Johnson and Johnson 2006 Annual Report Download - page 65

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NOTES TO CONSOLIDATED FINANCIAL ST A TEMENTS63
Net periodic benefit cost for the Company’s defined benefit retirement plans and other benefit plans for 2006, 2005 and 2004
included the following components:
Retirement Plans Other Benefit Plans
____________________________________ ____________________________________
(Dollars in Millions) 2006 2005 2004 2006 2005 2004
Service cost$552 462 409 $122 56 56
Interest cost570 488 444 136 87 91
Expected return on plan assets (701) (579) (529) (3) (3) (3)
Amortization of prior service cost10 12 15 (7) (7) (4)
Amortization of net transition asset(1) (2) (3) ———
Recognized actuarial losses 251 219 173 74 25 27
Curtailments and settlements423———
Net periodic benefit cost$685 602 512 $322 158 167
The net periodic benefit cost attributable to U.S. retirement plans
was $423 million in 2006, $370 million in 2005 and $329 mil-
lion in 2004.
Amounts expected to be recognized in Net Periodic Cost in
the coming year for the Company’s defined benefit retirement
plans and other postretirement plans:
(Dollars in Millions)
Amortization of net actuarial loss$254
Amortization of prior service cost 3
Amortization of net transition obligation 1
The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of the pro-
jected benefit obligation for the year listed and also the net periodic benefit cost for the following year.
Retirement Plans Other Benefit Plans
____________________________________ ____________________________________
(Dollars in Millions) 2006 2005 2004 2006 2005 2004
U.S. Benefit Plans
Discount rate 6.00% 5.75 5.75 6.00% 5.75 5.75
Expected long-term rate of return
on plan assets 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
International Benefit Plans
Discount rate 5.00% 4.75 5.00 6.00% 5.00 5.50
Expected long-term rate of return
on plan assets 8.00 8.25 8.00 — — —
Rate of increase in compensation levels 3.75 3.75 3.75 4.50 4.25 4.25
The Company’s discount rates are determined by considering current
yield curves representing high quality, long-term fixed income instru-
ments. 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, con-
sidering 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.
The following table displays the assumed health care cost
trend rates, for all individuals:
Health Care Plans 2006 2005
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 2012 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$ 34 $ (23)
Postretirement benefit obligation 292 (238)