Union Pacific 2005 Annual Report Download - page 46

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related to losses sustained during the West Coast storm in January 2005. This amount may change in the future as
facts and circumstances surrounding the claim and the reinsurance are finalized and settled. We collected a partial
recovery of our claim from reinsurance of $25 million during the fourth quarter of 2005.
Pension and Other Postretirement Benefits – We use third-party actuaries to assist us in properly measuring the
liabilities and expenses associated with providing pension and defined contribution medical and life insurance
benefits (OPEB) to eligible employees. In order to use actuarial methods to value the liabilities and expenses we
must make several assumptions. The critical assumptions used to measure pension obligations and expenses are
the discount rate and expected rate of return on pension assets. For other postretirement benefits, the critical
assumptions are the discount rate and healthcare cost trend rate.
We evaluate our critical assumptions at least annually, and selected assumptions are based on the following
factors:
‰Discount rate is based on a hypothetical portfolio of high quality bonds with cash flows matching our
plans’ expected benefit payments.
‰Expected return on plan assets is based on our asset allocation mix and our historical return, taking into
consideration current and expected market conditions.
‰Healthcare cost trend rate is based on our historical rates of inflation and expected market conditions.
The following tables present the key assumptions used to measure pension and OPEB expense for 2005 and
the estimated impact on 2005 pension and OPEB expense relative to a change in those assumptions:
Assumptions Pension OPEB
Discount rate ............................................................. 6.00% 6.00%
Expected return on plan assets ............................................... 8.00% N/A
Healthcare cost trend rate:
Current ............................................................... N/A 11.00%
Level in 2010 ........................................................... N/A 5.00%
Sensitivities Increase in Expense
Millions of Dollars Pension OPEB
0.25% decrease in discount rate .............................................. $5 $ 1
0.25% decrease in expected return on plan assets ................................ $4 N/A
1% increase in healthcare cost trend rate ....................................... N/A $13
CAUTIONARY INFORMATION
Certain statements in this report, and statements in other material filed or to be filed with the Securities and
Exchange Commission (as well as information included in oral statements or other written statements made or to
be made by us), are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the
Securities Exchange Act of 1934. These forward-looking statements include, without limitation, statements
regarding: expectations as to operational or service improvements; statements concerning expectations of the
effectiveness of steps taken or to be taken to improve operations, service, or to stabilize the rail system,
infrastructure improvements, transportation plan modifications, and management of customer traffic on the
system to meet demand; expectations as to cost savings, revenue growth, and earnings; the time by which certain
objectives will be achieved; statements or information concerning projections, predictions, expectations,
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