Amtrak 2013 Annual Report Download - page 34

Amtrak Annual Report 2013 | 35
obligation. In estimating that rate, we give appropriate consideration to the returns being earned by
the plan assets in the funds and the rates of return expected to be available for reinvestment.
Our expected long-term rate of return on plan assets considers the current and projected asset mix
of the funds. Management balances market expectations obtained from various investment
managers and economists with both market and actual plan historical returns to develop a
reasonable estimate of the expected long-term rate of return on assets. As this assumption is long-
term, it is adjusted less frequently than other assumptions used in pension accounting. We used a
long-term rate of return on plan assets of 7.5% to value both FY 2013 and FY 2012 pension
obligations.
Rate of Compensation Increase
Rate of compensation increase is based on current trends and historical data accumulated by us. In
assessing the rate of compensation increase to use when valuing our pension obligations, we review
recent wage increases and management incentive compensation payments. We used a compensation
increase rate of 4.2% to value our FY 2013 and FY 2012 pension obligations.
Health Care Cost Trend Rates
Health care cost trend rates are based on recent plan experience and industry trends. We use
guidance from employee benefits and actuarial consultants, Amtrak-specific claims trends, and
healthcare cost studies to substantiate the inflation assumption for health care costs. The FY 2013
assumed health care cost trend rate ranged from 7.75% to 8.75% and the FY 2012 assumed health
care cost trend rate ranged from 8.00% to 9.00%, based upon current actuarial projections.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for our other
post-retirement benefit obligations. A one percentage point change in assumed healthcare cost
trend rates in FY 2013 would have the following effects (in millions):
1% 1%
Increase Decrease
Effect on total service and interest cost component $ 24.9 $ (19.7)
Effect on postretirement benefit obligation $ 205.2 $ (153.1)
Other Assumptions
The calculations made by the actuaries also include assumptions relating to mortality rates, turnover
and retirement age. These assumptions are based upon historical data and are selected by
management.
Provision for Income Taxes
The accounting for income taxes requires recognition of deferred tax assets and liabilities for future
tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax liabilities and assets are determined based on the difference between
the financial statement and tax basis of assets and liabilities using enacted rates expected to be in
effect during the year in which the differences reverse. Deferred tax assets generally represent items
that can be used as a tax deduction or credit on our tax return in future years for which the tax
benefit has already been reflected on our Consolidated Statements of Operations. We establish