Union Pacific 2007 Annual Report Download - page 69

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65
design. The non-qualified (supplemental) plan is funded with cash from operations as benefits are paid to
plan participants. Each of our qualified plans was fully funded at December 31, 2007. The PBO, ABO, and fair
value of plan assets for pension plans with accumulated benefit obligations in excess of the fair value of the
plan assets were as follows for the years ended December 31:
Underfunded Accumulated Benefit Obligation
Millions of Dollars 2007 2006
Projected benefit obligation....................................................................................... $(175) $(169)
Accumulated benefit obligation ................................................................................ $(172) $(168)
Fair value of plan assets.............................................................................................. - -
Underfunded accumulated benefit obligation.......................................................... $(172) $(168)
The ABO for all defined benefit pension plans was $2.0 billion and $2.1 billion at December 31, 2007 and
2006, respectively.
Assumptions – The weighted-average actuarial assumptions used to determine benefit obligations at December
31:
Pension OPEB
Percentages 2007 2006 2005 2007 2006 2005
Discount rate .................................................... 6.50% 6.00% 5.75% 6.50% 6.00% 5.75%
Salary increase................................................... 3.50 3.00 2.75 N/A N/A N/A
The following table presents assumed health care cost trend rates used to determine benefit obligations and
OPEB expense:
Percentages 2007 2006 2005
Assumed health care cost trend rate for next year............................................... 9.0% 8.0% 9.0%
Rate to which health care cost trend rate is expected to decline and remain .... 5.0% 5.0% 5.0%
Year that the rate reaches the ultimate trend rate ............................................... 2011 2010 2010
Expense
Both pension and OPEB expense are determined based upon the annual service cost of benefits (the actuarial
cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on
plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets
that recognizes changes in fair value over a five-year period. This practice is intended to reduce year-to-year
volatility in pension expense, but it can have the effect of delaying the recognition of differences between
actual returns on assets and expected returns based on long-term rate of return assumptions. Differences in
actual experience in relation to assumptions are not recognized in net income immediately, but are deferred
and, if necessary, amortized as pension or OPEB expense.