PTV » Topics » Pension Plans

These excerpts taken from the PTV 10-K filed Feb 27, 2009.
Pension Plans
 
At the time of our spin-off from Tenneco in 1999, we became the sponsor of Tenneco (now Pactiv) pension plans. These plans cover most of our employees as well as individuals/beneficiaries from many companies previously owned by Tenneco, but not owned by Pactiv. As a result, while persons who are not current employees do not accrue benefits under the plans, the total number of individuals/beneficiaries covered by these plans is much larger than would have been the case if only Pactiv personnel were participants. For this reason, the impact of the pension plans on our net income, shareholders’ equity and cash from operations is greater than is typically found at similarly sized companies. Changes in the following factors can have a disproportionate effect on our results compared with similarly sized companies:
 
  •  Assumptions regarding the long-term rate of return on pension assets and other factors
  •  Interest rate used to discount projected benefit obligations
  •  Level of amortization of actuarial gains and losses
  •  Governmental regulations relating to funding of retirement plans in the U.S. and foreign countries
  •  Financial market performance


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ITEM 1B.  Unresolved Staff Comments.
 
None.
 
ITEM 2.  Properties.
 
Pension
Plans



 



At the time of our spin-off from Tenneco in 1999, we became the
sponsor of Tenneco (now Pactiv) pension plans. These plans cover
most of our employees as well as individuals/beneficiaries from
many companies previously owned by Tenneco, but not owned by
Pactiv. As a result, while persons who are not current employees
do not accrue benefits under the plans, the total number of
individuals/beneficiaries covered by these plans is much larger
than would have been the case if only Pactiv personnel were
participants. For this reason, the impact of the pension plans
on our net income, shareholders’ equity and cash from
operations is greater than is typically found at similarly sized
companies. Changes in the following factors can have a
disproportionate effect on our results compared with similarly
sized companies:


 
























































  • 

Assumptions regarding the long-term rate of return on pension
assets and other factors
  • 

Interest rate used to discount projected benefit obligations
  • 

Level of amortization of actuarial gains and losses
  • 

Governmental regulations relating to funding of retirement plans
in the U.S. and foreign countries
  • 

Financial market performance





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ITEM 1B. 

Unresolved
Staff Comments.



 



None.


 















ITEM 2. 

Properties.


 




Pension Plans
 
In September 2006, the FASB issued SFAS No. 158. See “Changes in Accounting Principles” in the notes to the financial statements for additional information. Total pretax pension plan income was $49 million in 2008, $50 million in 2007, and $42 million in 2006, and represented the net pension income, which is recorded as an offset to SG&A expenses, and our production operations’ pension service costs, which are recorded in cost of sales. We estimate that our noncash pretax pension income will decrease to $36 million in 2009.
 
Projections of pension income are based on a number of factors, including estimates of future returns on pension plan assets; estimates of discount rates; assumptions pertaining to the amortization of actuarial gains/losses; expectations regarding employee compensation; and assumptions related to participant turnover, retirement age, and life expectancy.


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In developing our assumption regarding the expected rate of return on pension plan assets, we estimate future returns on various classes of assets, risk free rates of return, and long-term inflation rates. Since 1976, our U.S. qualified pension plan’s annual rate of return on assets has averaged 10%. Historically, the plan has invested approximately 70% of its assets in equity securities and 30% in fixed-income investments. After considering all of these factors, we concluded that the use of a 9% rate of return was appropriate for 2008. Holding all other assumptions constant, a one-half percentage-point change in the rate of return assumption would impact our pretax pension income by approximately $19 million.
 
The discount rate assumption for our U.S. pension plan is based on the composite yield of a portfolio of high quality corporate bonds constructed with durations to match the plan’s future benefit obligations. In this connection, the discount rate assumption for our U.S. plan at our December 31, 2008 measurement date was 6.74% and 6.39% at our September 30, 2007, measurement date. Holding all other assumptions constant, a one-half percentage-point change in the discount rate would impact our pretax pension income by approximately $2 million. For more information on our pension plan, see Note 13 to the financial statements.


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Table of Contents

Pension
Plans



 



In September 2006, the FASB issued SFAS No. 158. See
“Changes in Accounting Principles” in the notes to the
financial statements for additional information. Total pretax
pension plan income was $49 million in 2008,
$50 million in 2007, and $42 million in 2006, and
represented the net pension income, which is recorded as an
offset to SG&A expenses, and our production
operations’ pension service costs, which are recorded in
cost of sales. We estimate that our noncash pretax pension
income will decrease to $36 million in 2009.


 



Projections of pension income are based on a number of factors,
including estimates of future returns on pension plan assets;
estimates of discount rates; assumptions pertaining to the
amortization of actuarial gains/losses; expectations regarding
employee compensation; and assumptions related to participant
turnover, retirement age, and life expectancy.





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In developing our assumption regarding the expected rate of
return on pension plan assets, we estimate future returns on
various classes of assets, risk free rates of return, and
long-term inflation rates. Since 1976, our U.S. qualified
pension plan’s annual rate of return on assets has averaged
10%. Historically, the plan has invested approximately 70% of
its assets in equity securities and 30% in fixed-income
investments. After considering all of these factors, we
concluded that the use of a 9% rate of return was appropriate
for 2008. Holding all other assumptions constant, a one-half
percentage-point change in the rate of return assumption would
impact our pretax pension income by approximately
$19 million.


 



The discount rate assumption for our U.S. pension plan is
based on the composite yield of a portfolio of high quality
corporate bonds constructed with durations to match the
plan’s future benefit obligations. In this connection, the
discount rate assumption for our U.S. plan at our
December 31, 2008 measurement date was 6.74% and 6.39% at
our September 30, 2007, measurement date. Holding all other
assumptions constant, a one-half percentage-point change in the
discount rate would impact our pretax pension income by
approximately $2 million. For more information on our
pension plan, see Note 13 to the financial statements.





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These excerpts taken from the PTV 10-K filed Feb 29, 2008.
Pension Plans
 
In September 2006, the FASB issued SFAS No. 158. See “Changes in Accounting Principles” on page 36 for additional information. Total pretax pension-plan income was $50 million in 2007, $42 million in 2006, and $54 million in 2005, and represented the net pension income, which is recorded as an offset to SG&A expenses, and our production operations’ pension-service costs, which are recorded in cost of sales. We estimate that our noncash pretax pension income will decrease to $49 million in 2008.
 
Projections of pension income are based on a number of factors, including estimates of future returns on pension-plan assets; assumptions pertaining to the amortization of actuarial gains/losses; expectations regarding employee compensation; and assumptions related to participant turnover, retirement age, and life expectancy.
 
In developing our assumption regarding the expected rate of return on pension-plan assets, we estimate future returns on various classes of assets, risk-free rates of return, and long-term inflation rates. Since its inception in 1971, our U.S. qualified pension plan’s annual rate of return on assets has averaged 11%. Historically, the plan has invested approximately 70% of its assets in equity securities and 30% in fixed-income investments. After considering all of these factors, we concluded that the use of a 9%-rate-of-return-on-assets assumption was appropriate for 2007. Holding all other assumptions constant, a one-half percentage-point change in the rate-of-return-on-assets assumption would impact our pretax pension income by approximately $19 million.
 
The discount-rate assumption for our U.S. pension plan is based on the composite yield of a portfolio of high-quality corporate bonds constructed with durations to match the plan’s future benefit obligations. In this connection, the discount-rate assumption for our U.S. plan at our September 30 measurement date was 6.39% for 2007 and 5.93% for 2006. Holding all other assumptions constant, a one-half percentage-point change in the discount rate would impact our pretax pension income by approximately $6 million.
 
We use a market-related method for calculating the value of plan assets. This method recognizes the difference between actual and expected returns on plan assets over a 5-year period. Resulting unrecognized gains or losses, along with other actuarial gains and losses, are amortized using the “corridor approach” outlined in SFAS No. 87, “Employers’ Accounting for Pensions.”


20


Table of Contents

Pension
Plans



 



In September 2006, the FASB issued SFAS No. 158. See
“Changes in Accounting Principles” on page 36 for
additional information. Total pretax pension-plan income was
$50 million in 2007, $42 million in 2006, and
$54 million in 2005, and represented the net pension
income, which is recorded as an offset to SG&A expenses,
and our production operations’ pension-service costs, which
are recorded in cost of sales. We estimate that our noncash
pretax pension income will decrease to $49 million in 2008.


 



Projections of pension income are based on a number of factors,
including estimates of future returns on pension-plan assets;
assumptions pertaining to the amortization of actuarial
gains/losses; expectations regarding employee compensation; and
assumptions related to participant turnover, retirement age, and
life expectancy.


 



In developing our assumption regarding the expected rate of
return on pension-plan assets, we estimate future returns on
various classes of assets, risk-free rates of return, and
long-term inflation rates. Since its inception in 1971, our
U.S. qualified pension plan’s annual rate of return on
assets has averaged 11%. Historically, the plan has invested
approximately 70% of its assets in equity securities and 30% in
fixed-income investments. After considering all of these
factors, we concluded that the use of a
9%-rate-of-return-on-assets assumption was appropriate for 2007.
Holding all other assumptions constant, a one-half
percentage-point change in the rate-of-return-on-assets
assumption would impact our pretax pension income by
approximately $19 million.


 



The discount-rate assumption for our U.S. pension plan is
based on the composite yield of a portfolio of high-quality
corporate bonds constructed with durations to match the
plan’s future benefit obligations. In this connection, the
discount-rate assumption for our U.S. plan at our September
30 measurement date was 6.39% for 2007 and 5.93% for 2006.
Holding all other assumptions constant, a one-half
percentage-point change in the discount rate would impact our
pretax pension income by approximately $6 million.


 



We use a market-related method for calculating the value of plan
assets. This method recognizes the difference between actual and
expected returns on plan assets over a
5-year
period. Resulting unrecognized gains or losses, along with other
actuarial gains and losses, are amortized using the
“corridor approach” outlined in SFAS No. 87,
“Employers’ Accounting for Pensions.”





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