Union Pacific 2002 Annual Report Download - page 80

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minimum pension liability. The liability was recorded as a $225 million after-tax reduction to common shareholders’ equity
as part of accumulated other comprehensive income (loss). The equity reduction would be restored to the balance sheet in
future periods when the fair value of plan assets exceeds the accumulated benefit obligations. Recognition of this reduction
to equity does not affect net income or cash flow in 2002 and has no impact on compliance with debt covenants.
While the interest rate and asset return environment has significantly impacted the funded status of the Corporation’s
plans, the Corporation does not currently have minimum funding requirements, as set forth in employee benefit and tax
laws. Even though no minimum funding is required, the Corporation voluntarily contributed $100 million to its Union
Pacific pension plan, and $125 million to OTC’s pension plan during 2002.
Amounts recognized for the benefit plan liabilities in the Consolidated Statements of Financial Position for December 31,
2002 and 2001 consisted of:
Pension Other Postretirement
Benefits Benefits
Millions of Dollars 2002 2001 2002 2001
Prepaid benefit cost................................................................ $ 6 $ 5 $ - $ -
Accrued benefit cost............................................................... (122) (343) (500) (500)
Additional minimum liability ............................................... (454) (33) - -
Intangible assets...................................................................... 80 22 - -
Accumulated other comprehensive income ......................... 374 11 - -
Net liability recognized at end of year .................................. $(116) $(338) $(500) $(500)
The components of the Corporation’s net periodic pension and other postretirement costs (income) for the years ended
December 31, 2002, 2001 and 2000 were as follows:
Pension Other Postretirement
Benefits Benefits
Millions of Dollars 2002 2001 2000 2002 2001 2000
Service cost ............................................................................. $ 49 $ 47 $ 38 $ 10 $ 9 $ 7
Interest cost............................................................................. 166 158 150 43 36 32
Expected return on assets ...................................................... (200) (213) (197) - - -
Amortization of:
Transition obligation ........................................................ (2) (4) (3) - - -
Prior service cost (credit) ................................................. 14 17 16 (3) (3) (5)
Actuarial loss (gain).......................................................... (15) (28) (31) 6 1 (3)
Total net periodic benefit cost (income) .............................. $ 12 $ (23) $ (27) $ 56 $ 43 $ 31
At December 31, 2002 and 2001, approximately 34% and 32%, respectively, of the funded plans’ assets each year were held
in fixed-income and short-term securities, with the remainder in equity securities.
The weighted-average actuarial assumptions for the years ended December 31, 2002, 2001 and 2000 were as follows:
Pension Other Postretirement
Benefits Benefits
Percentages 2002 2001 2000 2002 2001 2000
Discount rate .......................................................................... 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Expected return on plan assets.............................................. 9.0 10.0 10.0 N/A N/A N/A
Rate of compensation increase.............................................. 3.75 4.25 4.50 3.75 4.25 4.50
Health care cost trend:
Current .............................................................................. N/A N/A N/A 10.00 7.70 7.70
Level in 2008...................................................................... N/A N/A N/A 5.00 5.50 5.50