Sunoco 2009 Annual Report Download - page 88

plans which provide health care benefits for substantially all of its current retirees (“postretirement benefit
plans”). The postretirement benefit plans are unfunded and the costs are shared by Sunoco and its retirees. The
levels of required retiree contributions to postretirement benefit plans are adjusted periodically, and the plans
contain other cost-sharing features, such as deductibles and coinsurance. In addition, there is a dollar cap on
Sunoco’s future contributions for its principal postretirement health care benefits plan. Effective June 30, 2010,
pension benefits under the Company’s defined benefit pension plans will be frozen for most of the participants in
these plans at which time the Company will institute a profit-sharing contribution on behalf of these employees
in its defined contribution plan. Postretirement medical benefits have also been phased down or eliminated for all
employees retiring after July 1, 2010. There are currently no planned changes in benefits for any employees who
retire prior to this date or for current retirees. As a result of these changes, the Company’s pension and
postretirement benefits liability declined approximately $95 million in the fourth quarter of 2009. The benefit of
this liability reduction will be amortized into income through 2019. The pretax cost of benefits earned (net of the
expected profit sharing contributions) and interest on the existing obligations are expected to decline
approximately $25 million on an annualized basis as a result of these changes.
Defined benefit plans and postretirement benefit plans expense (including amounts attributable to
discontinued Tulsa refining operations) consisted of the following components (in millions of dollars):
Defined Benefit Plans Postretirement Benefit Plans
2009 2008 2007 2009 2008 2007
Service cost (cost of benefits earned
during the year) ....................... $ 45 $ 47 $50 $ 8 $ 9 $ 9
Interest cost on benefit obligations ......... 75 81 83 24 25 25
Expected return on plan assets ............ (64) (106) (98) — — —
Amortization of:
Actuarial losses ....................... 56 13 32 2 1 3
Prior service cost (benefit) .............. 1 2 2 (4) (1) (1)
113 37 69 30 34 36
Settlement losses (Note 2) ................ 111 7 2 — — —
Special termination benefits and
curtailment losses (gains) (Note 2) ....... 28 — 3 (9) — —
$252 $ 44 $ 74 $21 $34 $36
For 2010, amortization of actuarial losses and prior service cost (benefit) is estimated at $43 and $—million,
respectively, for defined benefit plans and $6 and $(17) million, respectively, for postretirement benefit plans.
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
2009 2008 2007 2009 2008 2007
Discount rate ................................. 6.00% 6.25% 5.85% 5.95% 6.10% 5.80%
Long-term expected rate of return on plan assets .... 8.25% 8.25% 8.25%
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 historical 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 fixed income securities.
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