Cincinnati Bell 2006 Annual Report Download - page 189

The actuarial expense calculation for the Company’s postretirement health plan is based on numerous
assumptions, estimates, and judgments including health care cost trend rates and cost sharing with retirees. The
Company’s collectively bargained-for labor contracts have historically had limits on the Company-funded
portion of retiree medical costs (referred to as “caps”). However, prior to the May 2005 labor agreement, the
Company had waived the premiums in excess of the caps for bargained-for retirees who retired during the
contract period. Similar benefits have been provided to non-bargained retirees. Prior to December 31, 2004, the
Company’s actuarial calculation of retiree medical costs included the assumption that the caps were in place in
accordance with the terms of the collectively bargained-for agreement.
Effective December 31, 2004, based on its past practice of waiving the retiree medical cost caps, the
Company began accounting for its retiree medical benefit obligation as if there were no caps. The accounting
using this assumption remained in effect through May 2005.
In May 2005, the Company reached an agreement with the union for bargained-for employees as to the
terms of a new labor contract. Employees retiring under the new agreement are provided Company-sponsored
healthcare through the use of individual Health Reimbursement Accounts (“HRAs”), which provides for
Company contributions of a fixed amount per retiree that the retiree can use to purchase their healthcare from
among the various plans offered. The Company agreed to increase the HRA amount annually over the life of the
labor agreement. The retiree pays for healthcare premiums and other costs in excess of the HRA amount.
Contrary to past practice, no agreement was made to waive the implementation of this cost-sharing feature.
Based on this new agreement, effective June 1, 2005, the Company modified its assumptions for the actuarial
calculation of retiree medical costs, including assumptions regarding cost sharing by retirees. The assumption
change for cost sharing with retirees was the primary cause for the $14.4 million increase in postretirement and
other benefits expense in 2005 compared to 2004. Postretirement medical and other expense was $35.3 million,
$35.9 million, and $21.5 million for the years ended December 31, 2006, 2005 and 2004, respectively.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 expands Medicare to include
outpatient prescription drug benefits and introduces a federal non-taxable subsidy beginning in 2006, that
provides a benefit that is at least actuarially equivalent to Medicare Part D, to sponsors of retiree health care
benefit plans. The Company received a subsidy of $0.8 million in 2006.
Components of Net Periodic Cost
The following information relates to all Company noncontributory defined benefit pension plans,
postretirement health care, and life insurance benefit plans. Pension and postretirement benefit costs for these
plans were comprised of:
Pension Benefits
Postretirement and
Other Benefits
(dollars in millions) 2006 2005 2004 2006 2005 2004
Service cost ........................................ $ 8.8 $ 8.0 $ 8.1 $ 3.5 $ 4.3 $ 2.1
Interest cost on projected benefit obligation ............... 27.7 27.2 27.3 19.9 20.5 16.3
Expected return on plan assets ......................... (34.9) (38.2) (41.4) (4.8) (5.6) (6.3)
Special termination benefit ............................ — — 10.5———
Amortization of:
Transition (asset)/obligation ......................... — (1.1) (1.8) 4.2 4.2 4.2
Prior service cost .................................. 3.4 3.3 3.1 7.7 10.3 3.8
Net (gain) loss .................................... 3.9 2.2 (0.9) 4.8 2.2 1.4
Benefit costs ....................................... $ 8.9 $ 1.4 $ 4.9 $35.3 $35.9 $21.5
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