American Express 2010 Annual Report Download - page 109

The following table lists the amounts recognized in other
comprehensive loss in 2010:
(Millions) 2010
Net actuarial loss:
Reclassified to earnings from equity
(a)
$ (41)
Losses in current year
(b)
34
Net actuarial loss, pretax (7)
Net prior service cost:
Reclassified to earnings from equity 1
Total, pretax $ (6)
(a) Amortization of actuarial losses and recognition of losses related to lump
sum settlements.
(b) Deferral of actuarial losses.
Benefit Obligations
The accumulated benefit obligation in a defined benefit pension
plan 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 accumulated and projected benefit obligations for all
defined benefit pension plans as of December 31 were as follows:
(Millions) 2010 2009
Accumulated benefit obligation $ 2,353 $ 2,327
Projected benefit obligation $ 2,435 $ 2,395
The accumulated benefit obligation and fair value of plan assets
for pension plans with accumulated benefit obligation that
exceeds the fair value of plan assets were as follows:
(Millions) 2010 2009
Accumulated benefit obligation $ 1,407 $ 1,369
Fair value of plan assets $ 1,091 $ 1,020
The projected benefit obligation and fair value of plan assets for
pension plans with projected benefit obligation that exceeds the
fair value of plan assets as of December 31 were as follows:
(Millions) 2010 2009
Projected benefit obligation $ 2,435 $ 2,395
Fair value of plan assets $ 2,052 $ 1,989
Net Periodic Pension Benefit Cost
The components of the net periodic pension benefit cost for all
defined benefit pension plans for the years ended December 31
were as follows:
(Millions) 2010 2009 2008
Service cost
(a)
$19$14$23
Interest cost
(b)
126 127 136
Expected return on plan assets
(c)
(145) (146) (169)
Amortization of prior service cost
(d)
(1) ——
Recognized net actuarial loss
(e)
23 10 17
Settlements losses
(f)
18 19 5
Curtailment (gains) losses
(g)
—(3) 1
Net periodic pension benefit cost $40$21$13
(a) Current value of benefits earned by employees during the period.
(b) Estimated interest incurred on the outstanding projected benefit obligation
during the period.
(c) Expected return on the market related value of plan assets.
(d) Costs that result from plan amendments, which are amortized over the
expected future service period of the employees impacted.
(e) Amortization of the accumulated losses which exceed 10 percent of the greater
of the projected benefit obligation or the market related value of plan assets.
(f) Recognition of the actuarial losses resulting from lump sum settlements of
the benefit obligation.
(g) Gains resulting from a reduction in the benefit obligation due to a decrease in
the expected years of future service of current plan participants.
Assumptions
The weighted-average assumptions used to determine defined
benefit pension obligations as of December 31 were as follows:
2010 2009
Discount rates 5.3% 5.3%
Rates of increase in compensation levels 4.0% 3.6%
The weighted-average assumptions used to determine net
periodic pension benefit costs as of December 31 were as follows:
2010 2009 2008
Discount rates 5.3% 5.9% 5.8%
Rates of increase in compensation levels 3.6% 3.9% 4.2%
Expected long-term rates of return on assets 6.9% 6.9% 7.6%
The Company assumes a long-term rate of return on assets on a
weighted-average basis. In developing this assumption,
management considers expected and historical returns over 5
to 15 years based on the mix of assets in its plans.
The discount rate assumptions are determined using a model
consisting of bond portfolios that match the cash flows of the
plan’s projected benefit payments based on the plan participants’
service to date and their expected future compensation. Use of
the rate produced by this model generates a projected benefit
obligation that equals the current market value of a portfolio of
high-quality zero-coupon bonds whose maturity dates and
amounts match the timing and amount of expected future
benefit payments.
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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS