Berkshire Hathaway 2006 Annual Report Download - page 47

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Notes to Consolidated Financial Statements (Continued)
(18) Pension plans (Continued)
The components of net periodic pension expense for each of the three years ending December 31, 2006 are as follows (in
millions).
2006 2005 2004
Service cost ................................................................................................................... $ 199 $ 113 $ 109
Interest cost ................................................................................................................... 390 190 189
Expected return on plan assets....................................................................................... (393) (186) (171)
Curtailment gain............................................................................................................ — — (70)
Net amortization, deferral and other.............................................................................. 67 9 13
Net pension expense ...................................................................................................... $ 263 $ 126 $ 70
In 2004, a Berkshire subsidiary amended its defined benefit plan to freeze benefits. Such an event is considered a curtailment
and the curtailment gain included in the table above represents the elimination of projected plan benefits and the recognition of
unamortized prior service costs and actuarial losses as of the amendment date.
The accumulated benefit obligation is the actuarial present value of benefits earned based on service and compensation prior to
the valuation date. The projected benefit obligation is the actuarial present value of benefits earned based upon service and
compensation prior to the valuation date and includes assumptions regarding future compensation levels when benefits are based on
those amounts. Information regarding accumulated and projected benefit obligations is shown in the table that follows (in millions).
2006 2005
Projected benefit obligation, beginning of year..................................................................................... $3,602 $3,293
Service cost ........................................................................................................................................... 199 113
Interest cost ........................................................................................................................................... 390 190
Benefits paid.......................................................................................................................................... (370) (171)
Consolidation of MidAmerican............................................................................................................. 2,237 —
Business acquisitions............................................................................................................................. 1,519 —
Actuarial loss and other......................................................................................................................... 349 177
Projected benefit obligation, end of year............................................................................................... $7,926 $3,602
Accumulated benefit obligation, end of year......................................................................................... $7,056 $3,228
Benefit obligations under qualified U.S. defined benefit plans are funded through assets held in trusts and are not included as
assets in Berkshire’ s Consolidated Financial Statements. Pension obligations under certain non-U.S. plans and non-qualified U.S.
plans are unfunded. As of December 31, 2006, projected benefit obligations of non-qualified U.S. plans and non-U.S. plans which
are not funded through assets held in trusts were $569 million. A reconciliation of the changes in plan assets and a summary of plan
assets held as of December 31, 2006 and 2005 is presented in the table that follows (in millions).
2006 2005 2006 2005
Plan assets at fair value, beginning of year........... $3,101 $3,039 Cash and equivalents................. $ 818 $ 942
Employer contributions ........................................ 228 104 U.S. Government obligations.... 554 1,103
Benefits paid......................................................... (370) (171) Mortgage-backed securities ...... 602 259
Actual return on plan assets.................................. 612 119 Corporate obligations................ 963 382
Consolidation of MidAmerican............................ 2,238 — Equity securities........................ 3,440 391
Business acquisitions............................................ 967 — Other ......................................... 415 24
Other and expenses............................................... 16 10 $6,792 $3,101
Plan assets at fair value, end of year..................... $6,792 $3,101
Pension plan assets are generally invested with the long-term objective of earning sufficient amounts to cover expected benefit
obligations, while assuming a prudent level of risk. There are no target investment allocation percentages with respect to individual or
categories of investments. Allocations may change rapidly as a result of changing market conditions and investment opportunities.
The expected rates of return on plan assets reflect Berkshire’ s subjective assessment of expected invested asset returns over a period
of several years. Berkshire does not give significant consideration to past investment returns when establishing assumptions for
expected long-term rates of returns on plan assets. Actual experience will differ from the assumed rates, in particular over quarterly
or annual periods, as a result of market volatility and changes in the mix of assets.
The total net deficit status for plans (including unfunded plans) with accumulated benefit obligations in excess of plan assets
was $836 million and $589 million as of December 31, 2006 and 2005, respectively. Expected contributions to defined benefit
pension plans during 2007 are estimated to be $248 million.