American Express 2008 Annual Report Download - page 108

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notes to consolidated financial statements
american express company
106
Accumulated Other Comprehensive Loss
The following table provides the amounts comprising
accumulated other comprehensive loss, which are not yet
recognized as components of net periodic pension benefit cost
as of December 31:
(Millions) 2008 2007
Net actuarial loss $ 650 $ 123
Net prior service cost (3) 2
Total, pretax effect(a) 647 125
Tax impact (215) (32)
Total, net of taxes $ 432 $ 93
(a) Includes impact of transition to December 31 measurement date of $3
million credit.
The estimated portion of the net actuarial loss and net prior
service cost that is expected to be recognized as a component
of net periodic pension benefit cost in 2009 is $11 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 2008:
(Millions) 2008
Net actuarial loss:
Reclassified to earnings from equity(a) $ (22)
Losses in current year 552
Net actuarial loss 530
Net prior service cost:
Recognized as a result of curtailment (1)
Gains in current year (4)
Net prior service cost (5)
Total, pretax $525
(a) Excludes impact of transition to December 31st measurement date of $3
million credit.
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. In the
following tables, 2008 amounts are as of December 31, 2008,
and 2007 amounts are as of September 30, 2007.
The accumulated and projected benefit obligations for all
defined benefit pension plans are as follows:
(Millions) 2008 2007
Accumulated benefit obligation $2,057 $2,371
Projected benefit obligation $2,134 $2,480
The accumulated benefit obligation and fair value of plan assets
for pension plans with accumulated benefit obligations that
exceed the fair value of plan assets are as follows:
(Millions) 2008 2007
Accumulated benefit obligation $2,056 $205
Fair value of plan assets $1,691 $ 22
The projected benefit obligation and fair value of plan assets for
pension plans with projected benefit obligations that exceed the
fair value of plan assets are as follows:
(Millions) 2008 2007
Projected benefit obligation $2,134 $224
Fair value of plan assets $1,693 $ 22
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
that 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 market-related value of
plan assets are amortized over the average remaining service
period of active participants.