American Express 2010 Annual Report Download - page 108

The Company sponsors the U.S. American Express
Retirement Plan (the Plan) for eligible employees in the
United States. The Plan is a noncontributory defined benefit
plan and a tax-qualified retirement plan subject to the Employee
Retirement Income Security Act of 1974, as amended (ERISA).
The Plan is closed to new entrants and existing participants no
longer accrue future benefits. The Company funds retirement
costs through a trust and complies with the applicable minimum
funding requirements specified by ERISA. The funded status of
the Plan on an ERISA basis as of October 1, 2010 (applicable
plan year) is 95 percent. The calculation assumptions for ERISA
differ from the calculation of the net funded status for GAAP
purposes (see Net Funded Status as of December 31, 2010 and
2009 in the table below).
The Plan is a cash balance plan and employees’ accrued
benefits are based on notional account balances, which are
maintained for each individual. Employees’ balances are
credited daily with interest at a fixed-rate. The interest rate
varies from a minimum of 5 percent to a maximum equal to the
lesser of (i) 10 percent or (ii) the applicable interest rate set forth
in the Plan.
The Company also sponsors an unfunded non-qualified plan,
which was renamed the Retirement Restoration Plan (the RRP)
effective January 1, 2011, for employees compensated above a
certain level to supplement their pension benefits that are
limited by the Internal Revenue Code. The RRP’s terms
generally parallel those of the Plan, except that the
definitions of compensation and payment options differ.
For each plan, the net funded status is defined by GAAP
governing retirement benefits as the difference between the
fair value of plan assets and the respective plan’s projected
benefit obligation.
As of December 31, 2010, the net funded status related to the
defined benefit pension plans was underfunded by $383 million,
as shown in the following table:
(Millions) 2010 2009
Net funded status, beginning of year $ (406) $ (441)
Increase in fair value of plan assets 63 296
Increase in projected benefit obligation (40) (261)
Net change 23 35
Net funded status, end of year $ (383) $ (406)
The net funded status amounts as of December 31, 2010 and
2009 are recognized in the Consolidated Balance Sheets in
other liabilities.
Plan Assets and Obligations
The following tables provide a reconciliation of changes in the
fair value of plan assets and projected benefit obligations for all
defined benefit pension plans as of December 31:
Reconciliation of Change in Fair Value of Plan Assets
(Millions) 2010 2009
Fair value of plan assets, beginning of year $ 1,989 $ 1,693
Actual return on plan assets 177 290
Employer contributions 50 74
Benefits paid (55) (59)
Settlements (81) (81)
Foreign currency exchange rate changes (28) 72
Net change 63 296
Fair value of plan assets, end of year $ 2,052 $ 1,989
Reconciliation of Change in Projected Benefit Obligation
(Millions) 2010 2009
Projected benefit obligation, beginning of year $ 2,395 $ 2,134
Service cost 19 14
Interest cost 126 127
Benefits paid (55) (59)
Actuarial loss 66 189
Settlements (81) (81)
Curtailments —(14)
Foreign currency exchange rate changes (35) 85
Net change 40 261
Projected benefit obligation, end of year $ 2,435 $ 2,395
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) 2010 2009
Net actuarial loss $ 648 $ 655
Net prior service cost (2) (3)
Total, pretax effect 646 652
Tax impact (213) (219)
Total, net of taxes $ 433 $ 433
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 2011 is $28 million and
nil, respectively.
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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS