its pension fund since the start of the millennium. The new legislation will reduce its minimum required pension contributions to around $425 million over the next five years, with the greatest benefit coming in 2013 and 2014. The impact on the company’s 2012 pension expense will not be significant, Goodyear adds, and the company continues to expect to record pension expense of $275 million to $325 million for the year.