 |
| note 15 (page 1 of 3) |
| EMPLOYEE BENEFITS |
We maintain noncontributory
defined benefit pension plans for many of our employees. The
postretirement health care and life insurance plans for our
retirees and their dependents are both contributory and noncontributory
and include a limit on the company’s share of cost for
certain recent and future retirees. We also sponsor defined
contribution savings plans to provide opportunities for eligible
employees to save for retirement on a tax-deferred basis.
We use a measurement date of December 31 for our pension and
postretirement health care and life insurance plans.
Pension and Other Postretirement Benefits
Pension and other postretirement benefits for many of our
employees are subject to collective bargaining agreements.
Modifications in benefits have been bargained from time to
time, and we may also periodically amend the benefits in the
management plans.
In December 2005, we announced that Verizon management employees
will no longer earn pension benefits or earn service towards
the company retiree medical subsidy after June 30, 2006. In
addition, new management employees hired after December 31,
2005 are not eligible for pension benefits and managers with
less than 13.5 years of service as of June 30, 2006 are not
eligible for company-subsidized retiree healthcare or retiree
life insurance benefits. Beginning July 1, 2006, management
employees will receive an increased company match on their
savings plan contributions.
The following tables summarize benefit costs, as well as
the benefit obligations, plan assets, funded status and rate
assumptions associated with pension and postretirement health
care and life insurance benefit plans. |
| Obligations and Funded Status |
|
| |
Pension |
|
|
Health
Care and Life |
|
|
 |
| At December
31, |
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
| Change
in Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning
of year |
$ |
37,395 |
|
|
$ |
40,968 |
|
|
$ |
27,077 |
|
|
$ |
24,581 |
|
|
| Service
cost |
|
721 |
|
|
|
712 |
|
|
|
373 |
|
|
|
282 |
|
|
| Interest
cost |
|
2,070 |
|
|
|
2,289 |
|
|
|
1,519 |
|
|
|
1,479 |
|
|
| Plan
amendments |
|
181 |
|
|
|
(65 |
) |
|
|
59 |
|
|
|
248 |
|
|
| Actuarial
loss, net |
|
390 |
|
|
|
2,467 |
|
|
|
520 |
|
|
|
2,017 |
|
|
| Benefits
paid |
|
(2,977 |
) |
|
|
(2,884 |
) |
|
|
(1,706 |
) |
|
|
(1,532 |
) |
|
| Termination
benefits |
|
11 |
|
|
|
4 |
|
|
|
1 |
|
|
|
2 |
|
|
| Settlements |
|
(35 |
) |
|
|
(6,105 |
) |
|
|
– |
|
|
|
– |
|
|
| Acquisitions
and divestitures, net |
|
(194 |
) |
|
|
– |
|
|
|
(34 |
) |
|
|
– |
|
|
|
|
| End of
year |
|
37,561 |
|
|
|
37,395 |
|
|
|
27,809 |
|
|
|
27,077 |
|
|
|
|
|
| Beginning
of year |
|
39,106 |
|
|
|
42,776 |
|
|
|
4,549 |
|
|
|
4,467 |
|
|
| Actual
return on plan assets |
|
4,246 |
|
|
|
4,874 |
|
|
|
348 |
|
|
|
471 |
|
|
| Company
contributions |
|
852 |
|
|
|
443 |
|
|
|
1,085 |
|
|
|
1,143 |
|
|
| Benefits
paid |
|
(2,977 |
) |
|
|
(2,884 |
) |
|
|
(1,706 |
) |
|
|
(1,532 |
) |
|
| Settlements |
|
(35 |
) |
|
|
(6,105 |
) |
|
|
– |
|
|
|
– |
|
|
| Acquisitions
and divestitures, net |
|
(202 |
) |
|
|
2 |
|
|
|
– |
|
|
|
– |
|
|
|
| End of
year |
|
40,990 |
|
|
|
39,106 |
|
|
|
4,276 |
|
|
|
4,549 |
|
|
|
|
|
| End of
year |
|
3,429 |
|
|
|
1,711 |
|
|
|
(23,533 |
) |
|
|
(22,528 |
) |
|
|
| Actuarial
loss, net |
|
4,761 |
|
|
|
5,486 |
|
|
|
7,585 |
|
|
|
7,335 |
|
|
| Prior
service cost |
|
1,075 |
|
|
|
1,387 |
|
|
|
4,310 |
|
|
|
4,193 |
|
|
| Transition
obligation |
|
1 |
|
|
|
1 |
|
|
|
16 |
|
|
|
18 |
|
|
|
| Net amount
recognized |
$ |
9,266 |
|
|
$ |
8,585 |
|
|
$ |
(11,622 |
) |
|
$ |
(10,982 |
) |
|
 |
|
| Amounts
recognized on the balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Prepaid
pension cost (in Other Assets) |
$ |
12,704 |
|
|
$ |
12,302 |
|
|
$ |
– |
|
|
$ |
– |
|
|
| Assets
held for sale |
|
– |
|
|
|
1 |
|
|
|
– |
|
|
|
– |
|
|
|
| Employee
benefit obligation |
|
(5,473 |
) |
|
|
(5,774 |
) |
|
|
(11,622 |
) |
|
|
(10,953 |
) |
|
| Liabilities
related to assets held for sale |
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(29 |
) |
|
| Minority
interest |
|
168 |
|
|
|
145 |
|
|
|
– |
|
|
|
– |
|
|
| Accumulated
other comprehensive loss |
|
1,389 |
|
|
|
1,448 |
|
|
|
– |
|
|
|
– |
|
|
|
| Net amount
recognized |
$ |
9,266 |
|
|
$ |
8,585 |
|
|
$ |
(11,622 |
) |
|
$ |
(10,982 |
) |
|
|
|
Changes
in benefit obligations were caused by factors including changes
in actuarial assumptions (see Assumptions below), curtailments
and settlements.
In 2005 as a result of our announcement regarding management
retiree benefits, we recorded pre-tax expense of $441 million
for pension curtailments and pre-tax income of $343 million
for retiree medical curtailments (see Note 4 for additional
information).
Verizon’s union contracts contain health care cost provisions
that limit company payments toward health care costs to specific
dollar amounts (known as caps). These caps pertain to both
current and future retirees, and have a significant impact
on the actuarial valuation of postretirement benefits. These
caps have been included in union contracts for several years,
but have exceeded the annual health care cost every year until
2003. During the negotiation of new collective bargaining
agreements for union contracts covering 79,000 unionized employees
in the second half of 2003, the date health care caps would
become effective was extended and the dollar amounts of the
caps were increased. In the fourth quarter of 2003, we began
recording retiree health care costs as if there were no caps,
in connection with the ratification of the union contracts.
Since the caps are an assumption included in the actuarial
determination of Verizon’s postretirement obligation,
the effect of extending and increasing the caps increased
the accumulated postretirement obligation in the fourth quarter
of 2003 by $5,158 million.
In 2003 Verizon reduced its workforce using its employee
severance plans (see Note 4). Additionally, in 2005, 2004
and 2003, several of the pension plans’ lump-sum pension
distributions surpassed the settlement threshold equal to
the sum of service cost and interest cost requiring settlement
recognition for all cash settlements for each of those years.
The accumulated benefit obligation for all defined benefit
pension plans was $36,128 million and $35,389 million at December
31, 2005 and 2004, respectively.
Information for pension plans with an accumulated benefit
obligation in excess of plan assets follows: |
|
| At December
31, |
|
2005 |
|
|
|
2004 |
|
|
|
|
| Projected
benefit obligation |
$ |
13,100 |
|
|
$ |
12,979 |
|
|
| Accumulated
benefit obligation |
|
12,575 |
|
|
|
12,508 |
|
|
| Fair
value of plan assets |
|
8,605 |
|
|
|
7,816 |
|
|
|
| Net
Periodic Cost |
|
| |
Pension |
Health
Care and Life |
|
|
|
| Years
Ended December 31, |
|
2005 |
|
|
|
2004 |
|
|
|
2003 |
|
|
|
2005 |
|
|
|
2004 |
|
|
|
2003 |
|
|
|
|
| Service
cost |
$ |
721 |
|
|
$ |
712 |
|
|
$ |
785 |
|
|
$ |
373 |
|
|
$ |
282 |
|
|
$ |
176 |
|
|
| Interest
cost |
|
2,070 |
|
|
|
2,289 |
|
|
|
2,436 |
|
|
|
1,519 |
|
|
|
1,479 |
|
|
|
1,203 |
|
|
| Expected
return on plan assets |
|
(3,348 |
) |
|
|
(3,709 |
) |
|
|
(4,150 |
) |
|
|
(353 |
) |
|
|
(414 |
) |
|
|
(430 |
) |
|
| Amortization
of transition asset |
|
– |
|
|
|
(4 |
) |
|
|
(41 |
) |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
| Amortization
of prior service cost |
|
45 |
|
|
|
60 |
|
|
|
23 |
|
|
|
285 |
|
|
|
234 |
|
|
|
(9 |
) |
|
| Actuarial
loss (gain), net |
|
146
|
|
|
|
57 |
|
|
|
(337 |
) |
|
|
278 |
|
|
|
187 |
|
|
|
130 |
|
|
|
| Net periodic
benefit (income) cost |
|
(366 |
) |
|
|
(595 |
) |
|
|
(1,284 |
) |
|
|
2,104 |
|
|
|
1,770 |
|
|
|
1,072 |
|
|
|
| Termination
benefits |
|
3 |
|
|
|
4 |
|
|
|
2,588 |
|
|
|
1 |
|
|
|
2 |
|
|
|
508 |
|
|
Termination
benefits –
Hawaii operations
sold |
|
8 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
| Settlement
loss |
|
– |
|
|
|
815 |
|
|
|
229 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
| Settlement
loss – Hawaii operations sold |
|
80 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
| Curtailment
(gain) loss and other, net |
|
441 |
|
|
|
1 |
|
|
|
65 |
|
|
|
(343 |
) |
|
|
2 |
|
|
|
(130 |
) |
|
Curtailment
loss –
Hawaii operations
sold |
|
6 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
| Subtotal |
|
538 |
|
|
|
820 |
|
|
|
2,882 |
|
|
|
(342 |
) |
|
|
4 |
|
|
|
378 |
|
|
|
| Total
cost |
$ |
172 |
|
|
$ |
225 |
|
|
$ |
1,598 |
|
|
$ |
1,762
|
|
|
$ |
1,774 |
|
|
$ |
1,450 |
|
|
|
|
The
termination benefits, settlement loss and curtailment loss
amounts pertaining to the Hawaii operations sold were recorded
in the consolidated statements of income in Sales of Businesses,
Net.
For continuation of Note 15,
see next page. |
|
