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[ 101 ]
notes to consolidated fi nancial statements
american express company
87, 88, 106, and 132(R). This standard requires that
companies record an asset or liability on the Consolidated
Balance Sheet equal to the over or under funded status
of their defined benefit and other postretirement benefit
plans effective for fiscal years ending after December
15, 2006. For each plan, the funded status is defined
by SFAS No. 158 as the difference between the fair
value of plan assets (for funded plans) and the respective
plan’s projected benefit obligation. The projected
benefit obligation represents a liability based on the plan
participant’s service to date and their expected future
compensation at their projected retirement date. Upon
adoption of SFAS No. 158 and recognition of the funded
status on the Company’s Consolidated Balance Sheet,
all previously unrecognized amounts (e.g. unrecognized
gains or losses and prior service cost) are reflected in
accumulated other comprehensive income (loss), net of
tax, in a one-time cumulative effect adjustment. Any
future changes in unrecognized gains or losses and prior
service cost will be recognized in other comprehensive
income, net of tax, in the periods in which they occur.
Under SFAS No. 158, accounting for plan expense and
payments will remain unchanged.
The following table provides the cumulative effect
of the change in accounting principle with respect to
recognizing the net funded status of defined benefit
pension plans (the Plan, the SRP and other international
plans) in the Consolidated Balance Sheet as of December
31, 2006.
(Millions)
Pre-SFAS
No. 158
SFAS
No. 158
impact
Post-
SFAS
No. 158
Accrued benefit
liability (a) $ (248) $ (39) $(287)
Prepaid benefit asset (b) $ 440 $ (416) 24
Net funded status $(263)
Accumulated other
comprehensive loss,
net of tax (c) $ 21 $ 310 $ 331
(a) The post-SFAS No. 158 accrued benefit liability represents the
excess of the projected benefit obligation over the fair value of
the plan assets for all plans in an underfunded position. The
projected benefit obligation and related fair value of plan assets
for these plans was $1.5 billion and $1.2 billion, respectively, at
December 31, 2006 and $2.3 billion and $2.1 billion, respectively,
at December 31, 2005.
(b) The post-SFAS No. 158 prepaid benefit asset represents the
excess of the fair value of the plan assets over the projected benefit
obligation for all plans in an overfunded position.
(c) The post-SFAS No. 158 accumulated other comprehensive
loss, net of tax includes the unrecognized gains and losses and
unamortized prior service cost related to the plans. See the table
below for further information.
Accumulated Other Comprehensive Loss
The following table provides the items comprising the
amount in accumulated other comprehensive loss as of
December 31:
(Millions) 2006
Net actuarial loss $ 474
Net prior service cost 13
Tota l , preta x effect 487
Tax impact (156)
Total, net of taxes $ 331
The estimated portion of the net actuarial loss and net
prior service cost above that is expected to be recognized
as a component of net periodic benefit cost in 2007 is
$40 million and $2 million, respectively.
Plan Assets and Obligations
The following tables provide a reconciliation of the
changes in the plans’ projected benefit obligation, the
fair value of assets and the net funded status for all
plans:
Reconciliation of Change in Projected
Benefit Obligation
(Millions) 2006 2005
Projected benefit obligation, October 1
prior year
$2,392 $2,168
Service cost 117 104
Interest cost 127 117
Benefits paid (55) (59)
Actuarial loss 33 220
Settlements/curtailments (95) (51)
Foreign currency exchange rate changes 147 (107)
Projected benefit obligation at
September 30,
$2,666 $2,392
Reconciliation of Change in Fair Value of Plan Assets
(Millions) 2006 2005
Fair value of plan assets, October 1 prior
year $2,135 $1,975
Actual return on plan assets 232 326
Employer contributions 46 41
Benefits paid (55) (59)
Settlements (95) (51)
Foreign currency exchange rate changes 135 (97)
Fair value of plan assets at
September 30, $2,398 $2,135