Union Pacific 2007 Annual Report Download - page 67

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63
recognize variable rental expense on a straight-line basis over the lease term. Contingent rentals and sub-
rentals are not significant.
7. Retirement Plans
Pension and Other Postretirement Benefits
Pension Plans – We provide defined benefit retirement income to eligible non-union employees through
qualified and non-qualified (supplemental) pension plans. Qualified and non-qualified pension benefits are
based on years of service and the highest compensation during the latest years of employment, with specific
reductions made for early retirements.
Other Postretirement Benefits (OPEB) – We provide defined contribution medical and life insurance benefits
for eligible retirees. These benefits are funded as medical claims and life insurance premiums are paid.
Funded Status
We adopted FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans (FAS 158), at the end of 2006, which required us to separately recognize the overfunded
or underfunded status of our pension and OPEB plans as an asset or liability. The funded status represents the
difference between the projected benefit obligation (PBO) and the fair value of the plan assets. The PBO is the
present value of benefits earned to date by plan participants, including the effect of assumed future salary
increases. The PBO of the OPEB plan is equal to the accumulated benefit obligation, as the present value of the
OPEB liabilities is not affected by salary increases. Plan assets are measured at fair value. We use a December
31 measurement date for plan assets and obligations for all our retirement plans.
Changes in our PBO and plan assets are as follows for the years ended December 31:
Funded Status Pension OPEB
Millions of Dollars 2007 2006 2007 2006
Projected Benefit Obligation
Projected benefit obligation at beginning of year .... $2,113 $2,065 $ 374 $ 476
Service cost ................................................................. 34 35 3 4
Interest cost ................................................................ 124 117 20 21
Plan amendments ...................................................... - - (10) (38)
Actuarial loss (gain)................................................... (33) 16 (34) (58)
Gross benefits paid..................................................... (126) (120) (27) (31)
Projected benefit obligation at end of year............... $2,112 $2,113 $ 326 $ 374
Plan Assets
Fair value of plan assets at beginning of year ........... $1,989 $1,707 $ - $ -
Actual return on plan assets ...................................... 183 243 - -
Voluntary funded pension plan contributions ........ - 150 - -
Non-qualified plan benefit contributions ................ 12 9 27 31
Gross benefits paid..................................................... (126) (120) (27) (31)
Fair value of plan assets at end of year...................... $2,058 $1,989 $ - $ -
Funded status at end of year ........................................ $ (54) $ (124) $(326) $(374)