Alcoa 2003 Annual Report Download - page 61

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losses.The 2004 andsubsequent net periodic postretirement benefit
costs will be adjusted to reflect the lower interest cost due to the
lower APBO .Totheextent that the deferred gains and losses are
outside the corridor, the excess will be recognized as prescribed
under SFAS 106. For other retiree groups, the impact ofthepotential
subsidybenefit has not been calculated because those amounts
could not be reasonably estimated.
Alcoa has not reflected any changesinparticipation in the
company plan as a result of the Act. The reduction in
APBO repre-
sents the value ofthe28%subsidy and doesnotreflect any other
changes. The subsidy is estimated toreducethe prescription drug
portion of the per capita cost by 24%.
Currently, Alcoa pays a portion of the prescription drug cost
forcertain retirees.The benefits for certain retirees were determined
to be actuarially equivalent based on an analysis of Alcoa’s existing
prescription drug plan provisions and claims experience as compared
to theMedicare Part D prescription drug benefit that will be effec-
tive in 2006.
More specific authoritative guidance on the accounting of the
federal subsidy is pending and,whenissued,could require the
company to change previously reported information.
Theaccumulated benefit obligations for all defined benefit
pension plans was $9,771 and $8,888 at December 31, 2003 and
2002, respectively.
Theaggregate benefit obligation and fair value of plan assets for
thepension plans with benefit obligations in excess of plan assets
were $10,047 and $8,093, respectively, as ofDecember 31, 2003, and
$9,121 and $7,310, respectively, as of December 31, 2002. The aggre-
gate pensionaccumulated benefit obligation and fair value of plan
assets with accumulated benefit obligations in excess of plan assets
were $9,554 and $8,087, respectively, as ofDecember 31, 2003, and
$8,712 and $7,300, respectively, as of December 31, 2002.
On December 8, 2003, the Medicare Prescription Drug, Improve-
ment and Modernization Act of 2003 (the Act) was signed into law.
TheAct introducesaprescription drugbenefit under Medicare
(Medicare Part D), as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at least actuar-
ially equivalent to Medicare Part D. As of December 31, 2003, Alcoa
will recognize the effects of the Act in the measure of its Accumu-
latedPostretirementBenefit Obligation
(APBO) for certain retiree
groups in accordance with FASB Staff Position No. FAS 106-1.
Recognition of the subsidy for certain retiree groups as an offset
to plan costsresultsina$190reduction in the APBO .Thereduction
in APBO will be included with other deferred actuarial gains and
Obligations and Funded Status
December 31
Pensionbenefits
2003 2002
Postretirement benefits
2003 2002
Change in benefit obligation
Benefit obligation at beginning of year $ 9,360 $ 8,488 $ 3,661 $ 3,177
Servicecost 194 176 31 25
Interest cost 609 593 237 224
Amendments 20 20 (31) (52)
Actuarial losses 540 659 120 608
Acquisitions 17 7—18
Divestitures —(1) ——
Participants’ contributions 31 18 ——
Benefits paid (687) (656) (357) (339)
Exchange rate 184 56 ——
Benefit obligation at end of year $10,268 $ 9,360 $ 3,661 $ 3,661
Change in plan assets
Fair value of plan assets at beginning of year $ 7,531 $ 8,434 $ 119 $ 123
Actual return on plan assets 1,254 (376) 18 (4)
Acquisitions 20 1——
Employer contributions 87 59 ——
Participants’ contributions 31 18 ——
Benefits paid (667) (634) ——
Administrative expenses (17) (21) ——
Exchange rate 147 50 ——
Fair value of plan assets at end of year $ 8,386 $ 7,531 $ 137 $ 119
Funded status $ (1,882) $(1,829) $(3,524) $(3,542)
Unrecognized net actuarial loss 1,775 1,803 916 843
Unrecognized net prior service cost (benefit) 160 126 (1) (7)
Netamount recognized $53 $ 100 $(2,609) $(2,706)
Amounts recognized in the Consolidated Balance Sheet consist of:
Prepaid benefit $89 $ 133 $— $—
Accrued benefit liability (1,580) (1,547) (2,609)* (2,706)*
Intangible asset 84 102 ——
Accumulated other comprehensive loss 1,460 1,412 ——
Netamount recognized $53 $ 100 $(2,609) $(2,706)
*Includes current portion of $389 and $387 at December 31, 2003 and 2002, respectively.