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Most employees outside the United States are covered
by local retirement plans, some of which are funded,
while other employees receive payments at the time
of retirement or termination under applicable labor laws
or agreements.
The Company measures the obligations and related
asset values for its pension and other postretirement
benefit plans as of September 30
th
.
The components of the net periodic pension cost for all
defined benefit plans accounted for under SFAS No. 87,
“Employers’ Accounting for Pensions,” are as follows:
(Millions) 2005 2004 2003
Service cost $ 104 $99$92
Interest cost 117 109 102
Expected return on plan assets (141) (142) (126)
Amortization of:
Prior service costs 1(4) (6)
Transition obligation (asset) —1 (2)
Recognized net actuarial loss 27 19 18
Settlements/curtailment loss 439
Net periodic pension
benefit cost $ 112 $85$87
The prior service costs are amortized on a straight-line
basis over the average remaining service period of active
participants. Gains and losses in excess of 10 percent of
the greater of the projected benefit obligation and the
market-related value of assets are amortized over the
average remaining service period of active participants.
The following tables provide a reconciliation of the
changes in the plans’ projected benefit obligation and
fair value of assets for all plans accounted for under SFAS
No. 87:
Reconciliation of Change in Projected
Benefit Obligation
(Millions) 2005 2004
Projected benefit obligation,
October 1 prior year $ 2,168 $ 1,896
Service cost 104 99
Interest cost 117 109
Benefits paid (59) (51)
Actuarial loss 220 94
Plan amendments
(a)
—(3)
Settlements/curtailments (51) (51)
Foreign currency exchange
rate changes (107) 75
Projected benefit obligation at
September 30, $ 2,392 $ 2,168
(a)The plan amendment in 2004 reduced the future benefit accruals
under the Plan for employees supporting U.S. Business Travel effective
January 1, 2005.
Reconciliation of Change in Fair Value of Plan Assets
(Millions) 2005 2004
Fair value of plan assets,
October 1 prior year $ 1,975 $ 1,744
Actual return on plan assets 326 207
Employer contributions 41 53
Benefits paid (59) (51)
Settlements (51) (51)
Foreign currency exchange
rate changes (97) 73
Fair value of plan assets at
September 30, $ 2,135 $ 1,975
The Company complies with the minimum funding
requirements in all countries. The following table rec-
onciles the plans’ funded status (benefit obligation less
fair value of plan assets) to the amounts recognized on
the Consolidated Balance Sheets:
Funded Status
(Millions) 2005 2004
Funded status at September 30, $ (257) $ (193)
Unrecognized net actuarial loss 508 534
Unrecognized prior service cost 14 15
Unrecognized net transition
obligation 11
Fourth quarter contributions 55
Net amount recognized
at December 31, $ 271 $ 362
Accumulated benefit obligation
at September 30, $ 2,163 $ 2,036
The following table provides the amounts recognized on
the Consolidated Balance Sheets as of December 31:
(Millions) 2005 2004
Accrued benefit liability $ (203) $ (204)
Prepaid benefit cost 445 543
Minimum pension liability
adjustment 29 23
Net amount recognized
at December 31, $ 271 $ 362
The projected benefit obligation for all pension plans as
of September 30, 2005 and 2004 was $2.4 billion and
$2.2 billion, respectively. The Company must also
disclose the projected benefit obligation and related fair
value of plan assets for specific pension plans where the
projected benefit obligation exceeds the fair value of
plan assets. The projected benefit obligation and related
fair value of plan assets for these specific pension plans
was $2.3 billion and $2.1 billion, respectively, as of
September 30, 2005, and $1.3 billion and $1.0 billion,
respectively, as of September 30, 2004.
Notes to Consolidated
Financial Statements
AXP / AR.2005
[91 ]