AT&T Wireless 2013 Annual Report Download - page 60

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
58 | AT&T Inc.
In October 2013, we offered a one-time opportunity for
certain retirement-eligible employees to elect a full lump
sum payment of their accrued pension if they retired as of
December 30, 2013. The lump sum value was calculated
using the August 2012 discount rates for some pension
programs and was equal to the cash balance amount for
the management new hire pension program. The lump
sum value totaled approximately $2,700, which will be
distributed in the first quarter of 2014. We recorded special
termination benefits of $250 as a result of this offer.
In October 2013, as part of our 2014 annual benefits
enrollment process, we communicated an amendment to
our Medicare-eligible retirees that beginning in 2015 AT&T
will provide access to retiree health insurance coverage that
supplements government-sponsored Medicare through a
private insurance marketplace. This new approach will allow
retirees to choose insurance with the terms, cost and
coverage that best fits their needs, while still receiving
financial support as determined by AT&T. We expect that
the cost to AT&T for retiree medical coverage in 2015 will
be comparable to 2014. Future changes in support, if any,
will be based on a number of factors such as business
conditions, government actions, marketplace changes and
the general consumer inflation rate.
During 2012, approximately 90,000 collectively bargained
employees ratified new agreements. For the vast majority
of covered employees, the agreements provided for a pension
band increase of 1 percent for each year of the agreement.
These agreements also provide for continued healthcare
coverage with a modest increase to employee costs over the
agreement term. There were also modest increases to retiree
costs for continued healthcare coverage for retirees.
During 2012, we transferred the funding of the payment of
postretirement death benefits not already in the Voluntary
Employee Benefit Association (VEBA) trust from the pension
trust to the postretirement VEBA trust.
Obligations and Funded Status
For defined benefit pension plans, the benefit obligation
is the “projected benefit obligation,” the actuarial
present value, as of our December 31 measurement date,
of all benefits attributed by the pension benefit formula
to employee service rendered to that date. The amount of
benefit to be paid depends on a number of future events
incorporated into the pension benefit formula, including
estimates of the average life of employees/survivors and
average years of service rendered. It is measured based
on assumptions concerning future interest rates and future
employee compensation levels.
For postretirement benefit plans, the benefit obligation
is the “accumulated postretirement benefit obligation,”
the actuarial present value as of a date of all future
benefits attributed under the terms of the postretirement
benefit plan to employee service rendered to the
valuation date.
The components of income tax (benefit) expense are as follows:
2013 2012 2011
Federal:
Current $3,043 $ 451 $ (420)
Deferred – net 5,692 2,256 2,555
8,735 2,707 2,135
State, local and foreign:
Current (61) 702 23
Deferred – net 550 (509) 374
489 193 397
Total $9,224 $2,900 $2,532
A reconciliation of income tax expense (benefit) and the
amount computed by applying the statutory federal income
tax rate (35%) to income from continuing operations before
income taxes is as follows:
2013 2012 2011
Taxes computed at federal
statutory rate $9,722 $3,654 $2,351
Increases (decreases) in
income taxes resulting from:
State and local income taxes –
net of federal income
tax benefit 294 85 210
Goodwill Impairment — — 961
Other – net (792) (839) (990)
Total $9,224 $2,900 $2,532
Effective Tax Rate 33.2% 27.8% 37.7%
NOTE 12. PENSION AND POSTRETIREMENT BENEFITS
Pension Benefits and Postretirement Benefits
Substantially all of our U.S. employees are covered by one
of our noncontributory pension plans. The majority of our
newly hired employees, longer-service management and
some nonmanagement employees participate in cash
balance pension programs that include annual or monthly
credits based on salary as well as an interest credit.
Other longer-service management employees participate
in pension programs that have a traditional pension
formula (i.e., a stated percentage of employees’ adjusted
career income). Other longer-service nonmanagement
employees’ pension benefits are generally calculated
using one of two formulas: a flat dollar amount applied
to years of service according to job classification or a
cash balance plan with negotiated annual pension band
credits as well as interest credits. Most nonmanagement
employees can elect to receive their pension benefits
in either a lump sum payment or an annuity.
We also provide a variety of medical, dental and life insurance
benefits to certain retired employees under various plans and
accrue actuarially determined postretirement benefit costs as
active employees earn these benefits.