AT&T Wireless 2007 Annual Report Download - page 75

2007 AT&T Annual Report
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Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income
Our combined net pension and postretirement cost recognized in our consolidated statements of income was $1,078, $1,635 and
$1,336 for the years ended December 31, 2007, 2006 and 2005.
The following tables present the components of net periodic benefit obligation cost and other changes in plan assets and
benefit obligations recognized in other comprehensive income:
Net Periodic Benefit Cost
Pension Benefits Postretirement Benefits
2007 2006 2005 2007 2006 2005
Service cost – benefits earned during the period $ 1,257 $ 1,050 $ 804 $ 511 $ 435 $ 390
Interest cost on projected benefit obligation 3,220 2,507 1,725 2,588 1,943 1,496
Expected return on plan assets (5,468) (3,989) (2,736) (1,348) (935) (781)
Amortization of prior service cost (benefit) and transition asset 142 149 186 (359) (359) (344)
Recognized actuarial loss 241 361 156 294 473 440
Net pension and postretirement cost (benefit)1 $ (608) $ 78 $ 135 $ 1,686 $1,557 $1,201
1 During 2007, 2006 and 2005, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 reduced postretirement benefit cost by $342, $349 and $304. This effect is
included in several line items above.
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Pension Benefits Postretirement Benefits
2007 2006 20051 2007 2006 20051
Net loss (gain) $(2,131) $2,650 $ — $(2,525) $ 3,404 $ —
Prior service cost (credit) 139 387 — (28) (1,655) —
Amortization of net loss (gain) 154 — — 181 — —
Amortization of prior service cost 78 — — (223) — —
Total recognized in net pension and postretirement cost
other comprehensive income $(1,760) $3,037 $ — $(2,595) $ 1,749 —
1FAS 158 required prospective application for fiscal years ending after December 15, 2006.
The estimated net loss and prior service cost for pension
benefits that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the
next fiscal year are $7 and $134, respectively. The estimated
prior service benefit for postretirement benefits that will be
amortized from accumulated other comprehensive income
into net periodic benefit cost over the next fiscal year is $360.
Assumptions
In determining the projected benefit obligation and the net
pension and postemployment benefit cost, we used the
following significant weighted-average assumptions:
2007 2006 2005
Discount rate for determining
projected benefit obligation
at December 31 6.50% 6.00% 5.75%
Discount rate in effect for
determining net cost (benefit)1 6.00% 5.75% 6.00%
Long-term rate of return
on plan assets 8.50% 8.50% 8.50%
Composite rate of compensation
increase for determining
projected benefit obligation
and net pension cost (benefit) 4.00% 4.00% 4.00%
1
Discount rate in effect for determining net cost (benefit) of BellSouth and AT&T Mobility
pension and postretirement plans for the two-day period ended December 31, 2006, was
6.00%. The discount rate in effect for determining net cost (benefit) of ATTC pension and
postretirement plans for the 43-day period ended December 31, 2005 was 5.75%.
Approximately 10% of pension and postretirement costs are
capitalized as part of construction labor, providing a small
reduction in the net expense recorded. While we will continue
our cost-control efforts, certain factors, such as investment
returns, depend largely on trends in the U.S. securities
markets and the general U.S. economy. In particular,
uncertainty in the securities markets and U.S. economy could
result in investment returns less than those assumed and a
decline in the value of plan assets used in pension and
postretirement calculations, which under GAAP we will
recognize over the next several years. Should the securities
markets decline or medical and prescription drug costs increase
at a rate greater than assumed, we would expect increasing
annual combined net pension and postretirement costs for the
next several years. Additionally, should actual experience
differ from actuarial assumptions, combined net pension and
postretirement cost would be affected in future years.
Discount Rate Our assumed discount rate of 6.50% at
December 31, 2007 reflects the hypothetical rate at which
the projected benefit obligations could be effectively settled
or paid out to participants on that date. We determined our
discount rate based on a range of factors, including a yield
curve comprised of the rates of return on high-quality,
fixed-income corporate bonds available at the measurement
date and the related expected duration for the obligations.
For the year ended December 31, 2007, we increased our
discount rate by 0.50%, resulting in a decrease in our pension
plan benefit obligation of $2,353 and a decrease in our