Sunoco 2004 Annual Report Download - page 62

The investment strategy of the Company’s funded defined benefit plans is to achieve consistent positive returns, after
adjusting for inflation, and to maximize long-term total return within prudent levels of risk through a combination of
income and capital appreciation. Risk to capital is minimized through the diversification of investments across and
within various asset categories.
Management currently anticipates making $50 million of voluntary contributions to the Company’s funded defined
benefit plans in 2005. In March 2002, a temporary interest-rate-relief bill was enacted by Congress that mitigated the
impact of a decline in interest rates used in pension funding calculations. In April 2004, Congress enacted additional
legislation that continues the use of more favorable interest rates for determining funding requirements through
2005. The new bill replaces the interest rate on 30-year Treasury bonds with a rate based on corporate bonds.
The expected benefit payments through 2014 for the defined benefit and postretirement benefit plans are as follows:
Defined Benefit Plans
(Millions of Dollars)
Funded
Plans
Unfunded
Plans
Postretirement
Benefit Plans*
Year ending December 31:
2005 $104 $12 $48
2006 $108 $12 $51
2007 $114 $15 $54
2008 $118 $18 $56
2009 $121 $17 $57
2010 through 2014 $653 $62 $308
* Before premiums paid by participants.
The measurement date for the Company’s defined benefit and postretirement benefit plans is December 31. The follow-
ing weighted-average assumptions were used at December 31, 2004 and 2003 to determine benefit obligations for the
plans:
Defined
Benefit Plans
Postretirement
Benefit Plans
(In Percentages) 2004 2003 2004 2003
Discount rate 5.75% 6.00% 5.50% 6.00%
Rate of compensation increase 4.00% 4.00%
The health care cost trend assumption used at December
31, 2004 to compute the APBO for the postretirement
benefit plans was an increase of 10.3 percent (11.4 per-
cent at December 31, 2003), which is assumed to decline
gradually to 5.5 percent in 2008 and to remain at that
level thereafter. A one-percentage point change each
year in assumed health care cost trend rates would have
the following effects at December 31, 2004:
(Millions of Dollars)
1-Percentage
Point Increase
1-Percentage
Point Decrease
Effect on total of service and
interest cost components of
postretirement benefits expense $1 $(1)
Effect on APBO $10 $(12)
Defined Contribution Pension Plans
Sunoco has defined contribution pension plans which
provide retirement benefits for most of its employees.
Sunoco’s contributions, which are principally based on a
percentage of employees’ annual base compensation and
are charged against income as incurred, amounted to $21,
$20 and $19 million in 2004, 2003 and 2002,
respectively.
Sunoco’s principal defined contribution plan is SunCAP.
Sunoco matches 100 percent of employee contributions
to this plan up to 5 percent of an employee’s base
compensation. SunCAP is a combined profit sharing and
employee stock ownership plan which contains a provision
designed to permit SunCAP, only upon approval by the
Company’s Board of Directors (“Board”), to borrow in or-
der to purchase shares of Company common stock. As
of December 31, 2004, no such borrowings had been
approved.
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