American Express 2007 Annual Report Download - page 104

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
Plan but the SRP’s definition of compensation and payment
options differ.
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 complies with the minimum funding requirements
in all countries.
Effective July 2006, the Company amended its U.K. pension
plans. Employees who were participating in the existing U.K.
defined benefit plans were given a choice between remaining
in the plans and making contributions toward their benefits or
moving to the new defined contribution plan. Participants who
chose to move no longer accrue benefits under these plans as of
July 1, 2006. There was no gain or loss as a result of this change
and the overall impact to the projected benefit obligation was
minimal.
The Company measures the obligations and related asset
values for its pension and other postretirement benefit plans
as of September 30th of each year. SFAS No. 158 requires
the measurement date for the benefit obligation and plan
assets to be the Company’s fiscal year end for years ending
after December 15, 2008. The Company will implement this
change in 2008 by using a September 30, 2007 measurement
date to estimate 2008 pension and other employee benefit plan
costs and will revalue the benefit obligation and plan assets at
December 31, 2008 for year-end 2008 reporting purposes.
Accumulated Other Comprehensive Loss
Upon adoption of SFAS No. 158 at December 31, 2006, the
Company recorded additional liabilities of $39 million in other
liabilities, a reduction of pension assets of $416 million in
other assets and a $310 million charge to shareholders’ equity,
net of a deferred income tax benefit of $145 million, related
to its defined benefit pension plans which resulted in the net
funded status of the Company’s plans being recorded on the
balance sheet. 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. The $310 million charge to shareholders’ equity, net
of tax, represents all previously unrecognized amounts (e.g.
unrecognized gains and losses and prior service cost) which
were reflected in accumulated other comprehensive income
(loss) in the one-time cumulative effect adjustment described
above. Changes in unrecognized gains and losses and prior
service cost occurring subsequent to adoption of SFAS No. 158
are recognized in other comprehensive income, net of tax, in
the periods in which they occur.
The following table provides the items comprising the
amount in accumulated other comprehensive loss, which are
not yet recognized as a component of net periodic pension
benefit cost as of December 31:
(Millions) 2007 2006(a)
Net actuarial loss $ 123 $ 472
Net prior service cost 213
Total, pretax effect 125 485
Tax impact (32) (156)
Total, net of taxes $ 93 $ 329
(a) 2006 includes the $310 million charge to shareholders’ equity as a result of
the adoption of SFAS No. 158.
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 pension benefit cost in 2008 is
$20 million and nil, respectively. For 2007, excluded from
the table above is $(2) million of net change in accumulated
other comprehensive income related to AEB discontinued
operations.
The following table details the amounts recognized in other
comprehensive loss in 2007:
(Millions) 2007
Net actuarial loss:
Reclassified to earnings from equity $ (40)
Gains in current year (297)
Recognized as a result of settlements 6
Recognized as a result of curtailment (18)
Net actuarial loss (349)
Net prior service cost:
Reclassified to earnings from equity (2)
Losses in current year 2
Recognized as a result of curtailment (11)
Net prior service cost (11)
Total, pretax $(360)
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:
102