Frontier Communications 2007 Annual Report Download - page 93

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Assumptions used in the computation of annual OPEB costs and valuation of the year-end OPEB
obligations were as follows:
2007 2006 2005
Discount rate—used at year end to value obligation ....... 6.50% 6.00% 5.625%
Discount rate—used to compute annual cost ............. 6.00% 5.625% 6.00%
Expected long-term rate of return on plan assets .......... 6.00% 8.25% 8.25%
The plans’ weighted average asset allocations at December 31, 2007 and 2006 by asset category are as
follows:
2007 2006
Asset category:
Equity securities ............................. 0% 0%
Debt securities ............................... 100% 100%
Cash and other ............................... 0% 0%
Total .................................. 100% 100%
The plans’ expected benefit payments over the next 10 years are as follows:
($ in thousands)
Year Gross Benefits Medicare D Subsidy Total
2008 ......................... $ 12,123 $ 447 $ 11,676
2009 ......................... 12,697 526 12,171
2010 ......................... 13,212 607 12,605
2011 ......................... 13,857 699 13,158
2012 ......................... 14,128 842 13,286
2013 - 2017 ................... 74,918 6,244 68,674
Total ........................ $ 140,935 $ 9,365 $ 131,570
Our expected contribution to the plans in 2008 is $11.7 million.
For purposes of measuring year-end benefit obligations, we used, depending on medical plan coverage for
different retiree groups, a 9.50% annual rate of increase in the per-capita cost of covered medical benefits,
gradually decreasing to 5% in the year 2017 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 $0.6 million and the effect on the accumulated
postretirement benefit obligation for health benefits would be $8.9 million. 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 $(0.5) million and the effect on the accumulated
postretirement benefit obligation for health benefits would be $(7.8) million.
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. It includes a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the
Medicare Part D benefit. The amount of the federal subsidy is based on 28% of an individual beneficiary’s
annual eligible prescription drug costs ranging between $250 and $5,000. We have determined that the
Company-sponsored postretirement healthcare plans that provide prescription drug benefits are actuarially
equivalent to the Medicare Prescription Drug benefit. The impact of the federal subsidy has been incorporated
into the calculation.
F-43