Sunoco 2006 Annual Report Download - page 58

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Defined benefit plans and postretirement benefit plans expense is determined using actuarial assumptions as of the
beginning of the year. The following weighted-average assumptions were used to determine defined benefit plans and
postretirement benefit plans expense:
Defined Benefit Plans Postretirement Benefit Plans
(In Percentages) 2006 2005 2004 2006 2005 2004
Discount rate 5.60% 5.75% 6.00% 5.50% 5.50% 6.00%
Long-term expected rate of return on plan assets 8.25% 8.50% 8.75%
Rate of compensation increase 4.00% 4.00% 4.00%
The long-term expected rate of return on plan assets was estimated based on a variety of factors including the histor-
ical investment return achieved over a long-term period, the targeted allocation of plan assets and expectations
concerning future returns in the marketplace for both equity and debt securities.
The following tables set forth the components of the changes in benefit obligations and fair value of plan assets dur-
ing 2006 and 2005 as well as the funded status and cumulative amounts not yet recognized in net income at
December 31, 2006 and 2005:
Defined Benefit Plans
Postretirement
Benefit Plans
2006 2005
(Millions of Dollars)
Funded
Plans
Unfunded
Plans
Funded
Plans
Unfunded
Plans 2006 2005
Benefit obligations at beginning of year* $1,391 $ 153 $1,349 $ 137 $ 417 $ 429
Service cost 47 6 45 4 99
Interest cost 76 9 76 8 22 22
Actuarial losses (gains) (90) (6) 75 17 9(13)
Plan amendments 2(2)——(1) —
Benefits paid (158) (13) (154) (13) (39) (40)
Premiums paid by participants ————11 10
Benefit obligations at end of year* $1,268 $ 147 $1,391 $ 153 $ 428 $ 417
Fair value of plan assets at beginning of year** $1,196 $1,158
Actual return on plan assets 149 92
Employer contributions 100 100
Benefits paid from plan assets (158) (154)
Fair value of plan assets at end of year** $1,287 $1,196
Overfunded (underfunded) accumulated obligation $ 95 $(145) $ (50) $(138)
Provision for future salary increases (76) (2) (145) (15)
Funded status at end of year 19 (147) (195) (153) $(428) $(417)
Cumulative amounts not yet recognized in net income:
Prior service costs (benefits) 15 (3) 14 (1) (19) (22)
Actuarial losses 253 56 424 69 73 68
$ 287 $ (94) $ 243 $ (85) $(374) $(371)
* Represents the projected benefit obligations for defined benefit plans and the accumulated postretirement benefit obligations (“APBO”) for postretirement benefit plans. The
accumulated benefit obligations for funded and unfunded defined benefit plans amounted to $1,192 and $145 million, respectively, at December 31, 2006, and $1,246 and $138
million, respectively, at December 31, 2005.
** There are no plan assets invested in Company stock.
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