AWI » Topics » PENSION BENEFITS

This excerpt taken from the AWI 10-K filed Mar 30, 2007.

PENSION BENEFITS

All of the named executive officers (excluding Mr. Grasberger) participate in the Company’s qualified defined benefit pension plan, the Retirement Income Plan (RIP), as do other Armstrong salaried employees. An unfunded, nonqualified defined benefit pension plan, the Retirement Benefit Equity Plan (RBEP), has been established to pay any benefit which cannot be paid under the qualified RIP by reason of Internal Revenue Code limitations. All pension benefits are paid by the Company. The pension plans were closed to new salaried participants effective January 1, 2005. Benefits payable under the RIP and RBEP are based on a formula that yields an annual amount payable over the participant’s lifetime beginning at the age where the participant qualifies for an unreduced life annuity benefit.

In addition, Messrs. Senkowski, Rigas and Ready may qualify for an additional annuity payment under the ESOP Pension Account (EPA) to the extent such benefit can be paid under the qualified pension plan. The EPA was established in 2000 to restore a portion of the value lost by a broad group of employees who had purchased shares of Company stock and received Company contributions of additional shares which were intended to help fund the cost of their retiree health care coverage. The starting EPA balance was determined by multiplying the number of ESOP shares held by the participant by $47.75 which was the guaranteed value of the original ESOP convertible preferred shares. The EPA is credited with interest annually using the November 30-year Treasury bond rate. Interest is credited up to the date the participant commences regular pension benefits under the RIP.

Participants in the defined benefit pension plan may retire as early as age 55 provided the participant is vested under the plan. Participants become vested after completing five years of continuous employment having worked at least 1,000 hours in each year. Normal retirement date is the first of the month nearest the participant’s 65th birthday. Effective March 1, 2006, the pension plans were amended to increase the reduction for early retirement for non-production salaried participants who retire between the ages of 55 and 65. Prior to these amendments, an employee who retired from active employment could receive an unreduced pension benefit commencing on the date of retirement if the employee’s age (minimum age 55) and Total Service totaled 90 points (Rule of 90). Employees continue to receive credit for post-March 1, 2006 age and service credits but the accrued Rule of 90 pension benefit is frozen as of February 28, 2006. The Present Value of Accumulated Benefit shown for Messrs. Senkowski, Rigas and Ready reflect the actuarial value of their respective Rule of 90 pension benefits.

The normal form of benefit payment is a monthly annuity. Except for payments having a lump sum present value of $10,000 or less under the qualified plan, no lump sum payments are permitted. Various forms of annuity payments (including life, joint and survivor, period certain and level income options) are available under the pension plans. The annuity payments for these options are determined by actuarially adjusting the life annuity pension amount for the selected form of payment. The formula for the regular life annuity pension benefit for salaried employees under the RIP is based on the following factors:

 

   

the participant’s Average Final Compensation (AFC) which is the average of the three highest years of eligible compensation (base salary plus annual incentive) during the last ten years of employment

 

   

the participant’s number of years of Total Service (credited years of employment with the Company) used to calculate the pension amount

 

   

the participant’s Adjusted Covered Compensation (ACC) which is a percentage of the average Social Security tax base for the 35-year period ending with the year the participant will qualify for an unreduced Social Security pension benefit

The unreduced annual life annuity pension is the sum of the following four calculations each of which shall not be less than zero.

 

1. AFC x 0.009 x Total Service to a maximum of 35 years

 

2. (AFC – ACC) x 0.005 x Total Service to 35 years

 

3. (AFC – 2 x ACC) x 0.0015 x Total Service to 35 years

 

4. AFC x 0.012 x Total Service over 35 years

To the extent the participant is eligible for an EPA pension benefit that can be paid from the qualified pension plan (RIP), all or the allowable portion of the calculated EPA annuity will be added to the regular pension amount. EPA annuity amounts that cannot be paid from the qualified plan are forfeited.

 

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Special provisions apply if the qualified pension plan is terminated within five years following an Extraordinary Event, as this item is defined in the RIP. In that event, plan liabilities will first be satisfied; then, remaining plan assets will be applied to increase retirement income to employees. The amount of the increase is based on the assumption that the employee would have continued employment with Armstrong until retirement. All of the named executive officers except for Mr. Grasberger would be entitled to this benefit under these circumstances.

The assumptions used to calculate the actuarial present values shown in the table above are as follows:

 

   

Discount rate used to value benefit obligations equals 5.75%

 

   

RP2000CH Mortality Table projected to 2007

 

   

EPA interest rate of 4.73%

 

   

1994 GAR (RR 2001-62) Mortality Table for EPA annuity conversion

 

   

Retirement at age 65 or Rule of 90 eligibility as specified

 

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