Frontier Communications 2011 Annual Report Download - page 98

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-35
Assumptions used in the computation of annual OPEB costs and valuation of the year-end OPEB obligations were as
follows:
2011 2010 2009
Discount rate - used at year end to value obligation 4.50% - 4.75% 5.25% 5.75%
Discount rate - used to compute annual cost 5.25% 5.75% 6.50%
Expected long-term rate of return on plan assets 6.00% - 3.00% 6.00% 6.00%
The OPEB plan’s expected benefit payments over the next 10 years are as follows:
($ in thousands)
Gross Medicare Part D
Year Benefits Subsidy Total
2012 13,211$ 372$ 12,839$
2013 14,575 446 14,129
2014 15,955 537 15,418
2015 17,630 635 16,995
2016 19,412 737 18,675
2017 - 2021 122,665 6,051 116,614
Total 203,448$ 8,778$ 194,670$
For purposes of measuring year-end benefit obligations, we used, depending on medical plan coverage for different
retiree groups, an 8.0% 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 $1.0 million and the effect on the accumulated postretirement benefit obligation for health
benefits would be $17.6 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
$(0.9) million and the effect on the accumulated postretirement benefit obligation for health benefits would be $(15.8)
million.
In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) became
law. The Act introduced 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.