Notes to Consolidated Financial Statements

(Continued)

Note 15.
Benefit Plans:

(Continued)

Postretirement Benefit Plans

Net postretirement health care costs consisted of the following for the years ended December 31, 2003, 2002 and 2001:

(in millions)		2003			2002		2001
Service cost		$  80			$ 68		$ 64
Interest cost		270			272		270
Amortization:   Unrecognized net loss (gain)
from experience differences		47			24		1
Unrecognized prior service cost		(27)			(24)		(12)
Other expense		7			16
Net postretirement health
care costs		$377			$356		$323

During 2003 and 2002, Altria Group, Inc. instituted early retirement programs. These actions resulted in special termination benefits and curtailment losses of $7 million and $16 million in 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 January 2004, the FASB issued FASB Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”).  Altria Group, Inc. has elected to defer accounting for the effects of the Act, as permitted by FSP 106-1. Therefore, in accordance with FSP 106-1, Altria Group, Inc.’s accumulated postretirement benefit obligation and net postretirement health care costs included in the consolidated financial statements and accompanying notes do not reflect the effects of the Act on the plans.  Specific authoritative guidance on the accounting for the federal subsidy is pending, and that guidance, when issued, could require Altria Group, Inc. to change previously reported information.

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
			2003				2002		2001			2003			2002		2001
	Discount rate		6.50%				7.00%		7.75%			6.75%			6.75%		7.00%
	Health care cost
	trend rate		8.00				5.90		6.50			7.00			8.00		9.00

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, 2003 and 2002, were as follows:

	(in millions)		2003				2002
	Accumulated postretirement benefit
	obligation at January 1		$ 4,249				$  3,966
	Service cost		80				68
	Interest cost		270				272
	Benefits paid		(246)				(260)
	Miller transaction						(322)
	Curtailments		7				21
	Plan amendments		(28)				(180)
	Currency		18
	Assumption changes		253				348
	Actuarial (gains) losses		(4)				336
	Accumulated postretirement benefit
	obligation at December 31		4,599				4,249
	Unrecognized actuarial losses		(1,326)				(1,098)
	Unrecognized prior service cost		202				199
	Accrued postretirement health
	care costs		$ 3,475				$ 3,350

The current portion of Altria Group, Inc.’s accrued postretirement health care costs of $259 million and $222 million at December 31, 2003 and 2002, 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
			2003				2002			2003			2002
	Discount rate		6.25%				6.50%			6.50%			6.75%
	Health care cost trend rate
	assumed for next year		8.90				8.00			8.00			7.00
	Ultimate trend rate		5.00				5.00			5.00			4.00
	Year that the rate reaches the
	ultimate trend rate		2006				2006			2010			2006

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, 2003:
 

	One-Percentage-	One-Percentage-
	Point Increase	Point Decrease
Effect on total of service and interest cost	13.4%	(10.8)%
Effect on postretirement benefit obligation	9.6	(8.0)

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, 2003, 2002 and 2001:

(in millions)			2003			2002		2001
	Service cost		$  24			$48		$34
	Amortization of
	unrecognized net loss		11			3		8
	Other expense		69			40
	Net postemployment costs		$104			$91		$42

During 2002, certain salaried employees left Altria Group, Inc. under voluntary early retirement and integration 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, 2003 and 2002, were as follows:

(in millions)			2003			2002
	Accumulated benefit obligation
	at January 1		$ 473			$ 788
	Service cost		24			48
	Benefits paid		(196)			(220)
	Miller transaction					(35)
	Actuarial losses (gains)		179			(108)
	Accumulated benefit obligation
	at December 31		480			473
	Unrecognized experience losses		(14)			(8)
	Accrued postemployment costs		$ 466			$ 465

The accumulated benefit obligation was determined using an assumed ultimate annual turnover rate of 0.5% and 0.3% in 2003 and 2002, respectively, assumed compensation cost increases of 4.2% in 2003 and 2002, 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.