Southwest Airlines 2015 Annual Report Download - page 128
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The consolidated periodic postretirement benefit cost for the years ended December 31, 2015, 2014,
and 2013, included the following:
(in millions) 2015 2014 2013
Service cost $ 11 $ 10 $ 30
Interest cost 7 7 4
Amortization of prior service cost 3 3 3
Recognized actuarial gain (3) (4) (4)
Settlements $ — $ (1) $ —
Net periodic postretirement benefit cost $ 18 $ 15 $ 33
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, 2015, 2014, and 2013:
2015 2014 2013
Weighted-average discount rate 4.50% 4.10% 5.05%
Assumed healthcare cost trend rate (1) 7.08% 6.88% 7.50%
(1) The assumed healthcare cost trend rate is assumed to remain at 7.08% for 2016, then decline gradually
to 5.19% by 2026 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, 2015, 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 $ 29 $ (24)
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 increased during 2015 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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