This excerpt taken from the USB 10-K filed Mar 2, 2009.
Pension Plans Because of the long-term nature of pension plans, the related accounting is complex and can be impacted by several factors, including investment funding policies, accounting methods, and actuarial assumptions.
The Companys pension accounting reflects the long-term nature of the benefit obligations and the investment horizon of plan assets. Amounts recorded in the financial statements reflect actuarial assumptions about participant benefits and plan asset returns. Changes in actuarial assumptions, and differences in actual plan experience compared with actuarial assumptions, are deferred and recognized in expense in future periods. Differences related to participant benefits are recognized over the future service period of the employees. Differences related to the expected return on plan assets are included in expense over a twelve-year period.
At December 31, 2008, the Company had an $888 million cumulative difference between actuarially-assumed returns on plan assets and actual experience. If the performance of plan assets equals the actuarially-assumed long-term rate of return (LTROR), this difference will increase pension expense incrementally $35 million in 2009, $37 million in 2010, $46 million in 2011, $49 million in 2012, and $61 million in 2013. In addition to the asset return differences, the Company expects pension expense will increase an additional $7 million in 2009 related to other actuarial gains and losses. Because of the complexity of forecasting pension plan activities, the accounting methods utilized for pension plans, the Companys ability to respond to factors affecting the plans and the hypothetical nature of actuarial assumptions, actual pension expense will differ from these amounts.
Refer to Note 17 of the Notes to the Consolidated Financial Statements for further information on the
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Companys pension plan funding practices, investment policies and asset allocation strategies, and accounting policies for pension plans.
The following table shows an analysis of hypothetical changes in the LTROR and discount rate:
This excerpt taken from the USB 10-K filed Feb 25, 2008.
Pension Plans Pension benefits are provided to substantially all employees based on years of service, multiplied by a percentage of their final average pay. Employees become vested upon completing five years of vesting service. In
This excerpt taken from the USB 10-K filed Mar 7, 2006.
Pension Plans Because of the long-term nature of pension plans, the administration and accounting for pensions is complex and can be impacted by several factors, including investment and funding policies, accounting methods and the plans actuarial assumptions. The Company and its Compensation Committee have an established process for evaluating the plans, their performance and significant plan assumptions, including the assumed discount rate and the long-term rate of return (LTROR). At least annually, an independent consultant is engaged to assist the Companys Compensation Committee in evaluating plan objectives, funding policies and investment policies considering its long-term investment time horizon and asset allocation strategies. Note 18 of the Notes to Consolidated Financial Statements provides further information on funding practices, investment policies and asset allocation strategies.
Periodic pension expense (or credits) includes service costs, interest costs based on the assumed discount rate, the expected return on plan assets based on an actuarially derived market-related value and amortization of actuarial gains and losses. The Companys pension accounting policy follows guidance outlined in Statement of Financial Accounting Standards No. 87, Employers Accounting for Pension Plans, and reflects the long-term nature of benefit obligations and the investment horizon of plan assets. This accounting guidance has the effect of reducing earnings volatility related to short-term changes in interest rates and market valuations. Actuarial gains and losses include the impact of plan amendments and various unrecognized gains and losses which are deferred and amortized over the future service periods of active employees. The actuarially derived market-related value utilized to determine the expected return on plan assets is based on fair value adjusted for the difference between expected returns and actual performance of plan assets. The unrealized difference between actual experience and expected returns is included in the actuarially derived market-related value ratably over a five-year period. At September 30, 2005, the accumulated unrecognized gain approximated $206 million, compared with an accumulated unrecognized loss of approximately $139 million at September 30, 2004. The impact to pension expense of the unrecognized asset gains or losses will incrementally increase (decrease) pension costs in each year from 2006 to 2010, by approximately $30 million, $(3) million, $(21) million, $(13) million and $(9) million, respectively. This assumes that the performance of plan assets equals the assumed LTROR. Actual results will vary depending on the performance of plan assets and changes to assumptions required in the future. Refer to Note 1 of the Notes to Consolidated Financial Statements for further discussion of the Companys accounting policies for pension plans.
In 2005, the Company recognized a pension cost of $33 million compared with a pension cost of $9 million in 2004 and pension credit of $24 million in 2003. The $24 million increase in pension costs in 2005 was driven by recognition of deferred actuarial (gains) losses and the impact of a lower discount rate. In 2004, pension costs increased by $33 million, compared with 2003, driven by a recognition of deferred actuarial (gains) losses and the impact of a lower discount rate, partially offset by the benefit of higher investment income related to pension contributions made in 2003.
In 2006, the Company anticipates that pension costs will increase by approximately $48 million. The increase will be primarily driven by the lower discount rate and amortization of unrecognized actuarial losses from prior years, accounting for approximately $12 million and $39 million of the anticipated increase, respectively.
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Note 18 of the Notes to Consolidated Financial Statements provides a summary of the significant pension plan assumptions. Because of the subjective nature of plan assumptions, a sensitivity analysis to hypothetical changes in the LTROR and the discount rate is provided below:
Due to the complexity of forecasting pension plan activities, the accounting method utilized for pension plans, managements ability to respond to factors impacting the plans and the hypothetical nature of this information, the actual changes in periodic pension costs could be different than the information provided in the sensitivity analysis.