Notes to Consolidated Financial Statements
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
We currently provide postretirement medical and life insurance benefits to certain U.S. employees who were covered under the active employees’ plan and retire after age 55 with at least 10 years of service (earned after age 45). The benefits provided under these plans are based primarily on age at date of retirement. These benefits are funded to the extent of current year benefit payments.
Our other postretirement benefit expense follows:
| (millions) | 2006 | 2005 | 2004 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Service cost | $ | 3.6 | $ | 3.2 | $ | 2.7 | |||
| Interest costs | 5.6 | 5.0 | 5.3 | ||||||
| Amortization of prior service cost | (1.1 | ) | (1.1 | ) | (1.1 | ) | |||
| Amortization of losses | .9 | .2 | 1.1 | ||||||
| Postretirement benefit expense | $ | 9.0 | $ | 7.3 | $ | 8.0 | |||
Rollforwards of the benefit obligation, fair value of plan assets and a reconciliation of the plans’ funded status at November 30, the measurement date, follow:
| (millions) | 2006 | 2005 | ||||
|---|---|---|---|---|---|---|
| Change in benefit obligation Benefit obligation at beginning of year |
$ | 97.3 | $ | 92.4 | ||
| Service cost | 3.6 | 3.2 | ||||
| Interest costs | 5.6 | 5.0 | ||||
| Employee contributions | 2.6 | 2.6 | ||||
| Mortality assumption change | (.1 | ) | – | |||
| Trend rate assumption change | – | 4.5 | ||||
| Actuarial loss/(gain) | 1.8 | (1.9 | ) | |||
| Benefits paid | (8.7 | ) | (8.5 | ) | ||
| Benefit obligation at end of year | $ | 102.1 | $ | 97.3 | ||
| Change in fair value of plan assets Fair value of plan assets at beginning of year |
– | – | ||||
| Employer contributions | $ | 6.1 | $ | 5.9 | ||
| Employee contributions | 2.6 | 2.6 | ||||
| Benefits paid | (8.7 | ) | (8.5 | ) | ||
| Fair value of plan assets at end of year | – | – | ||||
| Funded status | $ | (102.1 | ) | $ | (97.3 | ) |
| Unrecognized net actuarial loss | 17.8 | 17.0 | ||||
| Unrecognized prior service cost | (5.4 | ) | (6.6 | ) | ||
| Other postretirement benefit liability | $ | (89.7 | ) | $ | (86.9 | ) |
Estimated future benefit payments for the next 10 fiscal years are as follows:
| (millions) | Retiree Medical |
Retiree Life Insurance |
Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 2007 | $ | 5.9 | $ | .8 | $ | 6.7 | |||
| 2008 | 6.7 | .9 | 7.6 | ||||||
| 2009 | 7.0 | .9 | 7.9 | ||||||
| 2010 | 7.2 | 1.0 | 8.2 | ||||||
| 2011 | 7.5 | 1.1 | 8.6 | ||||||
| 2012 - 2016 | 40.7 | 5.9 | 46.6 | ||||||
The assumed discount rate was 5.9% for 2006 and 2005, respectively.
For 2007, the assumed annual rate of increase in the cost of covered health care benefits is 8.0% (9.0% last year). It is assumed to decrease gradually to 5.0% in the year 2011 (5.0% last year) and remain at that level thereafter. Changing the assumed health care cost trend would have the following effect:
| (millions) | 1-Percentage- point increase |
1-Percentage- point decrease |
||||
|---|---|---|---|---|---|---|
| Effect on total of service and interest cost components in 2006 |
$ | .4 | $ | (.4 | ) | |
| Effect on benefit obligation as of November 30, 2006 |
5.2 | (4.6 | ) | |||