Prudential 2003 Annual Report Download - page 153

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
15. EMPLOYEE BENEFIT PLANS (continued)
Net periodic (benefit) cost included in “General and administrative expenses” in the Company’s Consolidated
Statements of Operations for the years ended December 31, includes the following components:
Pension Benefits
Other Postretirement
Benefits
2003 2002 2001 2003 2002 2001
(in millions)
Components of net periodic (benefit) cost
Service cost .................................................. $180 $175 $167 $ 14 $ 14 $ 18
Interest cost .................................................. 444 463 431 152 152 150
Expected return on plan assets ................................... (839) (913) (880) (83) (114) (134)
Amortization of transition amount ................................ (106) (106) (106) 3 17 17
Amortization of prior service cost ................................. 29 30 12 (1) — —
Amortization of actuarial (gain) loss, net ........................... 14 (45) (85) 10 (10) (16)
Settlements .................................................. 16 — — — — —
Curtailments ................................................. 31 — — — — —
Contractual termination benefits .................................. — 1 4 — — —
Special termination benefits ..................................... 61 — — 1 — —
Net periodic (benefit) cost ....................................... $(170) $(395) $(457) $ 96 $ 59 $ 35
The increase in the minimum liability included in “Accumulated other comprehensive income” as of
September 30, 2003 and September 30, 2002 is as follows:
Pension Benefits
Other Postretirement
Benefits
2003 2002 2003 2002
(in millions)
Increase in minimum liability included in other comprehensive income ............. $59 $66 $— $—
The assumptions as of September 30, used by the Company to calculate the benefit obligations as of that date and
to determine the benefit cost in the year are as follows:
Pension Benefits Other Postretirement Benefits
2003 2002 2001 2003 2002 2001
Weighted-average assumptions
Discount rate (beginning of period) ..................... 6.50% 7.25% 7.75% 6.50% 7.25% 7.75%
Discount rate (end of period) .......................... 5.75% 6.50% 7.25% 5.75% 6.50% 7.25%
Rate of increase in compensation levels (beginning of
period) ......................................... 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Rate of increase in compensation levels (end of period) ..... 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Expected return on plan assets (beginning of period) ....... 8.75% 9.50% 9.50% 7.75% 9.00% 9.00%
Health care cost trend rates ........................... — — — 6.05–10.00% 6.40–10.00% 6.76–8.76%
Ultimate health care cost trend rate after gradual decrease
until 2007 ....................................... — — — 5.00% 5.00% 5.00%
The pension and postretirement expected long term rates of return for 2003 were determined based upon an
approach that considered an expectation of the allocation of plan assets during the measurement period of 2003.
Expected returns are estimated by asset class as noted in the discussion of investment policies and strategies. The
expected returns by an asset class contemplate the risk free interest rate environment as of the measurement date and
then add a risk premium. The risk premium is a range of percentages and is based upon historical information and other
factors such as expected reinvestment returns and asset manager performance.
Prudential Financial 2003 Annual Report 151