NOTE 11 - Retirement Plans
PENSION PLANS
The company sponsors the American Express Retirement Plan (the Plan), a noncontributory defined benefit plan, under which the cost of retirement benefits for eligible employees in the United States is measured by length of service, compensation and other factors and is currently being funded through a trust. Funding of retirement costs for the Plan complies with the applicable minimum funding requirements specified by the Employee Retirement Income Security Act of 1974, as amended (ERISA). Employees’ accrued benefits are based on recordkeeping account balances which are maintained for each individual and are credited with additions equal to a percentage, based on age plus service, of base pay, certain commissions and bonuses, overtime and shift differential, each pay period. Employees’ balances are also credited daily with a fixed rate of interest that is updated each January 1 and is based on the average of the daily five-year U.S. Treasury Note yields for the previous October 1 through November 30. Employees have the option to receive annuity payments or a lump sum payout at vested termination or retirement.
In addition, the company sponsors an unfunded nonqualified Supplemental Retirement Plan (the SRP) for certain highly compensated employees to replace the benefit that cannot be provided by the Plan, a qualified plan under ERISA. The SRP generally parallels the Plan but offers different payment options.
Most employees outside the United States are covered by local retirement plans, some of which are funded, or receive payments at the time of retirement or termination under applicable labor laws or agreements. Benefits under these local plans are generally expensed and are not funded.
Plan assets consist principally of equities and fixed income securities.
Net pension cost consisted of the following components:
The funded status of the company’s pension plans is based on valuations as of September 30. The following tables provide a reconciliation of the changes in the plans’ benefit obligation and fair value of assets:
The following table reconciles the plans’ funded status to the amounts recognized on the Consolidated Balance Sheets:
The following table provides the amounts recognized on the Consolidated Balance Sheets as of December 31:
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $226 million, $188 million and $22 million, respectively, as of December 31, 1999, and $540 million, $477 million and $286 million, respectively, as of December 31, 1998.
The prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Gains and losses in excess of 10 percent of the greater of the benefit obligation and the market-related value of assets are amortized over the average remaining service period of active participants.
The weighted average assumptions used in the company’s defined benefit plans were:
The company also has a defined contribution retirement plan (a 401(k) savings plan with a profit sharing feature) covering most employees in the United States. The defined contribution plan expense was $126 million, $106 million and $101 million in 1999, 1998 and 1997, respectively.
OTHER POSTRETIREMENT BENEFITS
The company sponsors postretirement benefit plans that provide health care, life insurance and other post retirement benefits to retired U.S. employees. Net periodic postretirement benefit expenses were $20 million, $17 million and $15 million in 1999, 1998 and 1997, respectively. The liabilities recognized on the Consolidated Balance Sheets for the company’s defined postretirement benefit plans (other than pension plans) at December 31, 1999 and 1998 were $205 million and $204 million, respectively.
