Alcoa 1997 Annual Report Download - page 49

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R. Pen s ion Pla n s
Alcoa m a in ta in s p e n sion p lan s cove r in g m ost U.S. em p loye es a nd
cer t a in ot h er em p loye es. Pe n sion be n efit s ge n era lly de pe n d u p on
len gth of ser vice, job grade an d r em u n erat ion . Subst ant ially
a ll b e n efit s a r e p a id t h r ou gh p en s ion t r u st s t h at a r e su ffic ie n t ly
fu n de d to en su r e t h at a ll p lan s ca n p ay be nefit s to r et ire es a s t h ey
becom e du e.
Pen s ion cos t s in clu de t h e follow in g com p on e nt s t h at we re ca lcu -
la t ed a s of Ja n u a r y 1 of ea ch ye a r.
19 9 7 19 9 6 19 9 5
Ben e fit s e ar n e d $ 95 .4 $101.7 $ 78.9
Int er est accr u e d on p roje cte d
b e n efit o bligat io n 304.6 291.0 285.9
Net am or tizat ion 38.8 37.8 28.5
438.8 430.5 393.3
Le ss: ex pe cte d r et u r n on plan a ss et s * 3 46 .2 324.1 305.0
$ 92.6 $106.4 $ 88.3
*Th e act ua l ret u r n s we re h igher t han t he exp ect ed ret u rn s b y $681.9 in 1997,
$155.5 in 1996 an d $254.1 in 1995, an d were defe r red as act u ar ial ga ins.
Th e st at u s of t he pe ns ion pla n s follow s.
Decem b er 31
Asset s excee d
a c cu m u la t e d
b e n efit o bligat io n
19 9 7 19 9 6
Accu m u lat ed
b e n efit o bligat io n
exceed s a sset s
19 9 7 19 9 6
Plan a sset s, p r im ar ily
stocks an d bon d s
a t m a rke t $5,07 4 .5 $4,327.6 $ 26.3 $ 7.6
Pres ent valu e of obligat ion :
Ve s t e d 3,963.4 3,779.2 1 6 9.2 134.5
Nonvested 26 8.1 292.9 9 .8 7.5
Accu m u la te d b en e fit
obligat ion 4,231.5 4,072.1 1 7 9.0 142.0
Effe ct o f a s s u m e d s a la r y
in crea ses 257.4 283.5 32.4 37.3
Project ed ben efit
obligat ion $ 4,488.9 $4,355.6 $ 211 .4 $ 179.3
Plan a sset s gr eater
(le ss) t h a n p roje cted
b e n efit o bligat io n $ 585.6 $ (28.0) $ (185.1) $(171.7)
Un r ecogn iz ed:
Tran sit ion (a sset s)
obligat ion s (2.4 ) (.8) 6.9 9.2
Pr ior s er v ice cost s 114 .6 145.0 11 .7 16.2
Act u a r ia l (ga in s)
los se s, n e t (82 2 .6 ) (272.0) 3 6.7 32 .9
Min im u m liabilit y
a d ju s t m e n t — — (29.7) (24.9)
Accr u e d p e n sion cos t $ (12 4.8) $ (155.8) $(1 59 .5 ) $(138.3 )
Assu m pt ion s u sed to dete r m ine plan liabilit ies an d exp en se s follow.
Decem b er 31 1 9 9 7 19 9 6 19 9 5
Set t le m ent d is cou nt r ate 6.75% 7.0% 7.0%
Lon g-t er m r at e for com p e n sat ion in cr ea ses 5.0 5.0 5.0
Lon g-t er m r at e of ret u r n on p lan a sset s 9 .0 9.0 9.0
Alcoa a lso sp on sors a nu m ber of defin ed con tr ibu t ion p en sion plan s.
Expen ses were $47.2 in 1997, $44.4 in 1996 an d $36.1 in 1995.
S. Po st re t ire m e n t Be n e fit s
Alcoa m a in ta in s hea lth ca re an d life in su ra nce b en efit plan s cover ing
m ost eligible U.S. ret ired em ployees a nd cer ta in ot h er r et ire es.
Gen e ra lly, t h e m e dica l pla n s p ay a st at ed p erce nt age of m e d ica l
exp en s es, r edu ce d b y de du ct ible s a n d ot h e r covera ges. T h es e p lan s
a r e ge n e r a lly u n fu n d e d , e xc ep t fo r c e r t a in b e n e fit s fu n d e d t h r ou gh
a t r u st . Life be nefit s a re gen era lly p rovide d by in su ra n ce con t ract s.
Alcoa r et ain s t h e r igh t , su bject t o e xist in g agr eem e nt s, to ch an ge or
elim inate t h es e b en efit s.
Th e com p on e n ts of p ost r et ire m e n t be nefit ex pe n se follow.
19 9 7 19 9 6 19 9 5
Ser vice cost of ben efit s ea r n ed $ 17.8 $ 19.3 $ 16.3
Inte rest cost on liab ilit y 104 .7 104.4 114.6
Net am or tizat ion (37.6) (44.1) (49.5)
Exp e ct e d r et u r n on p la n a s s et s (6.8) (5.8) (4.8)
Post ret irem e n t benefit costs $ 78.1 $ 73.8 $ 76.6
Th e st at u s of t h e p os t ret ire m e nt be nefit pla n s wa s:
Decem b er 31 19 9 7 19 9 6
Ret irees $1 ,135 .7 $1,022.6
Fu lly eligible act ive plan p ar t icip an ts 200.9 172.6
Oth er act ive p ar t icip an ts 338.5 364.6
Accu m u lat ed post ret irem e nt ben efit obligat ion (APBO) 1,675.1 1,559.8
Plan a sset s, p r im ar ily stocks an d bon ds at m arket 88 .3 75.1
APBO in exces s of plan a sset s 1,586.8 1,484.7
Un r ecogn iz ed n et :
Re du c t io n in p r ior s er v ice co st s 185.5 227.4
Act u a r ia l ga in s 82.3 174.1
Accr u e d p ost r et ire m e n t be ne fit liab ilit y $ 1,8 54 .6 $1,886.2
Fo r m ea su r in g t h e liab ilit y a n d e xp e n se, a 7.5% a n n u a l rat e of
in cr ea se in t h e p er cap it a cla im s co st wa s a s su m e d fo r 1998, de clin in g
gr ad u ally t o 5.0% b y t h e yea r 2004 a n d t h e re aft e r. Ot h e r a ssu m p t ion s
u s ed to m e a su r e t h e liab ilit y a n d exp en s e follow.
Decem b er 31 1 9 9 7 19 9 6 19 9 5
Set t le m ent d is cou nt r ate 6.75% 7.0% 7.0%
Lon g-t er m r at e for com p e n sat ion in cr ea ses 5.0 5.0 5.0
Lon g-t er m r at e of ret u r n on p lan a sset s 9 .0 9.0 9.0
Fo r 1997, a 1% in cr ea s e in t h e t r en d r at e for h ea lt h ca r e co st s w ou ld
h ave in cr ea se d bot h t h e
APBO a n d s e r v ice a n d in t er est cost s b y 8%.