ACI » Topics » Employee Benefit Plans

This excerpt taken from the ACI 10-K filed Mar 1, 2010.
Employee Benefit Plans
 
We have non-contributory defined benefit pension plans covering certain of our salaried and hourly employees. Benefits are generally based on the employee’s age and compensation. We fund the plans in an amount not less than the minimum statutory funding requirements or more than the maximum amount that can be deducted for federal income tax purposes. We contributed cash of $18.8 million in 2009 and $2.6 million in 2008 to the plans. The actuarially-determined funded status of the defined benefit plans is reflected in the balance sheet.
 
The calculation of our net periodic benefit costs (pension expense) and benefit obligation (pension liability) associated with our defined benefit pension plans requires the use of a number of assumptions that we deem to be “critical accounting estimates.” Changes in these assumptions can result in different pension expense and liability amounts, and actual experience can differ from the assumptions.
 
  •  The expected long-term rate of return on plan assets is an assumption reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We establish the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The pension plan’s investment targets are 65% equity, 30% fixed income securities and 5% cash.


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  Investments are rebalanced on a periodic basis approximate these targeted guidelines. The long-term rate of return assumption used to determine pension expense was 8.5% for 2009 and 2008. These long-term rate of return assumptions are less than the plan’s actual life-to-date returns. Any difference between the actual experience and the assumed experience is recorded in other comprehensive income and amortized into earnings in the future. The impact of lowering the expected long-term rate of return on plan assets 0.5% for 2009 would have been an increase in expense of approximately $1.0 million.
 
  •  The discount rate represents our estimate of the interest rate at which pension benefits could be effectively settled. Assumed discount rates are used in the measurement of the projected, accumulated and vested benefit obligations and the service and interest cost components of the net periodic pension cost. In estimating that rate, rates of return on high-quality fixed-income debt instruments are required. We utilize a bond portfolio model that includes bonds that are rated “AA” or higher with maturities that match the expected benefit payments under the plan. The discount rate used to determine pension expense was 5.97% for 2009 and 6.85% for 2008. The impact of lowering the discount rate 0.5% for 2009 would have been an increase in expense of approximately $2.2 million.
 
The differences generated from changes in assumed discount rates and returns on plan assets are amortized into earnings over a five-year period, which represents the average amount of time before participants vest in their benefits.
 
For the measurement of our 2009 year-end pension obligation and pension expense for 2010, we used a discount rate of 5.97%.
 
We also currently provide certain postretirement medical and life insurance coverage for eligible employees. Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for postretirement coverage for themselves and their dependents. The salaried employee postretirement benefit plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as deductibles and coinsurance. During 2009, we notified participants of the retiree medical plan of a plan change increasing the retirees’ responsibility for medical costs. Our current funding policy is to fund the cost of all postretirement benefits as they are paid. We account for our other postretirement benefits in accordance with our overall defined benefit plans policy and require that the actuarially-determined funded status of the plans be recorded in the balance sheet.
 
Actuarial assumptions are required to determine the amounts reported as obligations and costs related to the postretirement benefit plan. The discount rate assumption reflects the rates available on high-quality fixed-income debt instruments at year-end and is calculated in the same manner as discussed above for the pension plan. The discount rate used to calculate the postretirement benefit expense was 6.5% for 2008. The plan change referenced above resulted in a remeasurement of the postretirement benefit obligation, which included a decrease in the discount rate from 6.85% to 5.68%. The remeasurement resulted in a decrease in the liability of $21.0 million, with a corresponding increase to other comprehensive income, and will result in future reductions in costs under the plan.
 
Had the discount rate been lowered by 0.5% in 2009, we would have incurred additional expense of $0.7 million.
 
For the measurement of our year-end other postretirement obligation for 2009 and postretirement expense for 2010, we used a discount rate of 5.67%.
 
These excerpts taken from the ACI 10-K filed Feb 27, 2009.
Employee Benefit Plans
 
We have non-contributory defined benefit pension plans covering certain of our salaried and hourly employees. Benefits are generally based on the employee’s age and compensation. We fund the plans in an amount not less than the minimum statutory funding requirements or more than the maximum amount that can be deducted for federal income tax purposes. We contributed cash of $2.6 million in 2008 and $2.7 million in 2007 to the plans. We account for our defined benefit plans in accordance with Statement of Financial Accounting Standards No. 87, Employer’s Accounting for Pensions, as amended by Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which we refer to as Statement No. 87 and Statement No. 158. Statement No. 158 requires that the actuarially-determined funded status of the plans be recorded in the balance sheet.
 
The calculation of our net periodic benefit costs (pension expense) and benefit obligation (pension liability) associated with our defined benefit pension plans requires the use of a number of assumptions that we deem to be “critical accounting estimates.” Changes in these assumptions can result in different pension expense and liability amounts, and actual experience can differ from the assumptions.
 
  •  The expected long-term rate of return on plan assets is an assumption reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We establish the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The pension plan’s investment targets are 65% equity, 30% fixed income securities and 5% cash.


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  Investments are rebalanced on a periodic basis to stay within these targeted guidelines. The long-term rate of return assumption used to determine pension expense was 8.5% for 2008 and 2007. These long-term rate of return assumptions are less than the plan’s actual life-to-date returns. Any difference between the actual experience and the assumed experience is recorded in other comprehensive income and amortized into earnings in the future. The impact of lowering the expected long-term rate of return on plan assets 0.5% for 2008 would have been an increase in expense of approximately $1.1 million.
 
  •  The discount rate represents our estimate of the interest rate at which pension benefits could be effectively settled. Assumed discount rates are used in the measurement of the projected, accumulated and vested benefit obligations and the service and interest cost components of the net periodic pension cost. In estimating that rate, Statement No. 87 requires rates of return on high-quality fixed-income debt instruments. We utilize a bond portfolio model that includes bonds that are rated “AA” or higher with maturities that match the expected benefit payments under the plan. The discount rate used to determine pension expense was 6.5% for 2008 and 5.9% for 2007. The impact of lowering the discount rate 0.5% for 2008 would have been an increase in expense of approximately $2.2 million.
 
The differences generated from changes in assumed discount rates and returns on plan assets are amortized into earnings over a five-year period.
 
For the measurement of our year-end pension obligation for 2008, we changed our discount rate to 6.85%.
 
We also currently provide certain postretirement medical and life insurance coverage for eligible employees. Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for postretirement coverage for themselves and their dependents. The salaried employee postretirement benefit plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as deductibles and coinsurance. Our current funding policy is to fund the cost of all postretirement benefits as they are paid. We account for our other postretirement benefits in accordance with Statement of Financial Accounting Standards No. 106, Employer’s Accounting for Postretirement Benefits Other Than Pensions, as amended by Statement No. 158. Statement No. 158 requires that the actuarially-determined funded status of the plans be recorded in the balance sheet.
 
Actuarial assumptions are required to determine the amounts reported as obligations and costs related to the postretirement benefit plan. The discount rate assumption reflects the rates available on high-quality fixed-income debt instruments at year-end and is calculated in the same manner as discussed above for the pension plan. The discount rate used to calculate the postretirement benefit expense was 6.5% for 2008 and 5.9% for 2007. Had the discount rate been lowered by 0.5% in 2008, we would have incurred additional expense of $0.7 million.
 
For the measurement of our year-end other postretirement obligation for 2008 and postretirement expense for 2009, we changed our discount rate to 6.85%.
 
Employee
Benefit Plans



 



We have non-contributory defined benefit pension plans covering
certain of our salaried and hourly employees. Benefits are
generally based on the employee’s age and compensation. We
fund the plans in an amount not less than the minimum statutory
funding requirements or more than the maximum amount that can be
deducted for federal income tax purposes. We contributed cash of
$2.6 million in 2008 and $2.7 million in 2007 to the
plans. We account for our defined benefit plans in accordance
with Statement of Financial Accounting Standards No. 87,
Employer’s Accounting for Pensions, as amended by
Statement of Financial Accounting Standards No. 158,
Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans
, which we refer to as Statement
No. 87 and Statement No. 158. Statement No. 158
requires that the actuarially-determined funded status of the
plans be recorded in the balance sheet.


 



The calculation of our net periodic benefit costs (pension
expense) and benefit obligation (pension liability) associated
with our defined benefit pension plans requires the use of a
number of assumptions that we deem to be “critical
accounting estimates.” Changes in these assumptions can
result in different pension expense and liability amounts, and
actual experience can differ from the assumptions.


 
















  • 

The expected long-term rate of return on plan assets is an
assumption reflecting the average rate of earnings expected on
the funds invested or to be invested to provide for the benefits
included in the projected benefit obligation. We establish the
expected long-term rate of return at the beginning of each
fiscal year based upon historical returns and projected returns
on the underlying mix of invested assets. The pension
plan’s investment targets are 65% equity, 30% fixed income
securities and 5% cash.





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Investments are rebalanced on a periodic basis to stay within
these targeted guidelines. The long-term rate of return
assumption used to determine pension expense was 8.5% for 2008
and 2007. These long-term rate of return assumptions are less
than the plan’s actual
life-to-date
returns. Any difference between the actual experience and the
assumed experience is recorded in other comprehensive income and
amortized into earnings in the future. The impact of lowering
the expected long-term rate of return on plan assets 0.5% for
2008 would have been an increase in expense of approximately
$1.1 million.


 
















  • 

The discount rate represents our estimate of the interest rate
at which pension benefits could be effectively settled. Assumed
discount rates are used in the measurement of the projected,
accumulated and vested benefit obligations and the service and
interest cost components of the net periodic pension cost. In
estimating that rate, Statement No. 87 requires rates of return
on high-quality fixed-income debt instruments. We utilize a bond
portfolio model that includes bonds that are rated
“AA” or higher with maturities that match the expected
benefit payments under the plan. The discount rate used to
determine pension expense was 6.5% for 2008 and 5.9% for 2007.
The impact of lowering the discount rate 0.5% for 2008 would
have been an increase in expense of approximately
$2.2 million.


 



The differences generated from changes in assumed discount rates
and returns on plan assets are amortized into earnings over a
five-year period.


 



For the measurement of our year-end pension obligation for 2008,
we changed our discount rate to 6.85%.


 



We also currently provide certain postretirement medical and
life insurance coverage for eligible employees. Generally,
covered employees who terminate employment after meeting
eligibility requirements are eligible for postretirement
coverage for themselves and their dependents. The salaried
employee postretirement benefit plans are contributory, with
retiree contributions adjusted periodically, and contain other
cost-sharing features such as deductibles and coinsurance. Our
current funding policy is to fund the cost of all postretirement
benefits as they are paid. We account for our other
postretirement benefits in accordance with Statement of
Financial Accounting Standards No. 106, Employer’s
Accounting for Postretirement Benefits Other Than Pensions
,
as amended by Statement No. 158. Statement No. 158
requires that the actuarially-determined funded status of the
plans be recorded in the balance sheet.


 



Actuarial assumptions are required to determine the amounts
reported as obligations and costs related to the postretirement
benefit plan. The discount rate assumption reflects the rates
available on high-quality fixed-income debt instruments at
year-end and is calculated in the same manner as discussed above
for the pension plan. The discount rate used to calculate the
postretirement benefit expense was 6.5% for 2008 and 5.9% for
2007. Had the discount rate been lowered by 0.5% in 2008, we
would have incurred additional expense of $0.7 million.


 



For the measurement of our year-end other postretirement
obligation for 2008 and postretirement expense for 2009, we
changed our discount rate to 6.85%.


 




These excerpts taken from the ACI 10-K filed Feb 29, 2008.
Employee Benefit Plans
 
We have non-contributory defined benefit pension plans covering certain of our salaried and hourly employees. Benefits are generally based on the employee’s age and compensation. We fund the plans in an amount not less than the minimum statutory funding requirements nor more than the maximum amount that can be deducted for federal income tax purposes. We contributed $2.7 million in cash to the plans during the year ended December 31, 2007 and $19.3 million in cash and stock to the plans during the year ended December 31, 2006. We account for our defined benefit plans in accordance with Statement of Financial Accounting Standards No. 87, Employer’s Accounting for Pensions, as amended by Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which we refer to as Statement No. 87 and Statement No. 158. Statement No. 158 requires that the actuarially-determined funded status of the plans be recorded in the balance sheet.
 
In June 2006, the disposition of certain Central Appalachia operations in 2005 resulted in withdrawals that constituted a settlement of our pension benefit obligation for which we recognized expense of $3.2 million.
 
The calculation of our net periodic benefit costs (pension expense) and benefit obligation (pension liability) associated with our defined benefit pension plans requires the use of a number of assumptions that we deem to be “critical accounting estimates.” Changes in these assumptions can result in different pension expense and liability amounts, and actual experience can differ from the assumptions.
 
  •  The expected long-term rate of return on plan assets is an assumption reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We establish the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The pension plan’s investment targets are 65% equity, 30% fixed income securities and 5% cash. Investments are rebalanced on a periodic basis to stay within these targeted guidelines. The long-term rate of return assumption used to determine pension expense was 8.5% for 2007 and 8.25% for 2006. These long-term rate of return assumptions are less than the plan’s actual life-to-date returns. Any difference between the actual experience and the assumed experience is recorded in other comprehensive income and amortized into earnings in the future. The impact of lowering the expected long-term rate of


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  return on plan assets 0.5% for 2007 would have been an increase in expense of approximately $1.0 million.
 
  •  The discount rate represents our estimate of the interest rate at which pension benefits could be effectively settled. Assumed discount rates are used in the measurement of the projected, accumulated and vested benefit obligations and the service and interest cost components of the net periodic pension cost. In estimating that rate, Statement No. 87 requires rates of return on high-quality fixed-income debt instruments. We utilize a bond portfolio model that includes bonds that are rated “AA” or higher with maturities that match the expected benefit payments under the plan. The discount rate used to determine pension expense was 5.9% for 2007 and 5.8% for the first six months of 2006 and 6.4% for the last six months of 2006, as a result of a remeasurement of the plan obligation related to the settlement event discussed above. The impact of lowering the discount rate 0.5% for 2007 would have been an increase in expense of approximately $2.4 million.
 
The differences generated in changes in assumed discount rates and returns on plan assets are amortized into earnings over a five-year period.
 
For the measurement of our year-end pension obligation for 2007 (and pension expense for 2008), we changed our discount rate to 6.5%.
 
We also currently provide certain postretirement medical and life insurance coverage for eligible employees. Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for postretirement coverage for themselves and their dependents. The salaried employee postretirement benefit plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as deductibles and coinsurance. The postretirement medical plan for retirees who were members of the United Mine Workers of America is not contributory. Our current funding policy is to fund the cost of all postretirement insurance benefits as they are paid. We account for our other postretirement benefits in accordance with Statement of Financial Accounting Standards No. 106, Employer’s Accounting for Postretirement Benefits Other Than Pensions, as amended by Statement No. 158. Statement No. 158 requires that the actuarially-determined funded status of the plans be recorded in the balance sheet.
 
In 2005, the disposition of the Central Appalachia operations to Magnum constituted a settlement of our postretirement benefit obligation for which we recognized a loss of $59.2 million.
 
Actuarial assumptions are required to determine the amounts reported as obligations and costs related to the postretirement benefit plan. The discount rate assumption reflects the rates available on high-quality fixed-income debt instruments at year-end and is calculated in the same manner as discussed above for the pension plan. The discount rate used to calculate the postretirement benefit expense was 5.9% for 2007 and 5.8% for 2006. Had the discount rate been lowered by 0.5% in 2007, we would have incurred additional expense of $0.6 million.
 
For the measurement of our year-end other postretirement obligation for 2007 and postretirement expense for 2008, we changed our discount rate to 6.5%. During 2007, the postretirement benefit plans were amended to improve benefits to participants. As a result of the amendment, annual retiree contribution increases have been limited so as not to exceed 25% of the previous year’s total contribution. Prior to the amendment, all medical cost increases were passed on to the retirees and had no impact on the plan.
 
Employee
Benefit Plans



 



We have non-contributory defined benefit pension plans covering
certain of our salaried and hourly employees. Benefits are
generally based on the employee’s age and compensation. We
fund the plans in an amount not less than the minimum statutory
funding requirements nor more than the maximum amount that can
be deducted for federal income tax purposes. We contributed
$2.7 million in cash to the plans during the year ended
December 31, 2007 and $19.3 million in cash and stock
to the plans during the year ended December 31, 2006. We
account for our defined benefit plans in accordance with
Statement of Financial Accounting Standards No. 87,
Employer’s Accounting for Pensions, as amended by
Statement of Financial Accounting Standards No. 158,
Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans
, which we refer to as Statement
No. 87 and Statement No. 158. Statement No. 158
requires that the actuarially-determined funded status of the
plans be recorded in the balance sheet.


 



In June 2006, the disposition of certain Central Appalachia
operations in 2005 resulted in withdrawals that constituted a
settlement of our pension benefit obligation for which we
recognized expense of $3.2 million.


 



The calculation of our net periodic benefit costs (pension
expense) and benefit obligation (pension liability) associated
with our defined benefit pension plans requires the use of a
number of assumptions that we deem to be “critical
accounting estimates.” Changes in these assumptions can
result in different pension expense and liability amounts, and
actual experience can differ from the assumptions.


 
















  • 

The expected long-term rate of return on plan assets is an
assumption reflecting the average rate of earnings expected on
the funds invested or to be invested to provide for the benefits
included in the projected benefit obligation. We establish the
expected long-term rate of return at the beginning of each
fiscal year based upon historical returns and projected returns
on the underlying mix of invested assets. The pension
plan’s investment targets are 65% equity, 30% fixed income
securities and 5% cash. Investments are rebalanced on a periodic
basis to stay within these targeted guidelines. The long-term
rate of return assumption used to determine pension expense was
8.5% for 2007 and 8.25% for 2006. These long-term rate of return
assumptions are less than the plan’s actual life-to-date
returns. Any difference between the actual experience and the
assumed experience is recorded in other comprehensive income and
amortized into earnings in the future. The impact of lowering
the expected long-term rate of





53





Table of Contents



















 

return on plan assets 0.5% for 2007 would have been an increase
in expense of approximately $1.0 million.


 
















  • 

The discount rate represents our estimate of the interest rate
at which pension benefits could be effectively settled. Assumed
discount rates are used in the measurement of the projected,
accumulated and vested benefit obligations and the service and
interest cost components of the net periodic pension cost. In
estimating that rate, Statement No. 87 requires rates of
return on high-quality fixed-income debt instruments. We utilize
a bond portfolio model that includes bonds that are rated
“AA” or higher with maturities that match the expected
benefit payments under the plan. The discount rate used to
determine pension expense was 5.9% for 2007 and 5.8% for the
first six months of 2006 and 6.4% for the last six months of
2006, as a result of a remeasurement of the plan obligation
related to the settlement event discussed above. The impact of
lowering the discount rate 0.5% for 2007 would have been an
increase in expense of approximately $2.4 million.


 



The differences generated in changes in assumed discount rates
and returns on plan assets are amortized into earnings over a
five-year period.


 



For the measurement of our year-end pension obligation for 2007
(and pension expense for 2008), we changed our discount rate to
6.5%.


 



We also currently provide certain postretirement medical and
life insurance coverage for eligible employees. Generally,
covered employees who terminate employment after meeting
eligibility requirements are eligible for postretirement
coverage for themselves and their dependents. The salaried
employee postretirement benefit plans are contributory, with
retiree contributions adjusted periodically, and contain other
cost-sharing features such as deductibles and coinsurance. The
postretirement medical plan for retirees who were members of the
United Mine Workers of America is not contributory. Our
current funding policy is to fund the cost of all postretirement
insurance benefits as they are paid. We account for our other
postretirement benefits in accordance with Statement of
Financial Accounting Standards No. 106, Employer’s
Accounting for Postretirement Benefits Other Than Pensions
,
as amended by Statement No. 158. Statement No. 158
requires that the actuarially-determined funded status of the
plans be recorded in the balance sheet.


 



In 2005, the disposition of the Central Appalachia operations to
Magnum constituted a settlement of our postretirement benefit
obligation for which we recognized a loss of $59.2 million.


 



Actuarial assumptions are required to determine the amounts
reported as obligations and costs related to the postretirement
benefit plan. The discount rate assumption reflects the rates
available on high-quality fixed-income debt instruments at
year-end and is calculated in the same manner as discussed above
for the pension plan. The discount rate used to calculate the
postretirement benefit expense was 5.9% for 2007 and 5.8% for
2006. Had the discount rate been lowered by 0.5% in 2007, we
would have incurred additional expense of $0.6 million.


 



For the measurement of our year-end other postretirement
obligation for 2007 and postretirement expense for 2008, we
changed our discount rate to 6.5%. During 2007, the
postretirement benefit plans were amended to improve benefits to
participants. As a result of the amendment, annual retiree
contribution increases have been limited so as not to exceed 25%
of the previous year’s total contribution. Prior to the
amendment, all medical cost increases were passed on to the
retirees and had no impact on the plan.


 




This excerpt taken from the ACI 10-K filed Mar 1, 2007.
Employee Benefit Plans
      We have non-contributory defined benefit pension plans covering certain of our salaried and hourly employees. Benefits are generally based on the employee’s age and compensation. We fund the plans in an amount not less than the minimum statutory funding requirements nor more than the maximum amount that can be deducted for federal income tax purposes. We contributed $19.3 million in cash and stock to the plans during the year ended December 31, 2006 and contributed $20.0 million in cash and stock to the plans during the year ended December 31, 2005. We account for our defined benefit plans in accordance with Statement of Financial Accounting Standards No. 87, Employer’s Accounting for Pensions, as amended by Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which we refer to as Statement No. 87 and Statement No. 158. Statement No. 158 requires that the actuarially-determined funded status of the plans be recorded in the balance sheet, which resulted in an increase to accumulated other comprehensive loss of $11.9 million at December 31, 2006.
      In June 2006, the disposition of certain Central Appalachia operations in 2005 resulted in withdrawals that constituted a settlement of our pension benefit obligation for which we recognized expense of $3.2 million.

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      The calculation of our net periodic benefit costs (pension expense) and benefit obligation (pension liability) associated with our defined benefit pension plans requires the use of a number of assumptions that we deem to be “critical accounting estimates.” Changes in these assumptions can result in different pension expense and liability amounts, and actual experience can differ from the assumptions.
  •  The expected long-term rate of return on plan assets is an assumption reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We establish the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The pension plan’s investment targets are 65% equity, 30% fixed income securities and 5% cash. Investments are rebalanced on a periodic basis to stay within these targeted guidelines. The long-term rate of return assumption used to determine pension expense was 8.25% for 2006 and 8.5% 2005. These long-term rate of return assumptions are less than the plan’s actual life-to-date returns. Any difference between the actual experience and the assumed experience is recorded in other comprehensive income and amortized into earnings in the future. The impact of lowering the expected long-term rate of return on plan assets 0.5% for 2006 would have been an increase in expense of approximately $1.0 million.
 
  •  The discount rate represents our estimate of the interest rate at which pension benefits could be effectively settled. Assumed discount rates are used in the measurement of the projected, accumulated and vested benefit obligations and the service and interest cost components of the net periodic pension cost. In estimating that rate, Statement No. 87 requires rates of return on high-quality fixed-income debt instruments. We utilize a bond portfolio model that includes bonds that are rated “AA” or higher with maturities that match the expected benefit payments under the plan. The discount rate used to determine pension expense was 5.8% for the first six months of 2006 and 6.4% for the last six months of 2006, as a result of a remeasurement of the plan obligation related to the settlement event discussed above, and 6.0% for 2005. The impact of lowering the discount rate 0.5% for 2006 would have been an increase in expense of approximately $1.4 million.
      The differences generated in changes in assumed discount rates and returns on plan assets are amortized into earnings over a five-year period.
      For the measurement of our year-end pension obligation for 2006 (and pension expense for 2007), we increased our long-term rate of return assumption from 8.25% to 8.50% and changed our discount rate to 5.90%.
      We also currently provide certain postretirement medical/life insurance coverage for eligible employees. Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for postretirement coverage for themselves and their dependents. The salaried employee postretirement medical/life plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as deductibles and coinsurance. The postretirement medical plan for retirees who were members of the United Mine Workers of America is not contributory. Our current funding policy is to fund the cost of all postretirement medical/life insurance benefits as they are paid. We account for our other postretirement benefits in accordance with Statement of Financial Accounting Standards No. 106, Employer’s Accounting for Postretirement Benefits Other Than Pensions, as amended by

67


Table of Contents

Statement No. 158. Statement No. 158 requires that the actuarially-determined funded status of the plans be recorded in the balance sheet.
      In 2005, the disposition of the Central Appalachia operations to Magnum constituted a settlement of our postretirement benefit obligation for which we recognized a loss of $59.2 million. The only remaining participants in the postretirement benefit plan have their benefits capped at current levels.
      Actuarial assumptions are required to determine the amounts reported as obligations and costs related to the postretirement benefit plan. The discount rate assumption reflects the rates available on high-quality fixed-income debt instruments at year-end and is calculated in the same manner as discussed above for the pension plan. The discount rate used to calculate the postretirement benefit expense was 5.8% for 2006 and 6.0% for 2005. Had the discount rate been lowered by 0.5% in 2006, we would have incurred additional expense of $0.9 million.
      For the measurement of our year-end other postretirement obligation for 2006 and postretirement expense for 2007, we changed our discount rate to 5.9%. Because postretirement costs for remaining participants are capped at current levels, future changes in healthcare costs have no future effect on the plan benefits.
      On December 31, 2006, we adopted Statement No. 158, which requires that an employer recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its balance sheet and to recognize changes in the funded status though comprehensive income when they occur.
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