Lockheed Martin 2003 Annual Report Download - page 63

Lockheed Martin Corporation
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bilities. The ABO for all defined benefit pension plans was
approximately $21 billion and $19 billion at December 31,
2003 and 2002, respectively.
For defined benefit pension plans in which the ABO was in
excess of the fair value of the plans’ assets, the PBO, ABO and
fair value of the plans’ assets were as follows:
(In millions) 2003 2002
Projected benefit obligation $15,228 $13,648
Accumulated benefit obligation 13,312 11,994
Fair value of plan assets 12,211 10,122
The net pension cost as determined by FAS 87, “Employers’
Accounting for Pensions,” and the net post-retirement benefit
cost as determined by FAS 106, “Employers’ Accounting for
Post-retirement Benefits Other Than Pensions,” related to the
Corporation’s plans include the following components:
(In millions) 2003 2002 2001
DEFINED BENEFIT PENSION PLANS
Service cost $ 640 $ 565 $ 523
Interest cost 1,453 1,401 1,357
Expected return on plan assets (1,748) (2,162) (2,177)
Amortization of prior service cost 79 72 64
Recognized net actuarial losses (gains) 62 (33) (117)
Amortization of transition asset (2) (3) (4)
Total net pension expense (income) $ 484 $(160) $ (354)
RETIREE MEDICAL AND
LIFE INSURANCE PLANS
Service cost $40$37$ 41
Interest cost 211 213 211
Expected return on plan assets (69) (89) (99)
Amortization of prior service cost 1(4) (5)
Recognized net actuarial losses 49 20 9
Total net post-retirement expense $ 232 $ 177 $ 157
The actuarial assumptions used to determine the benefit
obligations at December 31, 2003 and 2002 related to the
Corporation’s defined benefit pension and post-retirement ben-
efit plans, as appropriate, are as follows:
Benefit Obligation
Assumptions
2003 2002
Discount rates 6.25% 6.75%
Rates of increase in future compensation levels 5.50 5.50
The actuarial assumptions used to determine the net expense
(income) related to the Corporation’s defined benefit pension and
post-retirement benefit plans for the years ended December 31,
2003, 2002 and 2001, as appropriate, are as follows:
Pension Cost Assumptions
2003 2002 2001
Discount rates 6.75% 7.25% 7.50%
Expected long-term rates of
return on assets 8.50 9.50 9.50
Rates of increase in future
compensation levels 5.50 5.50 5.50
The long-term rate of return assumption represents the
expected average rate of earnings on the funds invested or to be
invested to provide for the benefits included in the benefit obli-
gations. The long-term rate of return assumption is determined
based on a number of factors, including historical market index
returns, the anticipated long-term asset allocation of the plans,
historical plan return data, plan expenses and the potential to
outperform market index returns.
The decrease in the discount rate from 6.75% at December
31, 2002 to 6.25% at December 31, 2003 resulted in a $1.5 bil-
lion increase in the benefit obligations of the Corporation’s
defined benefit pension plans at December 31, 2003.
The medical trend rates used in measuring the post-retirement
benefit obligation were 10.0% in 2003 and 9.1% in 2002, and
were assumed to ultimately decrease to 5.0% by the year 2011.
An increase or decrease of one percentage point in the assumed