Prudential 2002 Annual Report Download - page 134
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Please find page 134 of the 2002 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
17. EMPLOYEE BENEFIT PLANS (continued)
Pension plan assets consist primarily of equity securities, bonds, real estate and short-term investments, of
which $6,385 million and $6,867 million are included in Separate Account assets and liabilities at September 30,
2002 and 2001, respectively.
In 2002 and 2001, the pension plan purchased annuity contracts from Prudential Insurance for $68 million
and $232 million, respectively. The approximate future annual benefit payment for the annuity contracts was $20
million and $14 million in 2002 and 2001, respectively.
The benefit obligation for pensions increased by a total of $218 million in the year 2002 for amendments
related to the distribution of value to the pension plan upon demutualization for $200 million and $18 million
related to Prudential Securities cash balance feature, which increased the amount of earnings considered
pensionable. The benefit obligation for pensions decreased by $6 million in the year 2001 for miscellaneous
changes related to the cash balance formula. The introduction of the cash balance formula was a feature of the
substantive plan as of the measurement date and is effective January 1, 2001 for new employees and January 1,
2002 for existing employees.
Other postretirement benefit plan assets consist of group and individual life insurance policies, common
stocks, corporate debt securities, U.S. government securities, short-term investments and tax-exempt municipal
debt. Plan assets include $347 million and $395 million of Company insurance policies at September 30, 2002
and 2001, respectively.
The benefit obligation for other postretirement benefits decreased by $141 million in the year 2002 for
changes in the substantive plan made to medical and dental benefits. The significant cost reduction relates to
changes in the prescription drug program of $128 million for co-payments and $13 million for cost sharing shifts
to certain retirees for medical and dental benefits. Also in 2002, the Company approved the establishment of a
new category of retiree called disabled retirees. Based on this new category, $95 million of medical and dental
benefits were transferred from postemployment benefits to postretirement benefits. The benefit obligation for
other postretirement benefits was not affected by amendments in 2001.
The pension benefits were amended during the time period presented to provide contractual termination
benefits to certain plan participants whose employment had been terminated. Costs related to these amendments
are reflected in contractual termination benefits in the table below.
Net periodic (benefit) cost included in “General and administrative expenses” in the Company’s
Consolidated Statements of Operations for the years ended December 31, includes the following components:
Pension Benefits
Other
Postretirement Benefits
2002 2001 2000 2002 2001 2000
(in millions)
Components of net periodic (benefit) cost
Servicecost ....................................................... $175 $167 $140 $ 15 $ 18 $ 29
Interest cost ....................................................... 463 431 427 152 150 150
Expected return on plan assets ......................................... (913) (880) (799) (115) (134) (133)
Amortization of transition amount ...................................... (106) (106) (106) 17 17 36
Amortization of prior service cost ...................................... 30 12 47 — — —
Amortization of actuarial net (gain) ..................................... (45) (85) (77) (10) (16) (24)
Contractual termination benefits ....................................... 1 4 6 — — —
Net periodic (benefit) cost ............................................ $(395) $(457) $(362) $ 59 $ 35 $ 58
Prudential Financial 2002 Annual Report 133