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PAGE 52 JOHNSON & JOHNSON 2005 ANNUAL REPORT
The following table displays the assumed health care cost
trend rates, for all individuals:
Health Care Plans 2005 2004
Health care cost trend rate assumed for next year 9.00% 9.00
Rate to which the cost trend rate is assumed
to decline (ultimate trend) 4.50% 4.50
Year the rate reaches the ultimate trend rate 2010 2010
A one-percentage-point change in assumed health care cost
trend rates would have the following effect:
One-Percentage- One-Percentage-
(Dollars in Millions) Point Increase Point Decrease
Health Care Plans
Total interest and service cost $ 25 $ (20)
Postretirement benefit obligation 257 (206)
The net periodic benefit cost attributable to U.S. retirement
plans was $370 million in 2005, $329 million in 2004 and
$309 million in 2003.
During 2003, the Company offered a voluntary retirement
program with enhanced benefits called the Retirement
Enhancement Program (REP) to eligible U.S. regular, full-time
employees who have attained age 55 with at least 10 years of
pension credited service by June 30, 2004. The program
enhancements included the elimination of the early retirement
Retirement Plans Other Benefit Plans
U.S. Benefit Plans 2005 2004 2003 2002 2005 2004 2003 2002
Discount rate 5.75% 5.75 6.00 6.75 5.75% 5.75 6.00 6.75
Expected long-term rate of return
on plan assets 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00
Rate of increase in compensation levels 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50
International Benefit Plans
Discount rate 4.75% 5.00 5.25 5.75 5.00% 5.50 6.00 6.75
Expected long-term rate of return
on plan assets 8.25 8.00 7.50 7.50 ————
Rate of increase in compensation levels 3.75 3.75 3.50 3.50 4.25 4.25 4.25 4.25
reduction for pension benefit purposes (normally 4% per year
prior to age 62) and a special termination benefit (one week
of pay per year of credited service). The program resulted in
a one-time increase in U.S. pension expense of $95 million
in 2003 to reflect the value of the retirement enhancement.
The weighted-average assumptions in the following table
represent the rates used to develop the actuarial present value
of projected benefit obligation for the year listed and also the
net periodic benefit cost for the following year.
The Company’s discount rates are determined by considering
current yield curves representing high quality, long-term fixed
income instruments. The resulting discount rates are consistent
with the duration of plan liabilities.
The expected long-term rate of return on plan assets
assumptions is determined using a building block approach,
considering historical averages and real returns of each asset
class. In certain countries, where historical returns are not
meaningful, consideration is given to local market expectations
of long-term returns.