AT&T Wireless 2013 Annual Report Download - page 63

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The estimated prior service credits that will be amortized
from accumulated OCI into net periodic benefit cost over
the next fiscal year is $94 ($58 net of tax) for pension
and $1,448 ($898 net of tax) for postretirement benefits.
Assumptions
In determining the projected benefit obligation and the net
pension and postemployment benefit cost, we used the
following significant weighted-average assumptions:
2013 2012 2011
Discount rate for determining
projected benefit obligation
at December 31 5.00% 4.30% 5.30%
Discount rate in effect for
determining net cost 4.30% 5.30% 5.80%
Long-term rate of return
on plan assets 7.75% 8.25% 8.25%
Composite rate of compensation
increase for determining
projected benefit obligation 3.00% 3.00% 4.00%
Composite rate of compensation
increase for determining
net pension cost (benefit) 3.00% 4.00% 4.00%
We recognize gains and losses on pension and
postretirement plan assets and obligations immediately
in our operating results. These gains and losses are
measured annually as of December 31 and accordingly
will be recorded during the fourth quarter, unless earlier
remeasurements are required.
Discount Rate Our assumed discount rate of 5.00%
at December 31, 2013, reflects the hypothetical rate at
which the projected benefit obligations could be effectively
settled or paid out to participants. We determined our
discount rate based on a range of factors, including a
yield curve composed of the rates of return on several
hundred high-quality, fixed income corporate bonds
available at the measurement date and the related
expected duration for the obligations. These bonds
were all rated at least Aa3 or AA- by one of the nationally
recognized statistical rating organizations, denominated
in U.S. dollars, and neither callable, convertible nor index
linked. For the year ended December 31, 2013, we
increased our discount rate by 0.70%, resulting in a
decrease in our pension plan benefit obligation of $4,533
and a decrease in our postretirement benefit obligation
of $3,161. For the year ended December 31, 2012, we
decreased our discount rate by 1.00%, resulting in an
increase in our pension plan benefit obligation of $7,030
and an increase in our postretirement benefit obligation
of $4,546.
Expected Long-Term Rate of Return Our expected
long-term rate of return on plan assets of 7.75% for
2014 and 2013 reflects the average rate of earnings
expected on the funds invested, or to be invested, to
provide for the benefits included in the projected benefit
obligations. In setting the long-term assumed rate of
return, management considers capital markets future
expectations and the asset mix of the plans’ investments.
Actual long-term return can, in relatively stable markets,
also serve as a factor in determining future expectations.
We consider many factors that include, but are not limited
to, historical returns on plan assets, current market
information on long-term returns (e.g., long-term bond
rates) and current and target asset allocations between
asset categories. The target asset allocation is determined
based on consultations with external investment advisers.
If all other factors were to remain unchanged, we
expect that a 0.50% decrease in the expected long-term
rate of return would cause 2014 combined pension
and postretirement cost to increase $262. However,
any differences in the rate and actual returns will be
included with the actuarial gain or loss recorded in
the fourth quarter when our plans are remeasured.
Composite Rate of Compensation Increase Our expected
composite rate of compensation increase cost of 3.00%
in 2014 and 2013 reflects the long-term average rate of
salary increases.
Mortality Tables At December 31, 2013 we updated our
assumed mortality rates to better predict future mortality
improvements, creating an increase of $1,986 in our pension
obligation and $679 in our postretirement obligations.
Healthcare Cost Trend Our healthcare cost trend
assumptions are developed based on historical cost data,
the near-term outlook and an assessment of likely long-
term trends. In addition to the healthcare cost trend in
2013, we assumed an annual 2.50% growth in
administrative expenses and an annual 3.00% growth in
dental claims. Our assumed annual healthcare cost trend
rate for 2014 and 2013 is 5.00% and our ultimate trend
rate is 5.00%.
A one percentage-point change in the assumed combined
medical and dental cost trend rate would have the
following effects:
One Percentage- One Percentage-
Point Increase Point Decrease
Increase (decrease) in total of
service and interest cost components $ 207 $(179)
Increase (decrease) in accumulated
postretirement benefit obligation 1,010 (878)