Alaska Airlines and Horizon Air 2009 Annual Report Download - page 177

Postretirement Medical Benefits
The Company allows retirees to continue their
medical, dental, and vision benefits by paying all
or a portion of the active employee plan premium
until eligible for Medicare, currently age 65. This
results in a subsidy to retirees, because the
premiums received by the Company are less
than the actual cost of the retirees’ claims. The
accumulated postretirement benefit obligation
(APBO) for this subsidy is unfunded. This liability
was determined using an assumed discount rate
of 5.85% and 6.20% at December 31, 2009 and
2008, respectively.
2009 2008
Accumulated postretirement
benefit obligation
Beginning of year .............. $ 109.9 $ 101.7
Service cost .................. 5.6 4.2
Interest cost ................. 7.8 5.6
Plan amendments ............. 4.1 —
Curtailments ................. —(0.5)
Actuarial (gain) loss ............ (6.7) 1.9
Transfer to pilot long-term
disability plan .............. (0.6) —
Benefits paid ................. (2.8) (3.0)
End of year .................. $ 117.3 $ 109.9
Plan assets at fair value
Beginning of year .............. $—$—
Employer contributions ......... 2.8 3.0
Benefits paid ................. (2.8) (3.0)
End of year .................. $—$—
Funded status (unfunded) ....... $(117.3) $(109.9)
The plan amendment and the transfer to the pilot
long-term disability plan in 2009 were the result
of plan changes in the new pilot collective
bargaining agreement ratified during the year.
See further discussion under “Pilot Long-term
Disability Benefits” below.
As of December 31, 2009 and 2008, the
amounts recognized in the consolidated balance
sheets were as follows (in millions):
2009 2008
Accrued benefit liability-current ..... $ 4.2 $ 4.4
Accrued benefit liability-long term . . . 113.1 105.5
Total liability recognized ........... $117.3 $109.9
AMOUNTS NOT YET REFLECTED IN NET
PERIODIC BENEFIT COST AND INCLUDED
IN AOCI:
2009 2008
Prior service cost .................. $ 2.6 $ 1.4
Net loss ......................... 15.7 23.1
Amount recognized in AOCI (pretax) .... $18.3 $24.5
The expected combined amortization of prior
service cost and net loss from AOCI in 2010 is
$0.3 million.
The Company uses a December 31
measurement date to assess obligations
associated with the subsidy of retiree medical
costs. Net periodic benefit cost for the
postretirement medical plans included the
following components for 2009, 2008 and 2007
(in millions):
2009 2008 2007
Service cost .............. $ 5.6 $ 4.2 $ 4.6
Interest cost .............. 7.8 5.6 6.3
Amortization of prior service
cost ................... 2.9 (0.3) (0.3)
Recognized actuarial loss .... 0.8 0.5 2.4
Net periodic benefit cost ..... $17.1 $10.0 $13.0
This is an unfunded plan. The Company expects
to contribute approximately $4.2 million to the
postretirement medical benefits plan in 2010,
which is equal to the expected benefit payments.
Future benefits expected to be paid over the next
ten years under the postretirement medical
benefits plan as of December 31, 2009 are as
follows (in millions):
2010 ............................. $ 4.2
2011 ............................. 4.8
2012 ............................. 5.2
2013 ............................. 5.9
2014 ............................. 6.6
2015 - 2019 ....................... 44.2
The assumed health care cost trend rates to
determine the expected 2010 benefits cost are
9.2%, 9.2%, 5% and 4% for medical, prescription
drugs, dental and vision costs, respectively. The
assumed trend rate declines steadily through
2028 where the ultimate assumed trend rates
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ŠForm 10-K