Notes to Consolidated Financial Statements

(Continued)

Note 16.
Benefit Plans:

(Continued)

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following for the years ended December 31, 2004, 2003 and 2002:

		U.S. Plans									Non-U.S. Plans
	(in millions)		2004				2003		2002			2004			2003		2002
	Service cost		$   247				$ 234		$  215			$ 180			$ 140		$   105
	Interest cost		613				579		590			254			217		183
	Expected return
	on plan assets		(932	)			(936	)	(943	)		(318	)		(257	)	(209	)
	Amortization:
	Net gain on
	adoption of
	SFAS No.87								(1	)
	Unrecognized
	net loss       from
	experience
	differences		157				46		23			50			29		7
	Prior service
	cost		16				16		14			14			11		9
	Termination,   settlement and
	curtailment		48				68		133			3					28
	Net periodic   pension cost		$   149				$   7		$  31			$ 183			$ 140		$  123

During 2004, 2003 and 2002, employees left Altria Group, Inc. under voluntary early retirement and workforce reduction programs, and through the Miller transaction. These events resulted in settlement losses, curtailment losses and termination benefits of $7 million, $17 million and $112 million for the U.S. plans in 2004, 2003 and 2002, respectively. In addition, retiring employees of Kraft North American Commercial (“KNAC”) elected lump-sum payments, resulting in settlement losses of $41 million, $51 million and $21 million in 2004, 2003 and 2002, respectively. During 2004 and 2002, early retirement programs in the international tobacco business resulted in additional termination benefits of $3 million and $28 million, respectively, for the non-U.S. plans.

The following weighted-average assumptions were used to determine Altria Group, Inc.’s net pension cost for the years ended December 31:

U.S. Plans Non-U.S. Plans 2004  2003 2002    2004  2003    2002    Discount rate 6.25 % 6.50 %  7.00% 4.87 % 4.99%  5.38%  Expected rate of   return on plan   assets  9.00  9.00 9.00    7.82 7.81     7.94     Rate of   compensation   increase 4.20  4.20 4.50    3.40 3.30     3.68

Altria Group, Inc.’s expected rate of return on plan assets is determined by the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class. Altria Group, Inc. has reduced this assumption to 8% in determining its U.S. plans pension expense for 2005.

ALG and certain of its subsidiaries sponsor deferred profit-sharing plans covering certain salaried, non-union and union employees. Contributions and costs are determined generally as a percentage of pre-tax earnings, as defined by the plans. Certain other subsidiaries of ALG also maintain defined contribution plans. Amounts charged to expense for defined contribution plans totaled $244 million, $235 million and $222 million in 2004, 2003 and 2002, respectively.

Plan Assets

The percentage of fair value of pension plan assets at December 31, 2004 and 2003, was as follows:

U.S. Plans Non-U.S. Plans Asset Category 2004     2003     2004     2003     Equity securities 72%  71%  59% 56%  Debt securities 27      26     35     37     Real estate 1     4     4     Other 1      2     2     3     Total 100%  100%  100% 100%

Altria Group, Inc.’s investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, the composition of Altria Group, Inc.’s U.S. plan assets is broadly characterized as a 70%/30% allocation between equity and debt securities. The strategy utilizes indexed U.S. equity securities and actively managed investment grade debt securities (which constitute 80% or more of debt securities) with lesser allocations to high-yield and international debt securities.

For the plans outside the U.S., the investment strategy is subject to local regulations and the asset/liability profiles of the plans in each individual country. These specific circumstances result in a level of equity exposure that is typically less than the U.S. plans. In aggregate, the actual asset allocations of the non-U.S. plans are virtually identical to their respective asset policy targets. Altria Group, Inc. attempts to mitigate investment risk by rebalancing between equity and debt asset classes as Altria Group, Inc.’s contributions and monthly benefit payments are made.

Altria Group, Inc. presently plans to make contributions, to the extent that they are tax deductible, in order to maintain plan assets in excess of the accumulated benefit obligation of its funded U.S. and non-U.S. plans. Currently, Altria Group, Inc. anticipates making contributions of approximately $780 million in 2005 to its U.S. plans and approximately $210 million in 2005 to its non-U.S. plans, based on current tax law. However, these estimates are subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or significant changes in interest rates.

The estimated future benefit payments from the Altria Group, Inc. pension plans at December 31, 2004, were as follows:

(in millions) U.S. Plans Non-U.S. Plans 2005 $   600 $   267 2006 600 250 2007 602 264 2008 606 277 2009 626 293 2010 - 2014 3,801 1,579