Avon 2008 Annual Report Download - page 76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the plan’s current and likely future financial status by forecasting
assets, liabilities, benefits and company contributions over time.
In so doing, the impact of alternative investment policies upon
the plan’s financial status is measured and an asset mix which
balances asset returns and risk is selected.
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
ongoing 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
tolerance of investment risk.
Cash flows
We expect to make contributions in the range of $60 to $100 to
our U.S. pension plans and in the range of $20 to $30 to our
international pension plans during 2009.
Total benefit payments expected to be paid from the plans are as
follows:
Pension Benefits
Postretirement
Benefits
U.S.
Plans
Non-U.S.
Plans Total
Gross
Payments
Federal
Subsidy
2009 $ 83.8 $ 35.7 $119.5 $12.3 $1.6
2010 77.8 35.7 113.5 12.7 1.7
2011 66.9 36.3 103.2 13.1 1.8
2012 65.6 36.7 102.3 13.4 1.8
2013 64.3 37.8 102.1 13.6 1.8
2014 –2018 272.3 202.9 475.2 70.6 9.8
Postretirement Benefits
For 2008, the assumed rate of future increases in the per capita
cost of health care benefits (the health care cost trend rate) was
8.0% for all claims and will gradually decrease each year
thereafter to 5.0% in 2015 and beyond. A one-percentage point
change in the assumed health care cost trend rates would have
the following effects:
(In millions)
1 Percentage
Point Increase
1 Percentage
Point Decrease
Effect on total of service and
interest cost components 1.4 (1.3)
Effect on postretirement
benefit obligation 14.1 (13.5)
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, 2008 and 2007, the accrued cost for post-
employment benefits was $74.9 and $57.9, respectively, and
was included in employee benefit plans liability.
Supplemental Retirement Programs
We offer the Avon Products, Inc. Deferred Compensation Plan
(the “DCP”) for certain key employees. The DCP is an unfunded,
unsecured 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 DCP allows for the deferral of up to 50% of a participant’s
base salary, the deferral of up to 100% of incentive compensa-
tion bonuses, and the deferral of contributions that would have
been made 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 DCP for the
years ended December 31, 2008, 2007 and 2006, was $4.6,
$6.8 and $6.1, respectively. At December 31, 2008, the accrued
cost for the DCP was $94.1 (2007 – $98.0) and was included in
other liabilities.
We maintain supplemental retirement programs consisting of
the Supplemental Executive Retirement Plan of Avon Products,
Inc. (“SERP”) and the Benefit Restoration Pension Plan of Avon
Products, Inc. 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 these programs has been included in the determination
of the net periodic benefit cost shown above and in 2008
amounted to $7.9 (2007 – $9.5; 2006 – $12.5). The benefit
obligation under these programs at December 31, 2008, was
$73.1 (2007 – $73.7) and was included in employee benefit
plans.
We also maintain a Supplemental Life Plan (“SLIP”) under which
additional death benefits ranging from $.4 to $2.0 are provided
to certain active and retired officers.