Avon 2014 Annual Report Download - page 107

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Defined Benefit Pension and Postretirement Plans
Avon and certain subsidiaries have contributory and noncontributory defined benefit retirement plans for substantially all employees of those
subsidiaries. Benefits under these plans are generally based on an employee’s length of service and average compensation near retirement,
and certain plans have vesting requirements. Plans are funded based on legal requirements and cash flow. The U.S. defined benefit pension
plan, the Avon Products, Inc. Personal Retirement Account Plan (the “PRA”), has been closed to employees hired on or after January 1,
2015. Qualified retirement benefits for U.S. employees hired on or after January 1, 2015 will be provided solely through the PSA, as
described above.
We provide health care benefits, subject to certain limitations, to many retired employees in the U.S. and certain foreign countries. In the
U.S., the cost of such health care benefits is shared by us and our retirees for employees hired on or before January 1, 2005. Employees
hired after January 1, 2005, will pay the full cost of the health care benefits upon retirement. In August 2009, we announced changes to our
postretirement medical and life insurance benefits offered to U.S. retirees. The changes to the retiree medical benefits reduced the plan’s
obligations by $36.3. This amount is being amortized as a negative prior service cost over the average future service of active participants
which is approximately 12 years. The changes to the retiree life insurance benefits reduced the plan’s obligations by $27.7. This amount was
amortized as a negative prior service cost over 3.3 years, which was the remaining term of the plan.
We are required, among other things, to recognize the funded status of defined benefit pension and other postretirement benefit plans on
the balance sheet. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. The recognition of
prior service costs or credits and net actuarial gains or losses, as well as subsequent changes in the funded status, are recognized as
components of AOCI, net of tax, in shareholders’ equity, until they are amortized as a component of net periodic benefit cost. We recognize
prior service costs or credits and actuarial gains and losses beyond a 10% corridor to earnings based on the estimated future service period
of the participants. The determination of the 10% corridor utilizes a calculated value of plan assets for our more significant plans, whereby
gains and losses are smoothed over three- and five-year periods.
A V O N 2014 F-33