Southwest Airlines 2014 Annual Report Download - page 139
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The consolidated periodic postretirement benefit cost for the years ended December 31, 2014,
2013, and 2012, included the following:
(in millions) 2014 2013 2012
Service cost $ 10 $ 30 $ 20
Interest cost 7 4 4
Amortization of prior service cost 3 3 —
Recognized actuarial gain (4) (4) (5)
Settlements $ (1) $ — $ —
Net periodic postretirement benefit cost $ 15 $ 33 $ 19
Unrecognized prior service cost is expensed using a straight-line amortization of the cost over
the average future service of Employees expected to receive benefits under the plans. Actuarial gains
are amortized utilizing the minimum amortization method. The following actuarial assumptions were
used to account for the Company’s postretirement benefit plans at December 31, 2014, 2013, and 2012:
2014 2013 2012
Weighted-average discount rate 4.10% 5.05% 2.90%
Assumed healthcare cost trend rate (1) 6.88% 7.50% 8.00%
(1) The assumed healthcare cost trend rate is assumed to remain at 6.88% for 2015, then decline gradually
to 5.00% by 2025 and remain level thereafter.
The assumed healthcare cost trend rates have a significant effect on the amounts reported for
the consolidated postretirement plans. A one percent change in all healthcare cost trend rates used in
measuring the APBO at December 31, 2014, would have the following effects:
(in millions) 1% increase 1% decrease
Increase (decrease) in total service and interest costs $ 3 $ (2)
Increase (decrease) in the APBO $ 24 $ (20)
The selection of a discount rate is made annually and is selected by the Company based upon
comparison of the expected future cash flows associated with the Company’s future payments under its
consolidated postretirement obligations to a yield curve created using high quality bonds that closely
match those expected future cash flows. This rate decreased during 2014 due to market conditions. The
assumed healthcare trend rate is also reviewed at least annually and is determined based upon both
historical experience with the Company’s healthcare benefits paid and expectations of how those
trends may or may not change in future years.
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