General Dynamics 2015 Annual Report Download - page 59

We maintain several tax-advantaged accounts, primarily Voluntary
Employees’ Beneficiary Association (VEBA) trusts, to fund the
obligations for some of our post-retirement benefit plans. For non-
funded plans, claims are paid as received. Contributions to our other
post-retirement plans were not material in 2015 and are not expected
to be material in 2016.
We expect the following benefits to be paid from our retirement
plans over the next 10 years:
Pension
Benefits
Other Post-
retirement
Benefits
2016 $ 566 $ 65
2017 589 64
2018 616 64
2019 643 64
2020 675 63
2021-2025 3,797 310
Government Contract Considerations
Our contractual arrangements with the U.S. government provide for the
recovery of contributions to our pension and other post-retirement
benefit plans covering employees working in our defense business
groups. For non-funded plans, our government contracts allow us to
recover claims paid. Following payment, these recoverable amounts
are allocated to contracts and billed to the customer in accordance
with the Cost Accounting Standards (CAS) and specific contractual
terms. For some of these plans, the cumulative pension and post-
retirement benefit cost exceeds the amount currently allocable to
contracts. To the extent recovery of the cost is considered probable
based on our backlog and probable follow-on contracts, we defer the
excess in contracts in process on the Consolidated Balance Sheets
until the cost is allocable to contracts. See Note G for discussion of our
deferred contract costs. For other plans, the amount allocated to
contracts and included in revenue has exceeded the plans’ cumulative
benefit cost. We have deferred recognition of these excess earnings to
provide a better matching of revenue and expenses. These deferrals
have been classified against the plan assets on the Consolidated
Balance Sheets.
Defined-benefit Retirement Plan Summary Financial Information
Estimating retirement plan assets, liabilities and costs requires the
extensive use of actuarial assumptions. These include the long-term
rate of return on plan assets, the interest rate used to discount
projected benefit payments, healthcare cost trend rates and future
salary increases. Given the long-term nature of the assumptions being
made, actual outcomes can and often do differ from these estimates.
Our annual benefit cost consists of three primary elements: the cost of
benefits earned by employees for services rendered during the year, an
interest charge on our plan liabilities and an assumed return on our plan
assets for the year. The annual cost also includes gains and losses
resulting from changes in actuarial assumptions, differences between
the actual and assumed long-term rate of return on assets and gains
and losses resulting from changes we make to plan benefit terms.
We recognize an asset or liability on the Consolidated Balance Sheets
equal to the funded status of each of our defined-benefit retirement
plans. The funded status is the difference between the fair value of the
plan’s assets and its benefit obligation. Changes in plan assets and
liabilities due to differences between actuarial assumptions and the
actual results of the plan are deferred in OCL rather than charged to
earnings. These differences are then amortized over future years as a
component of our annual benefit cost. We amortize actuarial differences
under qualified plans on a straight-line basis over the average remaining
service period of eligible employees. We recognize the difference
between the actual and expected return on plan assets for qualified
plans over five years. The deferral of these differences reduces the
volatility of our annual benefit cost that can result either from year-to-
year changes in the assumptions or from actual results that are not
necessarily representative of the long-term financial position of these
plans. We recognize differences under nonqualified plans immediately.
Our annual pension and other post-retirement benefit costs consisted
of the following:
Pension Benefits
Year Ended December 31 2015 2014 2013
Service cost $ 210 $ 186 $ 298
Interest cost 529 532 492
Expected return on plan assets (693) (655) (590)
Recognized net actuarial loss 417 320 409
Amortization of prior service credit (67) (67) (67)
Annual benefit cost $ 396 $ 316 $ 542
Other Post-retirement Benefits
Year Ended December 31 2015 2014 2013
Service cost $ 11 $ 12 $ 15
Interest cost 44 52 53
Expected return on plan assets (32) (31) (29)
Recognized net actuarial loss 6 9 26
Amortization of prior service (credit) cost (5) (2) 7
Annual benefit cost $ 24 $ 40 $ 72
General Dynamics Annual Report 2015 55