Occidental Petroleum 2003 Annual Report Download - page 75

for certain active, retired and disabled employees and their eligible
dependents. The benefits generally are funded by Occidental as the benefits are
paid during the year. The cost of providing these benefits is based on claims
filed and insurance premiums paid for the period. The total benefit costs
including the postretirement costs were approximately $94 million in 2003, $91
million in 2002 and $82 million in 2001.
Pension costs for Occidental's defined benefit pension plans, determined by
independent actuarial valuations, are generally funded by payments to trust
funds, which are administered by independent trustees. A December 31 measurement
date is used for all defined pension and postretirement benefit plans.
In 2002, a 401(h) account was established within one of Occidental's
defined benefit pension plans. This plan allows Occidental to fund
postretirement medical benefits for employees at one of its operations.
Contributions to this 401(h) account are made at Occidental's discretion. All of
Occidental's other postretirement benefit plans are unfunded.
The following table sets forth the components of the net periodic benefit
costs for Occidental's defined benefit pension and postretirement benefit plans
for 2003, 2002, and 2001:
Pension Benefits Postretirement Benefits
------------------------ --------------------------------------------
Unfunded Plans Funded Plans
------------------------ ---------------
For the years ended December 31, (in millions) 2003 2002 2001 2003 2002 2001 2003 2002
==================================================== ====== ====== ====== ====== ====== ====== ====== ======
NET PERIODIC BENEFIT COSTS:
Service cost -- benefits earned during the period $ 13 $ 10 $ 9 $ 6 $ 6 $ 5 $ 1 $ --
Interest cost on benefit obligation 23 26 25 33 33 31 1 1
Expected return on plan assets (20) (20) (24) -- -- -- -- --
Amortization of net transition obligation -- -- -- -- -- -- -- --
Amortization of prior service cost 1 1 1 1 -- -- -- --
Recognized actuarial loss 3 1 4 8 6 -- -- --
Curtailments and settlements -- 1 -- -- -- -- -- --
Currency adjustments 2 (8) (1) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net periodic benefit cost $ 22 $ 11 $ 14 $ 48 $ 45 $ 36 $ 2 $ 1
==================================================== ====== ====== ====== ====== ====== ====== ====== ======
Occidental recorded a credit to accumulated other comprehensive income of
$13 million in 2003, a charge of $5 million in 2002 and a credit of $6 million
in 2001, to reflect the net-of-tax difference between the additional liability
required under pension accounting provisions and the corresponding intangible
asset. The change in accumulated other comprehensive income in 2003 reflected an
actual return on plan assets that was greater than the expected return on plan
assets and an additional pension contribution of $18 million in 2003, partially
offset by a decrease in the discount rate.
Occidental's defined benefit pension and postretirement defined benefit
plans are accrued based on various assumptions and discount rates, as described
below. Occidental uses the fair value of assets to determine pension expense.
Occidental funds and expenses negotiated pension increases for domestic union
employees over the term of the collective bargaining agreement.
The actuarial assumptions used could change in the near term as a result of
changes in expected future trends and other factors that, depending on the
nature of the changes, could cause increases or decreases in the plan
liabilities accrued.
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The following table sets forth the reconciliation of the beginning and
ending balances of the benefit obligation for Occidental's defined benefit
pension and postretirement benefit plans:
Pension Benefits Postretirement Benefits
---------------- -------------------------------------
Unfunded Plans Funded Plans
---------------- ----------------
For the years ended December 31, (in millions) 2003 2002 2003 2002 2003 2002
============================================================ ====== ====== ====== ====== ====== ======
CHANGES IN BENEFIT OBLIGATION: