American Express 2006 Annual Report Download - page 104

Download and view the complete annual report

Please find page 104 of the 2006 American Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

[ 102 ]
notes to consolidated fi nancial statements
american express company
Net Funded Status
(Millions) 2006 2005
Funded status at September 30, $(268) $(257)
Unrecognized net actuarial loss —508
Unrecognized prior service cost —14
Unrecognized net transition obligation —1
Fourth quarter contributions 55
Net amount recognized at
December 31, $(263) $ 271
As noted previously, due to the adoption of SFAS No.
158 as of December 31, 2006, the funded status of $ (268)
million, less fourth quarter contributions of $5 million,
is reflected in the December 31, 2006 Consolidated
Balance Sheet.
The following table provides the amounts recognized
on the Consolidated Balance Sheets as of December 31:
(Millions) 2006 2005
Other liabilities $(287) $(203)
Other assets 24 445
Minimum pension liability adjustment —29
Net amount recognized at
December 31, $(263) $ 271
Accumulated Benefit Obligation
The accumulated benefit obligation is the present value
of benefits earned to date by plan participants computed
based on current compensation levels as contrasted to
the projected benefit obligation which is the present
value of benefits earned to date by plan participants
based on their expected future compensation at their
projected retirement date. The unvested portion of the
accumulated benefit obligation is minimal.
The accumulated benefit obligation for all pension
plans was $2.4 billion at September 30, 2006 and $2.2
billion at September 30, 2005.
The accumulated benefit obligation for pension plans
where the accumulated benefit obligation exceeds the fair
value of plan assets (primarily unfunded international
plans and the SRP) was $234 million (with fair value of
related plan assets of $19 million) as of September 30,
2006 and $221 million (with fair value of related plan
assets of $17 million) as of September 30, 2005.
Net Periodic Pension Benefit Cost
SFAS No. 87, “Employers’ Accounting for Pensions”
(SFAS No. 87), provides for the delayed recognition
of the net actuarial loss and the net prior service cost
remaining in accumulated other comprehensive income
(loss).
Service cost is the component of net periodic benefit
cost which represents the current value of benefits
earned by an employee during the period. Net periodic
benefit cost also includes the estimated interest incurred
on the outstanding projected benefit obligation during
the period.
A plan amendment that retroactively increases
benefits is recognized as an increase to the projected
benefit obligation and a corresponding charge to other
comprehensive income, net of tax, at the date of the
amendment. These prior service costs are amortized as
a component of net periodic pension benefit cost on a
straight-line basis over the average remaining service
period of active participants. Actuarial gains and losses
that are not recognized immediately as a component of
net periodic pension cost are recognized as increases or
decreases in other comprehensive income, net of tax,
as they arise. Cumulative net actuarial loss included in
accumulated other comprehensive income (loss) which
exceeds 10 percent of the greater of the projected benefit
obligation and the estimated market value of plan assets
are amortized over the average remaining service period
of active participants.
The components of the net periodic pension cost for
all defined benefit plans are as follows:
(Millions) 2006 2005 2004
Service cost $ 117 $ 104 $ 99
Interest cost 127 117 109
Expected return on plan assets (153) (141) (142)
Amortization of:
Prior service costs 11 (4)
Transition obligation ——1
Recognized net actuarial loss 40 27 19
Settlements/curtailment loss 143
Net periodic pension benefit cost $ 133 $ 112 $ 85
Assumptions
The weighted average assumptions used to determine
benefit obligations were:
2006 2005
Discount rates 5.2% 5.1%
Rates of increase in compensation levels 4.1% 4.2%
The weighted average assumptions used to determine
net periodic benefit cost were:
2006 2005 2004
Discount rates 5.1% 5.5% 5.7%
Rates of increase in compensation levels 4.2% 4.0% 3.9%
Expected long-term rates of return on
assets 7.8% 7.8% 7.8%
The Company assumes a long-term rate of return on
assets on a weighted average basis. In developing this
assumption, management evaluates historical returns