American Express 2007 Annual Report Download - page 105

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
Reconciliation of Change in Projected
Benefit Obligation
(Millions) 2007 2006
Projected benefit obligation, October 1
prior year $2,619
$2,349
Service cost 93 115
Interest cost 138 126
Benefits paid (52) (54)
Actuarial (gain) loss (163) 35
Plan amendments 2—
Settlements/curtailments (185) (95)
Foreign currency exchange rate changes 28 143
Projected benefit obligation at
September 30, $2,480 $2,619
Reconciliation of Change in Fair Value
of Plan Assets
(Millions) 2007 2006
Fair value of plan assets, October 1
prior year $2,383 $2,122
Actual return on plan assets 304 231
Employer contributions 29 44
Benefits paid (52) (54)
Settlements (93) (95)
Foreign currency exchange rate changes 22 135
Fair value of plan assets at
September 30, $2,593 $2,383
Net Funded Status
(Millions) 2007 2006
Funded status at September 30, $113 $(236)
Fourth quarter contributions 44
Net amount recognized at
December 31, $117 $(232)
The following table provides the amounts recognized on the
Consolidated Balance Sheets as of December 31:
(Millions) 2007 2006
Other liabilities $ (199) $ (256)
Other assets 316 24
Net amount recognized at
December 31, $ 117 $ (232)
Benefit Obligations
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, 2007 and 2006. The accumulated
benefit obligation and fair value of plan assets for pension
plans where the accumulated benefit obligation exceeds the
fair value of plan assets (primarily unfunded international plans
and the SRP) was $205 million and $22 million, respectively,
as of September 30, 2007 and $205 million and $17 million,
respectively, as of September 30, 2006.
The projected benefit obligation for all pension plans was
$2.5 billion and $2.6 billion at September 30, 2007 and 2006,
respectively. The projected benefit obligation and fair value of
plan assets for where the projected benefit obligation exceeds
the fair value of plan assets was $224 million and $22 million,
respectively, at September 30, 2007 and $1.5 billion and $1.2
billion, respectively, at September 30, 2006.
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. The related costs (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 accumulated 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.
103