Union Pacific 2009 Annual Report Download - page 71

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71
The ABO for all defined benefit pension plans was $2.4 billion and $2.2 billion at December 31, 2009
and 2008, respectively.
Assumptions – The weighted-average actuarial assumptions used to determine benefit obligations at
December 31:
Pension OPEB
Percentages 2009 2008 2009 2008
Discount rate 5.90% 6.25
%
5.55% 6.25
%
Salary increase 3.45% 3.50
%
N/A
N
/
A
Health care cost trend rate for next year (employees under 65) N/A
N
/
A
7.50% 6.60
%
Health care cost trend rate for next year (employees over 65) N/A
N
/
A
9.10% 9.40
%
Ultimate health care cost trend rate N/A
N
/
A
4.50% 4.50
%
Year ultimate trend rate reached N/A
N
/
A
2028 2028
Expense
Both pension and OPEB expense are determined based upon the annual service cost of benefits (the
actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected
return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value
of plan assets that recognizes changes in fair value over a five-year period. This practice is intended to
reduce year-to-year volatility in pension expense, but it can have the effect of delaying the recognition of
differences between actual returns on assets and expected returns based on long-term rate of return
assumptions. Differences in actual experience in relation to assumptions are not recognized in net income
immediately, but are deferred and, if necessary, amortized as pension or OPEB expense.
The components of our net periodic pension and OPEB cost/(benefit) were as follows for the years ended
December 31:
Pension OPEB
Millions of Dollars 2009 2008 2007 2009 2008 2007
Net Periodic Benefit Cost:
Service cost $ 38 $ 34 $ 34
$
2 $ 3 $ 3
Interest cost 140 137 124 18 24 20
Expected return on plan assets (159) (152) (144) - - -
Amortization of:
Prior service cost/(credit) 5 6 6 (44) (35) (33)
Actuarial loss 30 10 18 12 13 8
Net periodic benefit cost/(benefit) $ 54 $ 35 $ 38
$
(12) $ 5 $ (2)