Proctor and Gamble 2010 Annual Report Download - page 68

66 The Procter & Gamble Company Notes to Consolidated Financial Statements
Amounts in millions of dollars except per share amounts or as otherwise specified.
The accumulated benefit obligation for all defined benefit retirement
pension plans was $9,708 and $8,637 as of June30, 2010 and 2009,
respectively. Pension plans with accumulated benefit obligations in
excess of plan assets and plans with projected benefit obligations in
excess of plan assets consist of the following:
Accumulated Benefit
Obligation Exceeds the
Fair Value of Plan Assets
Projected Benefit
Obligation Exceeds the
Fair Value of Plan Assets
June 30 2010 2009 2010 2009
Projected benefit obligation $10,577 $6,509 $11,059 $9,033
Accumulated benefit obligation 9,194 5,808 9,531 7,703
Fair value of plan assets 5,900 3,135 6,320 5,194
Net Periodic Benefit Cost. Components of the net periodic benefit
cost were as follows:
Pension Benefits Other Retiree Benefits
Years ended June 30 2010 2009 2008 2010 2009 2008
Service cost $ 218 $ 214 $ 263 $ 103 $ 91 $ 95
Interest cost 579 551 539 253 243 226
Expected return on plan
assets (437) (473) (557) (429) (444) (429)
Prior service cost
(credit) amortization 15 14 14 (21) (23) (21)
Net actuarial loss
amortization 91 29 9 20 2 7
Curtailments,
settlements and
other 3 6 (36) 14 — (1)
GROSS BENEFIT COST
(CREDIT) 469 341 232 (60) (131) (123)
Dividends on ESOP
preferred stock —— — (83) (86) (95)
NET PERIODIC BENEFIT
COST (CREDIT) 469 341 232 (143) (217) (218)
Amounts expected to be amortized from accumulated OCI into net
periodic benefit cost during the year ending June30, 2011, are as
follows:
Pension
Benefits
Other
Retiree
Benefits
Net actuarial loss $146 $ 95
Prior service cost (credit) 17 (21)
Assumptions. We determine our actuarial assumptions on an annual
basis. These assumptions are weighted to reflect each country that
may have an impact on the cost of providing retirement benefits.
The weighted average assumptions for the defined benefit and other
retiree benefit calculations, as well as assumed health care trend
rates, were as follows:
Pension Benefits Other Retiree Benefits
Years ended June 30 2010 2009 2010 2009
ASSUMPTIONS USED TO
DETERMINE BENEFIT
OBLIGATIONS (1)
Discount rate 5.0% 6.0% 5.4% 6.4%
Rate of compensation increase 3.5% 3.7% ——
ASSUMPTIONS USED TO
DETERMINE NET PERIODIC
BENEFIT COST (2)
Discount rate 6.0% 6.3% 6.4% 6.9%
Expected return on plan assets 7.1% 7.4% 9.1% 9.3%
Rate of compensation increase 3.7% 3.7% ——
ASSUMED HEALTH CARE COST
TREND RATES
Health care cost trend rates
assumed for next year ——8.5% 8.5%
Rate to which the health care
cost trend rate is assumed to
decline (ultimate trend rate) ——5.0% 5.0%
Year that the rate reaches the
ultimate trend rate ——2017 2016
(1) Determined as of end of year.
(2) Determined as of beginning of year and adjusted for acquisitions.
Several factors are considered in developing the estimate for the
long-term expected rate of return on plan assets. For the defined
benefit retirement plans, these factors include historical rates of
return of broad equity and bond indices and projected long-term
rates of return obtained from pension investment consultants. The
expected long-term rates of return for plan assets are 8 – 9% for
equities and 5 – 6% for bonds. For other retiree benefit plans, the
expected long-term rate of return reflects the fact that the assets are
comprised primarily of Company stock. The expected rate of return
on Company stock is based on the long-term projected return of
9.5% and reflects the historical pattern of favorable returns.
Assumed health care cost trend rates could have a significant effect
on the amounts reported for the other retiree benefit plans. A one-
percentage point change in assumed health care cost trend rates
would have the following effects:
One-Percentage
Point Increase
One-Percentage
Point Decrease
Effect on total of service and interest
cost components $ 63 $ (50)
Effect on postretirement benefit obligation 718 (577)