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, 2005, 2004 and 2003:
During 2005, 2004 and 2003, employees left Altria Group, Inc. under voluntary early retirement and workforce reduction programs. These events resulted in settlement losses, curtailment losses and termination benefits for the U.S. plans in 2005, 2004 and 2003 of $19 million, $7 million and $17 million, respectively. In addition, retiring employees of Kraft North America Commercial ("KNAC") elected lump-sum payments, resulting in settlement losses of $73 million, $41 million and $51 million in 2005, 2004 and 2003, respectively. During 2005 and 2004, non-U.S. plant closures and early retirement benefits resulted in curtailment and settlement losses of $27 million and $3 million, respectively.
The following weighted-average assumptions were used to determine Altria Group, Inc.’s net pension cost for the years ended December 31:
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.
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 $256 million, $244 million and $235 million in 2005, 2004 and 2003, respectively.
Plan Assets
The percentage of fair value of pension plan assets at December 31, 2005 and 2004, was as follows:
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, actively managed international 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 makes, and plans to make, contributions, to the extent that they do not generate an excise tax liability, 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 $410 million in 2006 to its U.S. plans and approximately $216 million in 2006 to its non-U.S. plans, based on current tax law. These amounts include approximately $140 million and $106 million that Kraft anticipates making to its U.S. and non-U.S. plans, respectively. 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, 2005, were as follows:
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