Frontier Communications 2004 Annual Report Download - page 86

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-42
The Plan’s expected benefit payments by year are as follows:
The Company’s expected contribution to the plan in 2005 is $14,477,000.
For purposes of measuring year-end benefit obligations, we used, depending on medical plan coverage for different
retiree groups, a 7 - 10% annual rate of increase in the per-capita cost of covered medical benefits, gradually decreasing
to 5% in the year 2010 and remaining at that level thereafter. The effect of a 1% increase in the assumed medical cost
trend rates for each future year on the aggregate of the service and interest cost components of the total postretirement
benefit cost would be $1,397,000 and the effect on the accumulated postretirement benefit obligation for health benefits
would be $21,428,000. The effect of a 1% decrease in the assumed medical cost trend rates for each future year on the
aggregate of the service and interest cost components of the total postretirement benefit cost would be $(1,145,000) and
the effect on the accumulated postretirement benefit obligation for health benefits would be $(17,711,000).
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became
law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit. The amount
of the federal subsidy will be based on 28 percent of an individual beneficiary’s annual eligible prescription drug costs
ranging between $250 and $5,000. Currently, the Company has not yet been able to conclude whether the benefits
provided by its postretirement medical plan are actuarially equivalent to Medicare Part D under the Act. Therefore, the
Company cannot quantify the effects, if any, that the Act will have on its future benefit costs or accumulated
postretirement benefit obligation and accordingly, the effects of the Act have not been reflected in the accompanying
consolidated financial statements.
In August 1999, our Board of Directors approved a plan of divestiture for the public services properties. Any
pension and/or postretirement gain or loss associated with the divestiture of these properties will be recognized when
realized. During 2002, we sold our entire water distribution and wastewater treatment business and one of our three
electric businesses. The pension plan has been frozen from the date of sale and we have retained those liabilities.
During 2003, we sold our remaining gas businesses in Hawaii and Arizona as well as our electric business in
Arizona. The pension plan covering union employees for the Hawaiian gas property was transferred in its entirety to
the buyer. The pension plan liabilities covering the remaining employees transferred have been retained by us. In all
transactions, the buyer assumed the retiree medical liabilities for those properties.
401(k) Savings Plans
We sponsor an employee retirement savings plan under section 401(k) of the Internal Revenue Code. The Plan covers
substantially all full-time employees. Under the Plan, we provide matching and certain profit-sharing contributions.
Effective May 1, 2002, the Plan was amended to provide for employer contributions to be made in cash rather than
Company stock, impacting all non-union employees and most union employees. Employer contributions were
$8,403,000, $9,724,000 and $10,331,000 for 2004, 2003 and 2002, respectively.
(26) Commitments and Contingencies:
The City of Bangor, Maine, filed suit against us on November 22, 2002, in the U.S. District Court for the District of
Maine (City of Bangor v. Citizens Communications Company, Civ. Action No. 02-183-B-S). We intend to defend
ourselves vigorously against the City's lawsuit. The City has alleged, among other things, that we are responsible for
($ in thousands)
Year Amount
2005 14,477$
2006 15,172
2007 15,846
2008 16,401
2009 16,921
2010 - 2014 89,998
Total 168,815$