US Bank 2002 Annual Report Download - page 28

value and amortization of actuarial gains and losses. quarter of 2002 based on current information with respect to
Accounting guidance provided within SFAS 87 has the effect asset values, a reduction in the LTROR, discount rates,
of reducing earnings volatility related to short-term changes census data and other relevant factors. The impact of
in interest rates and market valuations. Actuarial gains and changes to assumptions for the pension plans did not have a
losses include the impact of plan amendments and various material impact on the future financial results of the
unrecognized gains and losses which are deferred and Company. The funding policy is generally to maintain a
amortized over the future service periods of active employees. funded status sufficient to meet participant benefit
The market-related value utilized to determine the expected obligations. The Company contributed $150.0 million in
return on plan assets is based on fair value adjusted for the 2002 to the qualified pension plan in accordance with this
difference between expected returns and actual performance policy. Future funding requirements are dependent on the
of plan assets. The unrealized difference between actual performance of the pension plan but are not expected to
experience and expected returns is included in the market- have a material impact on the liquidity of the Company. The
related value ratably over a five-year period. Any table below provides a summary of changes in pension plan
unrecognized gains or losses related to changes in the amount assumptions as of September 30.
of the projected benefit obligation or plan assets resulting As a result of this interim period re-measurement and
from experience different from the assumed discount rate or other factors, the Company’s total pension cost for 2002
expected returns and from changes in assumptions are increased by approximately $1.0 million, reducing the
deferred. To the extent an unrecognized gain or loss, Company’s pension and profit sharing credit from
excluding the unrecognized asset gain or loss, exceeds $64.8 million in 2001 to $63.8 million in 2002. Pension
10 percent of the greater of the projected benefit obligation costs increased by $32.5 million related to a reduction in
or the market-related value of plan assets (‘‘10 percent the expected rate of return on the Company’s pension plan
corridor’’), the excess is recognized over the future service assets, utilizing a lower discount rate to determine the
periods of active employees. At September 30, 2002, the projected benefit obligation given the declining rate
accumulated unrecognized loss subject to minimum environment and the impact of changes in employee
amortization requirements under SFAS 87 for 2003 demographics. Offsetting this increase were a one-time
approximated $177 million and was less than the 10 percent curtailment gain of $9.0 million related to freezing certain
corridor. The total unrecognized asset loss approximated benefits of a nonqualified pension plan, a reduction in
$675 million and will ratably decrease the actuarially derived service costs of $11.9 million related to changes in the
market-related value of plan assets through 2007. The impact pension plans at the time of the plan mergers and a
to pension expense of the net unrecognized losses will $10.5 million reduction in pension costs associated with
increase pension costs in each year from 2004 to 2007, by establishing a profit sharing plan for employees of Piper and
approximately $36.6 million, $41.9 million, $52.3 million discontinuing their participation in the defined benefit plan.
and $18.0 million, respectively, during that timeframe. This Contributions to the profit sharing plan in 2002 were
assumes that the performance of plan assets meets the minimal given the lower financial performance of the
assumed LTROR. Actual results may vary depending on the Capital Markets business line.
performance of plan assets and changes to assumptions For purposes of determining the periodic pension cost
required in the future. for 2002, the LTROR declined from 12.2 percent for the
In accordance with its existing practices, the independent Firstar pension plan and 11.0 percent for the USBM plan (a
pension consultant utilized by the Company updated the blended rate of approximately 11.6 percent) in 2001 to
analysis of expected rates of return and evaluated peer group approximately 10.9 percent for 2002. This reflected utilizing
data, market conditions and other factors relevant to a LTROR of 11.9 percent for the first six months of 2002
determining the LTROR assumptions for determining pension and 9.9 percent for the remainder of the year. The discount
costs for 2003. In light of recent market performance and the rate declined from 8.0 percent for the Firstar pension plan
results of the independent analysis, the Company made a and 7.8 percent for the USBM pension plan (blended rate of
decision to re-measure its pension plans effective in the third approximately 7.9 percent) to 7.2 percent for 2002. This
As Reported
Combined or Weighted Plan Assumptions (a) USBM Firstar
2003 2002 2001 2001 2000 2001 2000
Expected long-term return on plan assets *********** 9.9% 10.9% 11.6% 11.0% 9.5% 12.2% 12.2%
Discount rate in determining benefit obligations ****** 6.8 7.2 7.9 7.5 7.8 7.5 8.0
Rate of increase in future compensation ************ 3.5 3.5 4.8 3.5 5.6 3.5 4.0
(a) The weighted rates for 2002 represent a blended rate utilizing the original 2002 assumption for the first six months of 2002 and the rates for 2003 for the second six months of
2002. The rates for 2003 represent the most recent information available at the re-measurement date.
26 U.S. Bancorp