Freeport-McMoRan 2008 Annual Report Download - page 89

Notes to Consolidated Financial Statements
2008 Annual Report FREEPORT-McMoRan COPPER & GOLD INC. 87
retirees of FMC. During 2008, the VEBA trusts were amended to
allow FCX to pay benefits for both active employees and retirees
from the trusts. As a result, in accordance with SFAS No. 106,
“Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” the VEBA trusts no longer qualify as plan assets for
purposes of FCX’s postretirement medical and life insurance
benefit obligations.
The discount rate for FCX’s postretirement medical and life
insurance benefit plans was determined on the same basis as
FCX’s pension plans.
Information as of December 31, 2008 and 2007, on the
postretirement benefit plans follows:
2008 2007
Change in benefit obligation:
Benefit obligation at beginning of year $ 256 $ 4
Acquisition of Phelps Dodge – 255
Service cost 1 1
Interest cost 14 11
Actuarial (gains) losses (8) 8
Curtailments
a
23 –
Benefits paid, net of employee contributions and
Medicare Part D subsidy (29) (23)
Benefit obligation at end of year 257 256
Change in plan assets:
Fair value of plan assets at beginning of year 150 –
Acquisition of Phelps Dodge – 173
Actual return on plans assets 3 5
Employer contributions
b
2 2
Benefits paid (40) (30)
Transfer of plan assets
c
(115) –
Fair value of plan assets at end of year – 150
Funded status $ (257) $ (106)
Discount rate assumption 6.30% 6.00%
Balance sheet classification of funded status:
Accounts payable and accrued liabilities $ (32) $ (2)
Other liabilities (225) (104)
Total $ (257) $ (106)
a. Resulted from revised mine operating plans and reductions in the workforce (see
Note 2 for further discussion).
b. Employer contributions for 2009 are expected to approximate $32 million.
c. During 2008, the VEBA trusts were amended to allow benefit payments for both
active employees and retirees; therefore, the VEBA trusts no longer qualify as
plan assets.
Expected benefit payments for these plans total $32 million for
2009, $30 million for 2010, $29 million for 2011, $27 million for
2012, $25 million for 2013, and $100 million for 2014 through 2018.
The weighted-average assumptions used to determine net
periodic benefit cost and the components of net periodic benefit
cost for FCX’s postretirement benefits for the years ended
December 31, 2008 and 2007, follow:
2008 2007
Weighted-average assumptions
a
:
Discount rate – medical retiree 6.00% 5.62%
Discount rate – life retiree 6.00% 5.66%
Expected return on plan assets – medical retiree 3.30% 3.70%
Expected return on plan assets – life retiree 4.30% 4.50%
Service cost $ 1 $ 1
Interest cost 14 11
Expected return on plan assets (4) (5)
Curtailments
b
23 –
Net periodic benefit cost $ 34 $ 7
a. The assumptions shown only relate to the FMC plans.
b. Resulted from revised mine operating plans and reductions in the workforce (see
Note 2 for further discussion).
FCX’s postretirement net periodic benefit costs were less than
$1 million for 2006.
Included in accumulated other comprehensive income (loss)
are the following amounts that have not been recognized in net
periodic benefit cost: unrecognized prior service credits of less
than $1 million and unrecognized actuarial gains of $4 million
($2 million net of tax and minority interest share) at December 31,
2008; and unrecognized prior service credits of $1 million ($1
million net of tax and minority interest share) and unrecognized
actuarial losses of $8 million ($5 million net of tax and minority
interest share) at December 31, 2007. The amount expected
to be recognized in net periodic benefit cost for 2009 is less than
$1 million for prior service credits and actuarial losses.
The assumed medical-care trend rates at December 31, 2008
and 2007, follow:
2008 2007
Medical-care cost trend rate assumed for the
next year 9% 9%
Rate to which the cost trend rate is assumed
to decline (the ultimate trend rate) 5% 5%
Year that the rate reaches the ultimate trend rate 2013 2012
The effect of a one percent increase or decrease in the medical-
care cost trend rates assumed for postretirement medical
benefits would result in increases or decreases of approximately
$1 million in the aggregate service and interest cost components;
in the postretirement benefit obligation the effect of a one-
percent increase is approximately $8 million and the effect of a
one-percent decrease is approximately $7 million.
As a result of the Phelps Dodge acquisition, FCX has a number
of postemployment plans covering severance, long-term disability
income, continuation of health and life insurance coverage for
disabled employees or other welfare benefits. The accumulated
postemployment benefit consisted of a current portion of $6
million (included in accounts payable and accrued liabilities) and
a long-term portion of $41 million (included in other liabilities)
at December 31, 2008, and a current portion of $6 million and a
long-term portion of $43 million at December 31, 2007.