Mattel 2005 Annual Report Download - page 79

A one percentage point increase/(decrease) in the assumed health care cost trend rate for each future year
would impact the postretirement benefit obligation as of December 31, 2005 by approximately $6 million and
$(5) million, respectively, while a one percentage point increase/(decrease) would impact the service and interest
cost recognized for 2005 by approximately $0.3 million and $(0.3) million, respectively.
The Medicare Act was signed into law on December 8, 2003. On May 19, 2004, the FASB issued FASB
Staff Position (“FSP”) 106-2, which provides guidance as to how employers who sponsor post-65 prescription
drug benefits should recognize the impact of the Medicare Act. Applying the guidance in FSP 106-2, Mattel,
with the assistance of its outside actuaries, determined that the prescription drug benefits provided to certain
retirees under one of its postretirement benefit plans are actuarially equivalent to the benefits provided under
Medicare Part D, and that Mattel will be eligible to receive a federal subsidy beginning in 2006. On July 1, 2004,
Mattel adopted the provisions of FSP 106-2 and reduced its accumulated postretirement benefit obligation by
$7.6 million in recognition of the actuarial impact of the subsidy on benefits attributed to prior service. Mattel’s
net periodic benefit cost for 2004 was reduced by $1.0 million in the areas of interest cost ($0.5 million) and
amortization of unrecognized net actuarial loss ($0.5 million). On January 21, 2005, the Centers for Medicare
and Medicaid Services released final regulations implementing the Medicare Act. The final regulations did not
have a material impact on Mattel’s results of operations or financial position for the year ending December 31,
2005.
During 1999, Mattel amended The Fisher-Price Pension Plan to convert it from a career-average plan to a
cash balance plan and applied for a determination letter from the IRS. In 2003, Mattel amended The Fisher-Price
Pension Plan to reflect recent changes in regulations and court cases associated with cash balance plans and
submitted a new application for a determination letter to the IRS. Mattel plans to convert The Fisher-Price
Pension Plan to a cash balance plan upon receipt of a determination letter.
Defined Contribution Retirement Plans
Domestic employees are eligible to participate in 401(k) savings plans sponsored by Mattel or its subsidiaries,
which are funded defined contribution plans satisfying ERISA requirements. Mattel makes employer contributions
in cash and allows employees to allocate both their own contributions and employer contributions to a variety of
investment funds, including a fund that is fully invested in Mattel common stock (the “Mattel Stock Fund”).
Employees are not required to allocate any funds to the Mattel Stock Fund, which allows employees to limit or
eliminate their exposure to market changes in Mattel’s stock price. Furthermore, Mattel’s plans limit an employee’s
allocation to the Mattel Stock Fund to 50% of the employee’s total account balance. Employees may generally
reallocate their account balances on a daily basis. The only limitation on the frequency of reallocations applies to
changes involving the Mattel Stock Fund by employees classified as insiders or restricted personnel under Mattel’s
insider trading policy. Pursuant to Mattel’s insider trading policy, insiders and restricted personnel are limited to
certain window periods for making allocations into or out of the Mattel Stock Fund.
Certain non-US employees participate in defined contribution retirement plans with varying vesting and
contribution provisions.
Deferred Compensation and Excess Benefit Plans
Mattel provides a deferred compensation plan that permits certain officers and key employees to elect to
defer portions of their compensation. The deferred compensation plan, together with certain contributions made
by Mattel and participating employees to an excess benefit plan earn various rates of return. The liability for
these plans as of December 31, 2005 and 2004 was $52.0 million and $52.3 million, respectively, and is included
in other noncurrent liabilities in the consolidated balance sheets.
Mattel has purchased group trust-owned life insurance contracts designed to assist in funding these programs.
The cash surrender value of these policies, valued at $58.7 million and $59.7 million as of December 31, 2005 and
2004, respectively, are held in an irrevocable grantor trust, the assets of which are subject to the claims of Mattel’s
creditors and are included in other noncurrent assets in the consolidated balance sheets.
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