Chevron 2005 Annual Report Download - page 78

76 CHEVRON CORPORATION 2005 ANNUAL REPORT
NOTE 21. EMPLOYEE BENEFIT PLANS – Continued
Notes to the Consolidated Financial Statements
Millions of dollars, except per-share amounts
The accumulated benefi t obligations for all U.S. and
international pension plans were $7,931 and $3,080, respec-
tively, at December 31, 2005, and $6,117 and $2,734,
respectively, at December 31, 2004.
The components of net periodic benefi t cost for 2005, 2004 and 2003 were:
Pension Benefi ts
2005 2004 2003 Other Benefi ts
U.S. Int’l. U.S. Int’l. U.S. Int’l. 2005 2004 2003
Service cost $ 208 $ 84 $ 170 $ 70 $ 144 $ 54 $ 30 $ 26 $ 28
Interest cost 395 199 326 180 334 151 164 164 191
Expected return on plan assets (449) (208) (358) (169) (224) (132) – – –
Amortization of transitional assets – 2 – 1 – (3) – – –
Amortization of prior-service costs 45 16 42 16 45 14 (91) (47) (3)
Recognized actuarial losses 177 51 114 69 133 42 93 54 12
Settlement losses 86 – 96 4 132 1 – – –
Curtailment losses – – – 2 – 6 – – –
Special termination benefi ts
recognition – – – 1 – – – – –
Net periodic benefi t cost $ 462 $ 144 $ 390 $ 174 $ 564 $ 133 $ 196 $ 197 $ 228
Assumptions The following weighted-average assumptions were used to determine benefi t obligations and net period benefi t costs
for years ended December 31:
Pension Benefi ts
2005 2004 2003 Other Benefi ts
U.S. Int’l. U.S. Int’l. U.S. Int’l. 2005 2004 2003
Assumptions used to determine
benefi t obligations
Discount rate
5.5% 5.9% 5.8% 6.4% 6.0% 6.8% 5.6% 5.8% 6.1%
Rate of compensation increase 4.0% 5.1% 4.0% 4.9% 4.0% 4.9% 4.0% 4.1% 4.1%
Assumptions used to determine
net periodic benefi t cost
Discount rate1,2 5.5% 6.4% 5.9% 6.8% 6.3% 7.1% 5.8% 6.1% 6.8%
Expected return on plan assets1,2 7.8% 7.9% 7.8% 8.3% 7.8% 8.3% N/A N/A N/A
Rate of compensation increase2 4.0% 5.0% 4.0% 4.9% 4.0% 5.1% 4.0% 4.1% 4.1%
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.
2 The 2005 discount rate, expected return on plan assets and rate of compensation increase refl ect the remeasurement of the Unocal benefi t plans at July 31, 2005, due to the acquisition of Unocal.
Information for U.S. and international pension plans
with an accumulated benefi t obligation in excess of plan
assets at December 31, 2005 and 2004, was:
At December 31
2005 2004
Projected benefi t obligations $ 2,950 $ 1,449
Accumulated benefi t obligations 2,625 1,360
Fair value of plan assets 1,359 282
Expected Return on Plan Assets The company employs a rig-
orous process to determine estimates of the 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, advice from external actu-
arial fi rms and the incorporation of specifi c asset-class risk
factors. Asset allocations are periodically updated using pen-
sion plan asset/liability studies, and the determination of the
company’s estimates of long-term rates of return are consis-
tent 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 72 percent of the company’s pension plan assets.
At December 31, 2005, the estimated long-term rate of
return on U.S. pension plan assets was 7.8 percent.
The market-related value of assets of the major U.S. pen-
sion plan used in the determination of pension expense was
based on the market values in the three months preceding
the year-end measurement date, as opposed to the maximum
allowable period of fi ve 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 still be contemporaneous to the end of the
year. For other plans, market value of assets as of the measure-
ment date is used in calculating the pension expense.
Discount Rate The discount rate assumptions used to deter-
mine U.S. and international pension and postretirement
benefi t plan obligations and expense refl ect the prevailing
rates available on high-quality fi xed-income debt instru-
ments. At December 31, 2005, the company selected a