Morgan Stanley 2010 Annual Report Download - page 81

In addition, legislative and regulatory initiatives continue outside the U.S. which may also affect the Company’s
business and operations. For example, the Basel Committee on Banking Supervision (the “Basel Committee”)
has issued new capital, leverage and liquidity standards, known as “Basel III,” which U.S. banking regulators are
expected to introduce in the U.S. The Financial Stability Board and the Basel Committee are also developing
standards designed to apply to systemically important financial institutions, such as the Company. In addition,
initiatives are under way in the European Union and Japan, among other jurisdictions, that would require
centralized clearing, reporting and recordkeeping with respect to various kinds of financial transactions and other
regulatory requirements that are in some cases similar to those required under the Dodd-Frank Act.
It is likely that the year 2011 and subsequent years will see further material changes in the way major financial
institutions are regulated in both the U.S. and other markets in which the Company operates, though it is difficult
to predict which further reform initiatives will become law, how such reforms will be implemented or the exact
impact they will have on the Company’s business, financial condition, results of operations and cash flows for a
particular future period. See also “Supervision and Regulation” in Part I, Item 1.
Defined Benefit Pension and Other Postretirement Plans.
Expense. The Company recognizes the compensation cost of an employee’s pension benefits (including prior-
service cost) over the employee’s estimated service period. This process involves making certain estimates and
assumptions, including the discount rate and the expected long-term rate of return on plan assets. For fiscal 2008,
as required under the alternative transition method set forth in current accounting guidance, the Company
changed the measurement date to coincide with the Company’s fiscal year-end date.
On June 1, 2010, the defined benefit pension plan that is qualified under Section 401(a) of the Internal Revenue
Code (the “U.S. Qualified Plan”) was amended to cease future benefit accruals effective after December 31,
2010. Any benefits earned by participants under the U.S. Qualified Plan at December 31, 2010 will be preserved
and will be payable based on the U.S. Qualified Plan’s provisions. Net periodic pension expense for U.S. and
non-U.S. plans was $96 million, $175 million, $132 million and $9 million for 2010, 2009, fiscal 2008 and the
one month ended December 31, 2008, respectively.
On October 29, 2010, the Morgan Stanley Medical Plan was amended to change eligibility requirements for a
firm-provided subsidy toward the cost of retiree medical coverage after December 31, 2010. Net periodic
postretirement expense for the Morgan Stanley Medical Plan was $12 million, $26 million, $17 million and $2
million for 2010, 2009, fiscal 2008 and the one month ended December 31, 2008, respectively.
Contributions. The Company made contributions of $72 million, $321 million, $325 million and $2 million to
its U.S. and non-U.S. defined benefit pension plans in 2010, 2009, fiscal 2008 and the one month ended
December 31, 2008, respectively. These contributions were funded with cash from operations.
The Company determines the amount of its pension contributions to its funded plans by considering several
factors, including the level of plan assets relative to plan liabilities, the types of assets in which the plans are
invested, expected plan liquidity needs and expected future contribution requirements. The Company’s policy is
to fund at least the amounts sufficient to meet minimum funding requirements under applicable employee benefit
and tax laws (for example, in the U.S., the minimum required contribution under the Employee Retirement
Income Security Act of 1974, or “ERISA”). At December 31, 2010 and December 31, 2009, there were no
minimum required ERISA contributions for the U.S. Qualified Plan. Due to cessation of accruals for benefits
effective after December 31, 2010, no contribution was made to the U.S. Qualified Plan for 2010. A $278 million
contribution was funded to the U.S. Qualified Plan for 2009 based on the service cost earned by the eligible
employees plus a portion of the unfunded accumulated benefit obligation on a funding basis. Liabilities for
benefits payable under certain postretirement and unfunded supplementary plans are accrued by the Company
and are funded when paid to the beneficiaries.
See Notes 2 and 21 to the consolidated financial statements for more information on the Company’s defined
benefit pension and postretirement plans.
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