Mattel 2006 Annual Report Download - page 87

Administrative Committee, which includes Mattel’s Treasurer, monitors the returns earned by the plans’ assets
and reallocates investments as needed. Mattel’s defined benefit pension plan assets are not directly invested in
Mattel common stock. Mattel believes that the long-term rate of return on plan assets of 8.0% as of December 31,
2006 is reasonable based on historical returns, and based on the fact that the actual return on market value of plan
assets has been approximately 10% over the last ten years.
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, 2006 by approximately $4.7 million and
$(4.1) million, respectively, while a one percentage point increase/(decrease) would impact the service and
interest cost recognized for 2006 by approximately $0.3 million and $(0.2) million, respectively.
The Medicare Act was signed into law on December 8, 2003. On May 19, 2004, the FASB issued
FSP No. 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 No. 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 No. 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, 2006.
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 voluntary contributions and their
employer automatic and matching 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 maximum allocation to the Mattel Stock
Fund to 25% 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 periods in
which they may make allocations into or out of the Mattel Stock Fund.
Certain non-US employees participate in other defined contribution retirement plans with varying vesting
and contribution provisions.
Deferred Compensation and Excess Benefit Plans
Mattel has 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
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