Alaska Airlines and Horizon Air 2009 Annual Report Download - page 178

are 4.7% for medical, prescription drugs and
dental, and 4% for vision.
A 1% higher or lower trend rate in health care
costs has the following effect on the Company’s
postretirement medical plans during 2009, 2008
and 2007 (in millions):
2009 2008 2007
Change in service and interest
cost
1% higher trend rate .... $ 2.1 $ 1.4 $ 1.6
1% lower trend rate ..... (1.7) (1.2) (1.4)
Change in year-end
postretirement benefit
obligation
1% higher trend rate .... $ 14.4 $ 13.3 $ 12.2
1% lower trend rate ..... (12.4) (11.5) (10.6)
Defined-Contribution Plans
The defined-contribution plans are deferred
compensation plans under section 401(k) of the
Internal Revenue Code. All of these plans require
Company contributions. Total expense for the
defined-contribution plans was $28.6 million,
$27.5 million, and $26.4 million in 2009, 2008,
and 2007, respectively. Management expects
that Company contributions will increase in 2010
as pilots that elected to freeze or reduce their
service credits in the defined-benefit pension
plan will receive a higher Company contribution
under the new collective bargaining agreement.
The Company also has a noncontributory,
unfunded defined-contribution plan for certain
elected officers of the Company who are
ineligible for the nonqualified defined-benefit
pension plan. Amounts recorded as liabilities
under the plan are not material to the
consolidated balance sheet at December 31,
2009 and 2008.
Pilot Long-term Disability Benefits
The collective bargaining agreement with
Alaska’s pilots calls for the removal of long-term
disability benefits from the defined-benefit plan
for any pilot that was not already receiving long-
term disability payments prior to January 1,
2010. As a result of this plan change, the PBO
of $32.6 million associated with assumed future
disability payments was removed from the overall
defined-benefit pension plan liability, $29.6
million of which was recorded through AOCI .
Furthermore, the removal of the plan from the
defined-benefit pension plan reduced the
accumulated postretirement benefit obligation
for medical costs as the new plan no longer
considers long-term disability to be “retirement”
from the Company.
The new long-term disability plan removes the
service requirement that was in place under the
former defined-benefit plan. Therefore, the
liability is calculated based on estimated future
benefit payments associated with pilots that
were assumed to be disabled on a long-term
basis as of December 31, 2009 and does not
include any assumptions for future disability. The
liability includes the discounted expected future
benefit payments and medical costs. The total
liability at December 31, 2009 is $3.1 million,
which is recorded net of a prefunded trust
account of $0.5 million, and is included in long-
term other liabilities on the consolidated balance
sheets.
Employee Incentive-Pay Plans
Alaska and Horizon have three separate plans
that pay employees based on certain financial
and operational metrics. The aggregate expense
under these plans in 2009, 2008 and 2007 was
$76.0 million, $21.4 million, $20.8 million,
respectively. The plans are summarized below:
•Performance-Based Pay (PBP) is a program
that rewards all Alaska employees other
than clerical, office and passenger service
employees (COPS) and station employees in
Mexico, and Horizon employees other than
pilots, mechanics, and represented station
personnel in Canada. The program is based
on four separate metrics related to: (1) Air
Group profitability, (2) safety,
(3) achievement of unit-cost goals, and
(4) employee engagement.
• The Profit Sharing Plan is based on Air
Group profitability and includes the
employees that don’t participate in PBP.
• The Operational Performance Rewards
Program entitles all Air Group employees to
quarterly payouts of up to $300 per person
if certain operational and customer service
objectives are met.
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