Chevron 2004 Annual Report Download - page 74

72 CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT
The฀components฀of฀net฀periodic฀benefit฀cost฀for฀2004,฀2003฀and฀2002฀were:
Pension Benefits
 2003 2002 Other Benefits
U.S. Int’l. U.S. Int’l. U.S. Int’l.  2003 2002
Service cost     $ 144 $ 54 $ 112 $ 47   $ 28 $ 25
Interest cost     334 151 334 143  191 178
Expected return on plan assets    (224) (132) (288) (138)  – –
Amortization of transitional assets     – (3) – (3)  – –
Amortization of prior-service costs     45 14 32 12   (3) (3)
Recognized actuarial losses (gains)     133 42 32 27   12 (1)
Settlement losses     132 1 146 1  – –
Curtailment losses     – 6 – – – – –
Special termination benefits
recognition     – – – –  – –
Net periodic benefit cost     $ 564 $ 133 $ 368 $ 89  $ 228 $ 199
Assumptions฀ The฀following฀weighted฀average฀assumptions฀were฀used฀to฀determine฀benefit฀obligations฀and฀net฀period฀benefit฀costs฀for฀years฀
ended฀December฀31:
Pension Benefits
 2003 2002 Other Benefits
U.S. Int’l. U.S. Int’l. U.S. Int’l.  2003 2002
Assumptions used to determine
benefit obligations
Discount rate    6.0% 6.8% 6.8% 7.1%  6.1% 6.8%
Rate of compensation increase    4.0% 4.9% 4.0% 5.5%  4.1% 4.1%
Assumptions used to determine
net periodic benefit cost
Discount rate*    6.3% 7.1% 7.4% 7.7%  6.8% 7.3%
Expected return on plan assets*    7.8% 8.3% 8.3% 8.9%  N/A N/A
Rate of compensation increase    4.0% 5.1% 4.0% 5.4%  4.1% 4.1%
* Discount rate and expected rate of return on plan assets were reviewed and updated as needed on a quarterly basis for the main U.S. pension plan.
Expected฀Return฀on฀Plan฀Assets฀ The฀company฀employs฀a฀rigorous฀
process฀to฀determine฀the฀estimates฀of฀long-term฀rate฀of฀return฀
on฀pension฀assets.฀These฀estimates฀are฀primarily฀driven฀by฀actual฀
historical฀asset-class฀returns,฀an฀assessment฀of฀expected฀future฀
performance฀and฀advice฀from฀external฀actuarial฀firms฀while฀
incorporating฀specific฀asset-class฀risk฀factors.฀Asset฀allocations฀are฀
regularly฀updated฀using฀pension฀plan฀asset/liability฀studies,฀and฀
the฀determination฀of฀the฀company’s฀estimates฀of฀long-term฀rates฀
of฀return฀are฀consistent฀with฀these฀studies.
There฀have฀been฀no฀changes฀in฀the฀expected฀long-term฀rate฀
of฀return฀on฀plan฀assets฀since฀2002฀for฀U.S.฀plans,฀which฀account฀
for฀about฀70฀percent฀of฀the฀company’s฀pension฀plan฀assets.฀At฀
December฀31,฀2004,฀the฀estimated฀long-term฀rate฀of฀return฀on฀
U.S.฀pension฀plan฀assets฀was฀7.8฀percent.
The฀year-end฀market-related฀value฀of฀U.S.฀pension฀plan฀
assets฀used฀in฀the฀determination฀of฀pension฀expense฀was฀based฀on฀
the฀market฀values฀in฀the฀preceding฀three฀months,฀as฀opposed฀to฀
the฀maximum฀allowable฀period฀of฀five฀years฀under฀U.S.฀accounting฀
rules.฀Management฀considers฀the฀three-month฀time฀period฀long฀
enough฀to฀minimize฀the฀effects฀of฀distortions฀from฀day-to-day฀
market฀volatility฀and฀yet฀still฀be฀contemporaneous฀to฀the฀end฀of฀
the฀year.฀For฀plans฀outside฀the฀U.S.,฀market฀value฀of฀assets฀as฀of฀
the฀measurement฀date฀is฀used฀in฀calculating฀the฀pension฀expense.
Notes to the Consolidated Financial Statements
Millions฀of฀dollars,฀except฀per-share฀amounts
 EMPLOYEE BENEFIT PLANS – Continued
Other฀Benefit฀Assumptions฀ Effective฀January฀1,฀2005,฀the฀com-
pany฀amended฀its฀main฀U.S.฀postretirement฀medical฀plan฀to฀limit฀
future฀increases฀in฀the฀company฀contribution.฀For฀current฀retirees,฀
the฀increase฀in฀company฀contribution฀is฀capped฀at฀4฀percent฀each฀
year.฀For฀future฀retirees,฀the฀4฀percent฀cap฀will฀be฀effective฀at฀
retirement.฀Before฀retirement,฀the฀assumed฀health฀care฀cost฀trend฀
rates฀start฀with฀10.6฀percent฀in฀2004฀and฀gradually฀drop฀to฀4.8฀
percent฀for฀2010฀and฀beyond.฀Once฀the฀employee฀elects฀to฀retire,฀
the฀trend฀rates฀are฀capped฀at฀4฀percent.฀
For฀the฀measurement฀of฀accumulated฀postretirement฀benefit฀
obligation฀at฀December฀31,฀2003,฀the฀assumed฀heath฀care฀cost฀
trend฀rates฀start฀with฀8.4฀percent฀in฀2003฀and฀gradually฀decline฀
to฀4.5฀percent฀for฀2007฀and฀beyond.
Assumed฀health฀care฀cost-trend฀rates฀have฀a฀significant฀effect฀
on฀the฀amounts฀reported฀for฀retiree฀health฀care฀costs.฀A฀change฀of฀
one฀percentage฀point฀in฀the฀assumed฀health฀care฀cost-trend฀rates฀
would฀have฀the฀following฀effects: