Exelon 2002 Annual Report Download - page 105

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Prior service cost is amortized on a straight-line basis over the
average remaining service period of employees expected to
receive benefits under the plans.
Exelon’s costs of providing pension and postretirement
benefit plans are dependent upon a number of factors,such as
the rates of return on pension plan assets, discount rate, and
the rate of increase in health care costs. The market value of
plan assets has been affected by sharp declines in the equity
market since the third quarter of 2000.As a result,at December
31, 2002, Exelon was required to recognize an additional mini-
mum liability and an intangible asset as prescribed by SFAS
No. 87 “Employers’ Accounting for Pensions.” The liability was
recorded as a reduction to shareholders’ equity, and the equity
will be restored to the balance sheet in future periods when the
fair value of plan assets exceeds the accumulated benefit obli-
gations. The amount of the reduction to shareholders’ equity
(net of income taxes) in 2002 was $1.0 billion. The recording of
this reduction did not affect net income or cash flow in 2002 or
compliance with debt covenants.
Special accounting costs of $4 million in 2002 and $48 mil-
lion in 2001 represent accelerated separation and enhancement
benefits provided to PECO employees expected to be termi-
nated as a resultof the Merger.Special accounting costs in 2000
of $217 million represented PECO’s accelerated separation and
Notes To Consolidated Financial Statements
exelon corporation and subsidiary companies
103
Pension Benefits Other Postretirement Benefits
2002 2001 2000 2002 2001 2000
Weighted-average assumptions
as of December 31,
Discount rate 6.75% 7.35% 7.60% 6.75% 7.35% 7.60%
Expected return on plan assets 9.50% 9.50% 9.50% 8.80% 8.80% 8.80%
Rate of compensation increase 4.00% 4.00% 4.30% 4.00% 4.00% 4.30%
Health care cost trend on
covered charges N/A N/A N/A 8.5% 10.00% 7.00%
decreasing decreasing decreasing
to ultimate to ultimate to ultimate
trend of 4.5% trend of 4.5% trend of 5.0%
in 2008 in 2008 in 2005
Pension Benefits Other Postretirement Benefits
2002 2001 2000 2002 2001 2000
Components of net periodic
benefit cost (benefit):
Service cost $95$94$39$57$42$24
Interest cost 525 498 219 160 161 83
Expected return on assets (628) (625) (316) (93) (99) (34)
Amortization of:
Transition obligation (asset) (4) (4) (4) 10 10 12
Prior service cost 16 97(37) (9) –
Actuarial (gain) loss –(25) (26) 61–
Curtailment charge (credit) –(12) (12) –924
Settlement charge (credit) –(9) (16) –––
Net periodic benefit cost (benefit) $4$ (74) $ (109) $ 103 $ 115 $ 109
Special accounting costs $4$ 48 $ 217 $–$3$48
Sensitivity of retiree welfare results
Effect of a one percentage point increase in assumed health care cost trend
on total service and interest cost components $33
on postretirement benefit obligation $ 302
Effect of a one percentage point decrease in assumed health care cost trend
on total service and interest cost components $ (27)
on postretirement benefit obligation $ (252)