Notes to Consolidated Financial Statements
(Continued)
Note 16
Benefit Plans:
(Continued)
Postretirement Benefit Plans
Net postretirement health care costs consisted of the following for the years ended December 31, 2004, 2003 and 2002:
|
 |
|
| (in millions) |
|
2004 |
|
|
2003 |
|
2002 |
|
|
|
| Service cost |
|
$ 85 |
|
|
$ 80 |
|
$ 68 |
|
|
| Interest cost |
|
280 |
|
|
270 |
|
272 |
|
|
Amortization:
Unrecognized net loss (gain) |
|
|
|
|
|
|
|
|
|
| from experience differences |
|
57 |
|
|
47 |
|
24 |
|
|
| Unrecognized prior service cost |
|
(25) |
|
|
(27) |
|
(24) |
|
|
| Other expense |
|
1 |
|
|
7 |
|
16 |
|
|
|
| Net postretirement health |
|
|
|
|
|
|
|
|
|
| care costs |
|
$398 |
|
|
$377 |
|
$356 |
|
|
|
During 2004, 2003 and 2002, Altria Group, Inc. instituted early retirement programs. These actions resulted in special termination benefits and curtailment losses of $1 million, $7 million and $16 million in 2004, 2003 and 2002, respectively, which are included in other expense, above.
In December 2003, the United States enacted into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act establishes a prescription drug benefit under Medicare, known as “Medicare Part D,” and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.
In May 2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”). FSP 106-2 requires companies to account for the effect of the subsidy on benefits attributable to past service as an actuarial experience gain and as a reduction of the service cost component of net postretirement health care costs for amounts attributable to current service, if the benefit provided is at least actuarially equivalent to Medicare Part D.
Altria Group, Inc. adopted FSP 106-2 in the third quarter of 2004. The impact of adoption for 2004 was a reduction of pre-tax net postretirement health care costs and an increase in net earnings of $28 million (including $24 million related to Kraft), which is included above as a reduction of $4 million in service cost, $11 million in interest cost and $13 million in amortization of unrecognized net loss from experience differences. In addition, as of July 1, 2004, Altria Group, Inc. reduced its accumulated postretirement benefit obligation for the subsidy related to benefits attributed to past service by $375 million and decreased its unrecognized actuarial losses by the same amount.
The following weighted-average assumptions were used to determine Altria Group, Inc.’s net postretirement cost for the years ended December 31:
|
U.S. Plans |
Canadian Plans |
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
2003 |
|
2002 |
|
|
2004 |
|
|
2003 |
|
2002 |
|
|
|
|
Discount rate |
|
6.25% |
|
|
|
6.50% |
|
7.00% |
|
|
6.50% |
|
|
6.75% |
|
6.75% |
|
|
|
Health care cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trend rate |
|
8.90 |
|
|
|
8.00 |
|
5.90 |
|
|
8.00 |
|
|
7.00 |
|
8.00 |
|
|
Altria Group, Inc.’s postretirement health care plans are not funded. The changes in the accumulated benefit obligation and net amount accrued at December 31, 2004 and 2003, were as follows:
|
|
|
|
(in millions) |
|
2004 |
|
|
|
2003 |
|
|
|
Accumulated postretirement benefit |
|
|
|
|
|
|
|
|
obligation at January 1 |
|
$ 4,599 |
|
|
|
$ 4,249 |
|
|
Service cost |
|
85 |
|
|
|
80 |
|
|
Interest cost |
|
280 |
|
|
|
270 |
|
|
Benefits paid |
|
(305) |
|
|
|
(246) |
|
|
Curtailments |
|
1 |
|
|
|
7 |
|
|
Plan amendments |
|
(43) |
|
|
|
(28) |
|
|
Medicare Prescription Drug, Improvement |
|
|
|
|
|
|
|
|
and Modernization Act of 2003 |
|
(375) |
|
|
|
|
|
|
Currency |
|
10 |
|
|
|
18 |
|
|
Assumption changes |
|
474 |
|
|
|
253 |
|
|
Actuarial losses (gains) |
|
93 |
|
|
|
(4) |
|
|
|
Accumulated postretirement benefit |
|
|
|
|
|
|
|
|
obligation at December 31 |
|
4,819 |
|
|
|
4,599 |
|
|
|
Unrecognized actuarial losses |
|
(1,466) |
|
|
|
(1,326) |
|
|
Unrecognized prior service cost |
|
221 |
|
|
|
202 |
|
|
|
Accrued postretirement health |
|
|
|
|
|
|
|
|
care costs |
|
$ 3,574 |
|
|
|
$ 3,475 |
|
|
The current portion of Altria Group, Inc.’s accrued postretirement health care costs of $289 million and $259 million at December 31, 2004 and 2003, respectively, are included in other accrued liabilities on the consolidated balance sheets.
The following weighted-average assumptions were used to determine Altria Group, Inc.’s postretirement benefit obligations at December 31:
|
U.S. Plans |
Canadian Plans |
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Discount rate |
|
5.75% |
|
|
|
6.25% |
|
|
5.75% |
|
|
6.50% |
|
|
|
Health care cost trend rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assumed for next year |
|
8.00 |
|
|
|
8.90 |
|
|
9.50 |
|
|
8.00 |
|
|
|
Ultimate trend rate |
|
5.00 |
|
|
|
5.00 |
|
|
6.00 |
|
|
5.00 |
|
|
|
Year that the rate reaches the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ultimate trend rate |
|
2008 |
|
|
|
2006 |
|
|
2012 |
|
|
2010 |
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects as of December 31, 2004:
|
One-Percentage- |
One-Percentage- |
|
Point Increase |
Point Decrease |
|
| Effect on total of service and interest cost |
12.3% |
(10.1)% |
| Effect on postretirement benefit obligation |
9.3 |
(7.7) |
|
Altria Group Inc.’s estimated future benefit payments for its postretirement health care plans at December 31, 2004, were as follows:
| (in millions) |
U.S. Plans |
Canadian Plans |
|
| 2005 |
$ 282 |
$ 7 |
| 2006 |
263 |
7 |
| 2007 |
266 |
7 |
| 2008 |
267 |
8 |
| 2009 |
269 |
8 |
| 2010 - 2014 |
1,429 |
46 |
|
Postemployment Benefit Plans
ALG and certain of its subsidiaries sponsor postemployment benefit plans covering substantially all salaried and certain hourly employees. The cost of these plans is charged to expense over the working life of the covered employees. Net postemployment costs consisted of the following for the years ended December 31, 2004, 2003 and 2002:
|
|
|
| (in millions) |
|
2004 |
|
|
2003 |
|
2002 |
|
|
|
| Service cost |
|
$ 18 |
|
|
$ 24 |
|
$ 48 |
|
|
Amortization of
unrecognized net loss |
|
10 |
|
|
11 |
|
3 |
|
|
| Other expense |
|
226 |
|
|
69 |
|
40 |
|
|
|
| Net postemployment costs |
|
$254 |
|
|
$104 |
|
$91 |
|
|
|
As discussed in Note 3. Asset Impairment and Exit Costs, certain employees left Kraft under the restructuring program and certain salaried employees left Altria Group, Inc. under separation programs. During 2002, certain salaried employees left Altria Group, Inc. under separation and voluntary early retirement programs. These programs resulted in incremental postemployment costs, which are included in other expense, above.
Altria Group, Inc.’s postemployment plans are not funded. The changes in the benefit obligations of the plans at December 31, 2004 and 2003, were as follows:
|
|
|
|
(in millions) |
|
2004 |
|
|
|
2003 |
|
|
|
Accumulated benefit obligation |
|
|
|
|
|
|
|
|
at January 1 |
|
$ 480 |
|
|
|
$ 473 |
|
|
Service cost |
|
18 |
|
|
|
24 |
|
|
Kraft restructuring program |
|
167 |
|
|
|
|
|
|
Benefits paid |
|
(280) |
|
|
|
(196) |
|
|
Actuarial losses |
|
72 |
|
|
|
179 |
|
|
|
Accumulated benefit obligation |
|
|
|
|
|
|
|
|
at December 31 |
|
457 |
|
|
|
480 |
|
|
Unrecognized experience gain (loss) |
|
30 |
|
|
|
(14) |
|
|
|
Accrued postemployment costs |
|
$ 487 |
|
|
|
$ 466 |
|
|
The accumulated benefit obligation was determined using an assumed ultimate annual turnover rate of 0.4% and 0.5% in 2004 and 2003, respectively, assumed compensation cost increases of 4.2% in 2004 and 2003, and assumed benefits as defined in the respective plans. Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.
|
|
|
|