WBC » Topics » Pension Benefits (with respect to American Standard)

This excerpt taken from the WBC 8-K filed Jul 20, 2007.

Pension Benefits (with respect to American Standard)

 

Names

  

Plan Name

 

Number of

Years

Credited

Service

(#)

 

Present

Value of

Accumulated

Benefit

($)

 

Payments

During

Last

Fiscal

Year

($)

Jacques Esculier

   Pension (Cash Balance) Plan(1)   4.5   $ 19,950   $ 0
  

Executive Supplemental Retirement Benefit Program (SERP)(2)

  4.5   $ 241,437   $ 0

Nikhil M. Varty

   Pension (Cash Balance) Plan(1)   5.6   $ 17,064   $ 0

Dr. Christian Wiehen

   WABCO Germany Pension Plan(3)   19.0   $ 699,600   $ 0

 

1. The American Standard Companies Inc. Pension Plan (referred to above as the “Pension (Cash Balance) Plan”) provides a benefit that is based upon certain pay credits to a participant’s notional account and notional earnings credits on the amounts (including prior earnings credits) credited to that notional account. A participant may receive distribution of his or her vested account balance upon termination of employment at any age. Messrs. Esculier’s and Varty’s benefits under the plan are fully vested. To determine the present values shown above, which were calculated as of December 31, 2006, we assumed that Messrs. Esculier and Varty would receive a distribution of their account balances at age 65, regardless of when their employment terminates. Accordingly, we also assumed that Messrs. Esculier’s and Varty’s estimated account balance at December 31, 2006 would be credited annually, until age 65, with the same interest-crediting rate assumed in financial accounting projections as of the end of 2006 (4.75%).

 

   For purposes of determining the incremental benefit accrued by Messrs. Esculier and Varty under the Pension (Cash Balance) Plan in 2006 (which is included in the Summary Compensation Table set forth above), we also assumed that their estimated account balances at December 31, 2005 would have been credited annually, until age 65, with the same interest crediting rate assumed in financial accounting projections as of the end of 2005 (4.25%). The differences in these assumed rates of earnings resulted in an increase in the present value of such benefits at December 31, 2006 in addition to the effect of Messrs. Esculier’s and Varty’s additional services in 2006. In each case—that is, as of December 31, 2005 and December 31, 2006—we also discounted the amount of the projected age 65 account balance (as increased by the assumed notional earnings as described above) by the discount rate used in the American Standard Companies Inc. financial statements for purposes of determining the company’s liabilities in respect of its defined benefit plans for the same period (6.00% for 2006, and 5.75% for 2005).

 

   This difference in the applicable discount rates had the effect of reducing the amount of the present value calculated for Messrs. Esculier and Varty as compared to that calculated for 2005.

 

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2. The benefit payable to Mr. Esculier under the Executive Supplemental Retirement Benefit Program is initially determined as a life annuity payable commencing at age 65, and is reduced to take into account certain other compensation and benefits that are made available in respect of his services with WABCO, as well as a portion of his projected Social Security benefits. The present values shown above were calculated based on Mr. Esculier’s accrued benefit through December 31, 2006, but payable at age 65. To commute a life annuity into a lump sum payable at age 65, we have used the mortality tables prescribed by the plan for this purpose and the lump sum discount rate used in developing financial statement information for the Executive Supplemental Retirement Benefit Program (4.00% for 2005 and 2006). The lump sum so determined is then reduced by the value of his ESOP account. The value of his ESOP account at age 65 is assumed to be equal to the value of his ESOP account at December 31, 2005 or December 31, 2006, as applicable.

 

  Finally, since the lump sum is determined as of age 65, it must also be discounted from age 65 to December 31, 2006 (and December 31, 2005) using the discount rate used in American Standard Companies Inc.’s financial statements for purposes of determining its liabilities in respect of its defined benefit plans for the same period (5.75% for 2005 and 2006). The difference between the amounts determined as of December 31, 2006 and December 31, 2005 equal the value of the benefit earned under the plan for the year. For purposes of estimating the appropriate offset against Mr. Esculier’s accrued benefit under the Executive Supplement Retirement Benefit Program, his Social Security benefit payable at age 65 is based on the estimated benefit payable at age 65 but determined under the law in effect for 2007 or 2006 for calculations prepared as of December 31, 2006 and December 31, 2005, respectively. Benefits under the plan are vested after five years of service with the company or after attainment of age 65 while employed by the company. American Standard Companies Inc. will retain the liability for this benefit plan for Mr. Esculier.

 

3. The WABCO Germany Pension Plan provides a benefit based on final monthly earnings and service as of the date of retirement or termination of service. For Mr. Wiehen, the formula is 0.67% of final monthly earnings (FME) up to the German social security contribution ceiling plus 2.0% of FME above the ceiling times years of service (maximum of 30 years). Benefits are payable as a life annuity with no actuarial reduction for a 60% survivor annuity if married at retirement. Mr. Wiehen is fully vested. Normal retirement is age 65 and benefits may be payable as early as age 60 subject to reductions for early retirement. In accordance with German law, benefit payments are revalued every three years for cost-of-living adjustments. The assumed annual cost-of-living adjustment was 1.50% as of December 31, 2005 and 1.75% as of December 31, 2006.

 

  The assumptions used to develop the accrued benefits and increase in present value of accrued benefits are the same that were used in the American Standard Companies Inc.’s financial statements for purposes of determining its liabilities with respect to its German defined benefit plans except that commencement of benefits was assumed to be at age 65. There was no change in the pension value for Mr. Wiehen since the benefit earned in 2006 was offset by the reduction in the present value of his total accrued benefit from December 31, 2005 to December 31, 2006 due to the increase in the discount rate (as used in American Standard Companies Inc.’s financial statements) from 4.0% as of December 31, 2005 to 4.5% as of December 31, 2006.
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