American Express 2012 Annual Report Download - page 106

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the RSP, except that the definitions of compensation and
payment options differ. In addition, the RRP was amended
effective January 1, 2011 such that the Company matches
employee contributions up to a maximum of 5 percent of total
eligible compensation in excess of IRC compensation limits only
to the extent the employee contributes to the RRP.
The total expense for all defined contribution retirement plans
globally was $254 million, $252 million and $217 million in
2012, 2011 and 2010, respectively.
OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors unfunded other postretirement benefit
plans that provide health care and life insurance to certain
retired U.S. employees.
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 benefit cost as of
December 31:
(Millions) 2012 2011
Net actuarial loss $32$35
Total, pretax effect 32 35
Tax impact (12) (13)
Total, net of taxes $20$22
The estimated portion of the net actuarial loss that is expected to
be recognized as a component of net periodic benefit cost in
2013 is nil.
The following table lists the amounts recognized in other
comprehensive loss in 2012:
(Millions) 2012
Net actuarial gain:
Reclassified to earnings from equity(a) $ (1)
Gains in current year(b) (2)
Net actuarial gain, pretax $ (3)
(a) Amortization of actuarial losses.
(b) Deferral of actuarial gains.
Benefit Obligations
The projected benefit obligation represents a liability based upon
estimated future medical and other benefits to be provided to
retirees.
The following table provides a reconciliation of the changes in
the projected benefit obligation:
(Millions) 2012 2011
Projected benefit obligation, beginning of year $ 311 $ 319
Service cost 45
Interest cost 14 16
Benefits paid (17) (18)
Actuarial gain (2) (5)
Curtailment gain —(6)
Net change (1) (8)
Projected benefit obligation, end of year $ 310 $ 311
The plans are unfunded and the obligations as of December 31,
2012 and 2011 are recognized in other liabilities on the
Consolidated Balance Sheets.
Net Periodic Benefit Cost
GAAP provides for the delayed recognition of the net actuarial
loss and the net prior service credit remaining in accumulated
other comprehensive (loss) income.
The components of the net periodic benefit cost for all other
postretirement benefit plans for the years ended December 31
were as follows:
(Millions) 2012 2011 2010
Service cost $4$5$6
Interest cost 14 16 17
Recognized net actuarial loss 132
Curtailment gain —(1) —
Net periodic benefit cost $19$23$25
Assumptions
The weighted-average assumptions used to determine benefit
obligations were:
2012 2011
Discount rates 3.6% 4.5%
Health care cost increase rate:
Following year 7.5% 8.0%
Decreasing to the year 2018 5.0% 5.0%
The weighted-average discount rate used to determine net
periodic benefit cost was 4.4 percent, 4.9 percent and 5.4 percent
in 2012, 2011 and 2010, respectively. The discount rate
assumption is determined by using a model consisting of bond
portfolios that match the cash flows of the plan’s projected
benefit payments. 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.
A one percentage-point change in assumed health care cost trend
rates would have the following effects:
One
percentage-
point increase
One
percentage-
point decrease
(Millions) 2012 2011 2012 2011
Increase (decrease) on benefits earned and
interest cost for U.S. plans $1 $1 $ (1) $(1)
Increase (decrease) on postretirement benefit
obligation for U.S. plans $13 $13 $ (12) $ (12)
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