notes to consolidated financial statements

Note 11 (2 of 4)

Net Periodic Cost

The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans:

(dollars in millions)

 

Pension

 

Health Care and Life

 

Years Ended December 31,

2011

 

2010

 

2009

 

2011

 

2010

 

2009

 

Service cost

$

307

 

$

353

 

$

384

 

$

299

 

$

305

 

$

311

 

Amortization of prior service cost (credit)

 

72

 

 

109

 

 

112

 

 

(57

)

 

375

 

 

401

 

Subtotal

 

379

 

 

462

 

 

496

 

 

242

 

 

680

 

 

712

 

Expected return on plan assets

 

(1,976

)

 

(2,176

)

 

(2,216

)

 

(163

)

 

(252

)

 

(205

)

Interest cost

 

1,590

 

 

1,797

 

 

1,924

 

 

1,421

 

 

1,639

 

 

1,766

 

Subtotal

 

(7

)

 

83

 

 

204

 

 

1,500

 

 

2,067

 

 

2,273

 

Remeasurement (gain) loss, net

 

4,146

 

 

(166

)

 

(515

)

 

1,787

 

 

758

 

 

(901

)

Net periodic benefit (income) cost

 

4,139

 

 

(83

)

 

(311

)

 

3,287

 

 

2,825

 

 

1,372

 

Curtailment and termination benefits

 

 

 

860

 

 

1,371

 

 

 

 

386

 

 

532

 

Total

$

4,139

 

$

777

 

$

1,060

 

$

3,287

 

$

3,211

 

$

1,904

 

Other pre-tax changes in plan assets and benefit obligations recognized in other comprehensive (income) loss are as follows:

(dollars in millions)

 

Pension

 

Health Care and Life

 

At December 31,

 

 

2011

 

 

2010

 

 

2011

 

 

2010

 

Prior service cost

 

$

(485

)

$

(336

)

$

 

$

(2,859

)

Reversal of amortization items

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost

 

 

(72

)

 

(109

)

 

57

 

 

(375

)

Total recognized in other comprehensive (income) loss (pretax)

 

$

(557

)

$

(445

)

$

57

 

$

(3,234

)

The estimated prior service cost for the defined benefit pension plans and the defined benefit postretirement plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is not significant.

Assumptions

The weighted-average assumptions used in determining benefit obligations follow:

 

Pension

 

Health Care and Life

 

At December 31,

2011

 

2010

 

2011

 

2010

 

Discount Rate

 

5.00

%

 

5.75

%

 

5.00

%

 

5.75

%

Rate of compensation increases

 

3.00

 

 

3.00

 

 

N/A

 

 

N/A

 

The weighted-average assumptions used in determining net periodic cost follow:

 

Pension

 

Health Care and Life

 

Years Ended December 31,

2011

 

2010

 

2009

 

2011

 

2010

 

2009

 

Discount Rate

 

5.75

%

 

6.25

%

 

6.75

%

 

5.75

%

 

6.25

%

 

6.75

%

Expected return on plan assets

 

8.00

 

 

8.50

 

 

8.50

 

 

6.00

 

 

8.25

 

 

8.25

 

Rate of compensation increases

 

3.00

 

 

4.00

 

 

4.00

 

 

N/A

 

 

N/A

 

 

N/A

 

In order to project the long-term target investment return for the total portfolio, estimates are prepared for the total return of each major asset class over the subsequent 10-year period, or longer. Those estimates are based on a combination of factors including the current market interest rates and valuation levels, consensus earnings expectations, historical long-term risk premiums and value-added. To determine the aggregate return for the pension trust, the projected return of each individual asset class is then weighted according to the allocation to that investment area in the trust’s long-term asset allocation policy.

The assumed health care cost trend rates follow:

 

Health Care and Life

 

At December 31,

2011

 

2010

 

2009

 

Healthcare cost trend rate assumed for next year

 

7.50

%

 

7.75

%

 

8.00

%

Rate to which cost trend rate gradually declines

 

5.00

 

 

5.00

 

 

5.00

 

Year the rate reaches the level it is assumed to remain thereafter

 

2016

 

 

2016

 

 

2014

 

A one percentage point change in the assumed health care cost trend rate would have the following effects:

(dollars in millions)

One-Percentage-Point

Increase

 

Decrease

 

Effect on 2011 service and interest cost

$

199

 

$

(163

)

Effect on postretirement benefit obligation as of December 31, 2011

 

3,422

 

 

(2,768

)