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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21
RETIREMENT PLANS
The Company sponsors defined benefit pension plans, defined
contribution plans, and other postretirement benefit plans for its
employees. The following table provides a summary of the total
cost related to these plans for the years ended December 31:
(Millions) 2012 2011 2010
Defined benefit pension plan cost $74$51$40
Defined contribution plan cost 254 252 217
Other postretirement benefit plan cost 19 23 25
Net periodic benefit cost $ 347 $ 326 $ 282
The expenses in the above table are recorded in salaries and
employee benefits in the Consolidated Statements of Income.
DEFINED BENEFIT PENSION PLANS
The Company’s significant defined benefit pension plans cover
certain employees in the United States and United Kingdom.
Most employees outside the United States and United Kingdom
are covered by local retirement plans, some of which are funded,
while other employees receive payments at the time of retirement
or termination under applicable labor laws or agreements. The
Company complies with the minimum funding requirements in
all countries.
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 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,
the Retirement Restoration Plan (the RRP), 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, 2012, the net funded status related to the
defined benefit pension plans was underfunded by $486 million,
as shown in the following table:
(Millions) 2012 2011
Net funded status, beginning of year $ (443) $ (383)
Increase in fair value of plan assets 240 17
Increase in projected benefit obligation (283) (77)
Net change (43) (60)
Net funded status, end of year $ (486) $ (443)
The net funded status amounts as of December 31, 2012 and
2011 are recognized in other liabilities on the Consolidated
Balance Sheets.
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) 2012 2011
Fair value of plan assets, beginning of year $ 2,069 $ 2,052
Actual return on plan assets 298 89
Employer contributions 47 35
Benefits paid (69) (60)
Settlements (66) (68)
Foreign currency exchange rate changes 30 21
Net change 240 17
Fair value of plan assets, end of year $ 2,309 $ 2,069
Reconciliation of Change in Projected Benefit Obligation
(Millions) 2012 2011
Projected benefit obligation, beginning of year $ 2,512 $ 2,435
Service cost 19 22
Interest cost 115 126
Benefits paid (69) (60)
Actuarial loss 261 33
Settlements (66) (68)
Plan amendment (10) —
Foreign currency exchange rate changes 33 24
Net change 283 77
Projected benefit obligation, end of year $ 2,795 $ 2,512
100