Sprint - Nextel 2005 Annual Report Download - page 152

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The plan is expected to be split into two plans in connection with the spin-off of Embarq. No contributions are
expected to be made until after the spin-off. Preliminary estimates of these contributions are $100 million for
Sprint Nextel. Pension trust asset performance and changes in interest rates in the period leading to the
anticipated plan spin-off could significantly affect these estimates.
Defined Contribution Plans
We sponsor defined contribution savings plans covering most employees. Participants may contribute portions of
their pay to the plans. For union employees, we match contributions based on negotiated amounts. Through
December 31, 2005, we matched contributions of non-union pre-merger Sprint employees in shares of company
stock. The matching contribution was equal to 30% of participants’ contributions up to 6% of their pay for 2005 and
25% of participants’ contributions during 2004 and the second half of 2003. The matching contribution for the first
half of 2003 was 75%. From the merger date through December 31, 2005, we matched contributions of pre-merger
Nextel employees up to 4% of their pay. Our total matching contributions were $56 million in 2005, $29 million in
2004, and $72 million in 2003. In 2006, the pre-merger Nextel plan will be terminated and participants covered by
that plan will be eligible to enroll in the amended Sprint Nextel plan. The amended plan will no longer match
contributions with company stock, but we will match participants’ contributions up to 5% of their pay.
Postretirement Benefits
We provide postretirement medical benefits to certain employees. We also provide postretirement life insurance
to employees who retired before certain dates. Employees who retired before certain dates were eligible for
medical benefits at no cost, or at a reduced cost. Employees who retire after certain dates are eligible for medical
benefits on a shared-cost basis. We fund the accrued costs as benefits are paid. We use a December 31
measurement date for our postretirement benefit plans.
Because prescription drug coverage is available through Medicare beginning in 2006, we amended the retiree
medical plans in the third quarter 2005 to largely eliminate prescription drug coverage for Medicare-eligible
retirees. This amendment precipitated a remeasurement of retiree medical expense, using a 5.25% discount rate
as of the July 1, 2005 remeasurement date. The amendment decreased the accumulated postretirement benefit
obligation, or APBO, by $250 million, and decreased 2005 benefit expense by $13 million.
At the time of the Nextel merger, we did not extend plan participation in the retiree medical plan to former
Nextel employees and we amended the plan to only include employees designated to work for Embarq and
legacy Sprint employees born prior to 1956. Because the attribution period used to accrue retiree medical
benefits begins at age 50, this amendment had no immediate impact on the APBO or expense.
In 2004, we amended certain retiree medical plans to standardize the plan design effective January 1, 2005,
eliminating differences in benefit levels. These amendments decreased the accumulated postretirement benefit
obligation, or APBO, related to other postretirement benefits by approximately $35 million, and decreased the
2004 net benefit expense by $5 million.
As a result of these amendments, we also recognized the then-anticipated effects of the 2003 Medicare Prescription
Drug, Improvement and Modernization Act, or the Act. The Act contains a subsidy to employers who provide
prescription drug coverage to retirees that is actuarially equivalent to Medicare Part D. In 2004, we planned to
provide such coverage. Analysis of our retiree prescription drug claims data determined that our retiree prescription
drug benefit was actuarially equivalent. In estimating the effects of the Act, estimates of participation rates and per
capita claims costs were not changed. The effect of recognizing the federal subsidy related to the Act in 2004 was a
$67 million reduction in the APBO, and an $11 million reduction in the 2004 net benefit cost. We have accounted
for our retiree medical benefit plan in accordance with FASB Staff Position No. 106-2.
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