AT&T Wireless 2010 Annual Report Download - page 85

AT&T Inc. 83
increase in our pension plan benefit obligation of $3,238 and
an increase in our postretirement benefit obligation of $2,817.
For the year ended December 31, 2009, we decreased our
discount rate by 0.50%, resulting in an increase in our pension
plan benefit obligation of $2,065 and an increase in our
postretirement benefit obligation of $1,847.
Expected Long-Term Rate of Return Our expected long-term
rate of return on plan assets of 8.25% for 2011 and 8.50% for
2010 reflects the average rate of earnings expected on the
funds invested, or to be invested, to provide for the benefits
included in the projected benefit obligations. In setting the
long-term assumed rate of return, management considers
capital markets future expectations and the asset mix of the
plans’ investments. Actual long-term return can, in relatively
stable markets, also serve as a factor in determining future
expectations. We consider many factors that include, but are
not limited to, historical returns on plan assets, current market
information on long-term returns (e.g., long-term bond rates)
and current and target asset allocations between asset
categories. The target asset allocation is determined based
on consultations with external investment advisers. If all other
factors were to remain unchanged, we expect that a 1%
decrease in the actual long-term rate of return would cause
2011 combined pension and postretirement cost to increase
$575. However, any differences in the rate and actual returns
will be included with the actuarial gain or loss recorded in
the fourth quarter when our plans are remeasured.
Composite Rate of Compensation Increase Our expected
composite rate of compensation increase of 4% reflects the
long-term average rate of salary increases.
Healthcare Cost Trend Our healthcare cost trend
assumptions are developed based on historical cost data,
the near-term outlook and an assessment of likely long-term
trends. In addition to the healthcare cost trend, we assume
an annual 3% growth in administrative expenses and an
annual 3% growth in dental claims. Due to benefit design
changes (e.g., increased copays and deductibles for
prescription drugs and certain medical services), we have
generally experienced better-than-expected claims cost in
recent years. Our assumed annual healthcare cost trend
rate for 2011 and 2010 is 5.00%.
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Pension Benefits Postretirement Benefits
2010 2009 2008 2010 2009 2008
Prior service cost (credit) $ — $394 $17 $ 459 $1,863 $ 2
Reversal of amortization of prior service cost (credit) (10) 67 82 (388) (223) (223)
Total recognized in other comprehensive (income) loss (pretax) $(10) $461 $99 $ 71 $1,640 $(221)
The estimated prior service credits that will be amortized from
accumulated OCI into net periodic benefit cost over the next
fiscal year is $15 for pension and $694 for postretirement
benefits.
Assumptions
In determining the projected benefit obligation and the
net pension and postemployment benefit cost, we used
the following significant weighted-average assumptions:
2010 2009 2008
Discount rate for determining
projected benefit obligation at
December 31 5.80% 6.50% 7.00%
Discount rate in effect for
determining net cost 6.50% 7.00% 6.50%
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%
Uncertainty in the securities markets and U.S. economy could
result in investment returns less than those assumed.
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.
Should actual experience differ from actuarial assumptions,
the projected pension benefit obligation and net pension
cost and accumulated postretirement benefit obligation and
postretirement benefit cost would be affected in future years.
Discount Rate Our assumed discount rate of 5.80% at
December 31, 2010, reflects the hypothetical rate at which
the projected benefit obligations could be effectively settled
or paid out to participants. We determined our discount rate
based on a range of factors, including a yield curve composed
of the rates of return on several hundred high-quality, fixed-
income corporate bonds available at the measurement date
and the related expected duration for the obligations.
These bonds were all rated at least Aa3 or AA- by one
of the nationally recognized statistical rating organizations,
denominated in U.S. dollars, and neither callable, convertible
nor index linked. For the year ended December 31, 2010,
we decreased our discount rate by 0.70%, resulting in an