JP Morgan Chase 2003 Annual Report Download - page 95

J.P. Morgan Chase & Co. / 2003 Annual Report 93
The follow ing table presents the w eighted-average asset allocation at December 31 and the respective target allocation by asset
category for the Firm’s U.S. and non-U.S. defined benefit pension and postretirement benefit plans:
Defined benefit pension plans Postretirement
U.S. Non-U.S.(a)(b) benefit plans(c)
Target % of plan assets Target % of plan assets Target % of plan assets
Allocation 2003 2002 Allocation 2003 2002 Allocation 2003 2002
Asset Class
Debt securities 40% 41% 45% 74% 76% 51% 50% 50% 50%
Equity securities 50 53 50 26 24 49 50 50 50
Real estate 5 54——— ———
Other 5 11——— ———
Total 100% 100% 100% 100% 100% 100% 100% 100% 100%
(a) Primarily represents the U.K. plan which accounts for approximately 90% of the non-U.S. plan assets.
(b) The target allocation for U.K. plan assets was revised in 2003 to reduce the volatility of funding levels, given that the plan is now closed to future participants.
(c) Represents the U.S. postretirement benefit plan only, as the U.K. plan is unfunded.
Estimated future benefit payments
The follow ing table presents benefit payments expected to be
paid, w hich include the effect of expected future service for the
years indicated. The postretirement medical and life insurance
payments are net of expected retiree contributions.
Non- U.S. and U.K.
U.S. Pension U.S. Pension Postretirement
(in millions) Benefits Benefits Benefits
2004 $ 326 $ 52 $ 108
2005 340 53 111
2006 358 55 114
2007 377 57 117
2008 399 61 118
Years 2009-2013 2,177 351 603
Defined contribution plans
JPM organ Chase offers several defined contribution plans in
the U.S. and certain non-U.S. locations. The most significant of
these plans is the JPM organ Chase 401(k) Savings Plan, covering
substantially all U.S. employees. This plan allow s employees to
make pre-tax contributions to tax-deferred investment
portfolios. For most employees, the Firm matches employee
contributions dollar-for-dollar up to a certain percentage of eligi-
ble compensation per pay period, subject to plan and legal
limits. Employees begin to receive matching contributions after
completing one year of service; benefits vest after three years of
service. The Firm’s defined contribution plans are administered in
accordance with applicable local law s and regulations.
Compensation expense related to these plans totaled $240 mil-
lion in 2003, $251 million in 2002 and $208 million in 2001.
Employee stock-based incentives
Effective January 1, 2003, JPM organ Chase adopted SFAS 123
using the prospective transition method. SFAS 123 requires all
stock-based compensation aw ards, including stock options, to
be accounted for at fair value. Fair value is based on a Black-
Scholes valuation model, with compensation expense
recognized in earnings over the required service period. Under
Note 7
the prospective transition method, all new aw ards granted to
employees on or after January 1, 2003, are accounted for under
SFAS 123. In connection w ith the adoption of SFAS 123, the
Firm decided to provide key employees, excluding members of
the Executive Committee, w ith the ability to elect to receive the
value of their stock-based compensation aw ards as stock
options, restricted stock or any combination thereof. The net
effect was to reduce net income by $0.08 per share in 2003.
Aw ards that w ere outstanding as of December 31, 2002, if not
subsequently modified, continue to be accounted for under
APB 25. Through December 31, 2002, JPM organ Chase
accounted for its employee stock-based compensation plans
under the intrinsic-value method in accordance w ith APB 25.
Under this method, no expense is recognized for stock options
granted at the stock price on the grant date, since such options
have no intrinsic value. Compensation expense for restricted
stock and restricted stock units (“ RSUs” ) is measured based on
the number of shares granted and the stock price at the grant
date and is recognized over the required service period.
Key employee stock-based aw ards
JPM organ Chase grants long-term stock-based incentive awards
to certain key employees under two plans (the “ LTI Plans” ). The
Long-Term Incentive Plan, approved by shareholders in M ay
2000, provides for grants of stock options, stock appreciation
rights (“ SARs” ), restricted stock and RSU awards, and the Stock
Option Plan, a nonshareholder-approved plan, provides for
grants of stock options and SARs. Through December 31, 2003,
SARs have not been granted under either of these plans.
Under the LTI Plans, stock options are granted w ith an exercise
price equal to JPM organ Chase’s common stock price on the
grant date. Generally, options cannot be exercised until at least
one year after the grant date and become exercisable over vari-
ous periods as determined at the time of the grant. Options
generally expire 10 years after the grant date. In January 2001,
JPM organ Chase granted 82.2 million options under the LTI
Plans, pursuant to a grow th performance incentive program
(“ GPIP” ). Forfeitures of GPIP options aggregated 23.7 million
shares through December 31, 2003.