Avon 2005 Annual Report Download - page 41

2005฀ANNUAL฀REPORT฀฀61
Our decision with regard to asset mix is reviewed periodically.
Asset mix guidelines include target allocations and permissible
ranges for each asset category. Assets are monitored on an ongo-
ing basis and rebalanced as required to maintain an asset mix
within the permissible ranges. The guidelines will change from
time to time, based on an ongoing evaluation of the plan’s toler-
ance of investment risk.
Cash Flows
We expect to contribute up to approximately $89.0 and $42.0 to
our U.S. and non-U.S. pension plans, respectively, in 2006.
Total benefit payments expected to be paid from the plans are
as follows:
Pension Benefits Post-
U.S. Non-U.S. retirement
Plans Plans Total Benefits
2006 $ 62.6 $ 34.8 $ 97.4 $ 10.5
2007 65.6 33.4 99.0 10.5
2008 69.0 33.5 102.5 10.6
2009 72.3 35.1 107.4 11.0
2010 71.5 36.6 108.1 11.2
2011 – 2015 344.6 193.5 538.1 59.9
Postretirement Benefits
For 2005, the assumed rate of future increases in the per capita
cost of health care benefits (the health care cost trend rate)
was 9.0% for all claims and will gradually decrease each year
thereafter to 4.0% in 2010 and beyond. A one-percentage point
change in the assumed health care cost trend rates would have
the following effects:
1 Percentage 1 Percentage
(In millions) Point Increase Point Decrease
Effect on total
of service and
interest cost
components $ 1.3 $ (.9)
Effect on postretirement
benefit obligation 12.9 (11.6)
Postemployment Benefits
We provide postemployment benefits, which include salary
continuation, severance benefits, disability benefits, continuation
of health care benefits and life insurance coverage to eligible
former employees after employment but before retirement. At
December 31, 2005 and 2004, the accrued cost for postem-
ployment benefits was $51.6 and $45.0, respectively, and was
included in Employee Benefit Plans.
Supplemental Retirement Programs
We offer the Avon Products, Inc. Deferred Compensation Plan (the
“Plan”) for certain key employees. The Plan is an unfunded, unse-
cured plan for which obligations are paid to participants out of our
general assets, including assets held in a grantor trust, described
below, and corporate-owned life insurance policies. The Plan
allows for the deferral of up to 50% of a participant’s base salary,
the deferral of up to 100% of incentive compensation bonuses,
and the deferral of contributions to the Avon Personal Savings
Account Plan (the “PSA”) but that are in excess of U.S. Internal
Revenue Code limits on contributions to the PSA. Participants
may elect to have their deferred compensation invested in one or
more of three investment alternatives. Expense associated with
the Plan for the years ended December 31, 2005, 2004 and 2003,
was $5.8, $4.2 and $5.5, respectively. At December 31, 2005, the
accrued cost for the deferred compensation plan was $99.3 (2004
– $93.0) and was included in other liabilities.
We maintain supplemental retirement programs consisting of a
Supplemental Executive Retirement and Life Plan (“SERP”) and
the Benefits Restoration Pension Plan of Avon Products, Inc.
(“Restoration Plan”) under which non-qualified supplemental
pension benefits are paid to higher paid employees in addition to
amounts received under our qualified retirement plan, which is
subject to IRS limitations on covered compensation. The annual
cost of this program has been included in the determination of the
net periodic benefit cost shown above and in 2005 amounted to
$12.1 (2004 – $12.2; 2003 – $10.8). The benefit obligation under
this program at December 31, 2005, was $58.8 (2004 – $52.1)
and was included in employee benefit plans.
We also maintain a Supplemental Life Insurance Plan (“SLIP”)
under which additional death benefits ranging from $.4 to $2.0
are provided to certain active and retired officers.
We expect to contribute
up to approximately $89.0
and $42.0 to our U.S. and
non-U.S. pension plans,
respectively, in 2006.