Federal Express 2011 Annual Report Download - page 56

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and the projected benefit obligation (“PBO”) of the plan. At May 31,
2011, we recorded a decrease to equity of $350 million (net of tax)
attributable to our plans. At May 31, 2010, we recorded a decrease
to equity of $1 billion (net of tax) to reflect unrealized actuarial losses
during 2010.
A summary of our retirement plans costs over the past three years is
as follows (in millions):
PENSION PLANS. Our largest pension plan covers certain U.S.
employees age 21 and over, with at least one year of service. Pension
benefits for most employees are accrued under a cash balance formula
we call the Portable Pension Account. Under the Portable Pension
Account, the retirement benefit is expressed as a dollar amount in a
notional account that grows with annual credits based on pay, age and
years of credited service, and interest on the notional account balance.
The Portable Pension Account benefit is payable as a lump sum or an
annuity at retirement at the election of the employee. The plan inter-
est credit rate varies from year to year based on a U.S. Treasury index.
Prior to 2009, certain employees earned benefits using a traditional
pension formula (based on average earnings and years of service);
however, benefits under this formula were capped on May 31, 2008.
We also sponsor or participate in nonqualified benefit plans covering
certain of our U.S. employee groups and other pension plans covering
certain of our international employees. The international defined
benefit pension plans provide benefits primarily based on final earnings
and years of service and are funded in compliance with local laws and
practices.
POSTRETIREMENT HEALTHCARE PLANS. Certain of our subsidiaries
offer medical, dental and vision coverage to eligible U.S. retirees
and their eligible dependents. U.S. employees covered by the principal
plan become eligible for these benefits at age 55 and older, if
they have permanent, continuous service of at least 10 years after
attainment of age 45 if hired prior to January 1, 1988, or at least
20 years after attainment of age 35 if hired on or after January 1,
1988. Postretirement healthcare benefits are capped at 150% of the
1993 per capita projected employer cost, which has been reached and,
therefore, these benefits are not subject to additional future inflation.
PENSION PLAN ASSUMPTIONS. Our pension cost is materially
affected by the discount rate used to measure pension obligations,
the level of plan assets available to fund those obligations and the
expected long–term rate of return on plan assets.
We use a measurement date of May 31 for our pension and postretire-
ment healthcare plans. Management reviews the assumptions used
to measure pension costs on an annual basis. Economic and market
conditions at the measurement date impact these assumptions from
year to year and it is reasonably possible that material changes in
pension cost may be experienced in the future. Actuarial gains or
losses are generated for changes in assumptions and to the extent that
actual results differ from those assumed. These actuarial gains and
losses are amortized over the remaining average service lives of our
active employees if they exceed a corridor amount in the aggregate.
Additional information about our pension plans can be found in the
Critical Accounting Estimates section of Management’s Discussion and
Analysis of Results of Operations and Financial Condition (“MD&A”) in
this Annual Report.
2011 2010 2009
U.S. domestic and international
pension plans $ 543 $ 308 $ 177
U.S. domestic and international defined
contribution plans 257 136 237
Postretirement healthcare plans 60 42 57
$ 860 $ 486 $ 471
Weighted–average actuarial assumptions for our primary U.S. retirement plans, which represent substantially all of our PBO and accumulated
postretirement benefit obligation (“APBO”), are as follows:
Pension Plans Postretirement Healthcare Plans
2011 2010 2009 2011 2010 2009
Discount rate used to determine benefit obligation 5.76 % 6.37 % 7.68 % 5.67 % 6.11 % 7.27 %
Discount rate used to determine net periodic
benefit cost 6.37 7.68 7.15 6.11 7.27 7.13
Rate of increase in future compensation levels
used to determine benefit obligation 4.58 4.63 4.42 – – –
Rate of increase in future compensation levels
used to determine net periodic benefit cost 4.63 4.42 4.49 – – –
Expected long–term rate of return on assets 8.00 8.00 8.50 – – –