American Express 2011 Annual Report Download - page 96

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2012 is $65 million and nil,
respectively.
The following table lists the amounts recognized in other
comprehensive loss in 2011:
(Millions) 2011
Net actuarial loss:
Reclassified to earnings from equity(a) $ (51)
Losses in current year(b) 93
Net actuarial loss, pretax $42
(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) 2011 2010
Accumulated benefit obligation $ 2,459 $ 2,353
Projected benefit obligation $ 2,512 $ 2,435
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) 2011 2010
Accumulated benefit obligation $ 2,418 $ 1,407
Fair value of plan assets $ 2,028 $ 1,091
The amounts disclosed in the table above will vary year to year
based on whether plans meet the disclosure requirement.
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) 2011 2010
Projected benefit obligation $ 2,512 $ 2,435
Fair value of plan assets $ 2,069 $ 2,052
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) 2011 2010 2009
Service cost $22$19$14
Interest cost 126 126 127
Expected return on plan assets (148) (145) (146)
Amortization of prior service cost –(1) –
Recognized net actuarial loss 36 23 10
Settlements losses 15 18 19
Curtailment gains ––(3)
Net periodic pension benefit cost $51$40$21
Assumptions
The weighted-average assumptions used to determine defined
benefit pension obligations as of December 31 were as follows:
2011 2010
Discount rates 4.7% 5.3%
Rates of increase in compensation levels 3.7% 4.0%
The weighted-average assumptions used to determine net
periodic pension benefit costs as of December 31 were as follows:
2011 2010 2009
Discount rates 5.0% 5.3% 5.9%
Rates of increase in compensation levels 4.0% 3.6% 3.9%
Expected long-term rates of return
on assets 6.9% 6.9% 6.9%
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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