Pension Benefits
We provide pension benefits under the American Express Retirement
Plan and the American Express Supplemental Retirement Plan.
American Express Retirement Plan. We have a Retirement Plan
that is commonly referred to as a cash balance plan. Each payroll period
we credit each participating employee with an amount equal to a
percentage of the employee's base salary we pay in that period. We
also credit each employee with a percentage of any annual bonus and
certain other types of compensation we pay at the time we pay the
compensation. The percentage varies with the employee's age and years
of service. This table shows the percentages we use to determine the
amount of the credits:
On January 1, 2001 the sum of age plus years of service for the
named executives was as follows: Mr. Golub: 80, Mr. Chenault: 70,
Mr. Cracchiolo: 62, Mr. Kelly: 57, and Mr. Linen: 90.
The Plan credits participants with interest on their cash balances.
The Plan sets the interest rate each year based on an average of the
interest rates for various five-year U.S. Treasury Notes. The minimum
interest rate is 5%. The maximum rate is the lower of 10% or a specific
rate set by the U.S. government under the tax laws. For 2000 the
interest rate was 6.0%, and for 2001 the rate is 5.74%.
When the employee retires or terminates employment after
completing five years of service, the Plan will pay out the cash balance
amounts. The Plan will make these payments in the amounts consistent
with the employees' elections as to the form and timing of payments,
including payment in a single lump sum or as an annuity. An annuity
obligates the Plan to make payments in monthly installments over time,
in amounts based on assumptions we make as to life expectancy and the
value of making payments in the future. Employees may choose similar
methods of payment for benefits they earned before July 1, 1995.
Supplemental Retirement Plan. By meeting certain legal
requirements, the Retirement Plan provides a tax-advantaged way for
us to provide retirement benefits. However, U.S. tax law limits the
amount of benefits we can provide an employee as well as the amount
of compensation that we can take into account under the Retirement
Plan. We make up for these lost benefits under our Supplemental
Retirement Plan.
Funded Pension Plan. Some of our employees, including Messrs.
Linen and Chenault, have earned retirement benefits under the American
Express Funded Pension Plan, a plan in effect until May 1985. We
purchased an annuity from an insurance company to fund benefits that
these employees will receive under this plan when they retire or leave
the Company.
Pension Table. We set forth in the table below the amount we
estimate we will pay each year to the named executives as a single life
annuity at age 65 under the Retirement Plan and the Supplemental
Retirement Plan. Under a single life annuity, when the employee dies we
cease making payments. We break out separately payments the insurance
company will make under the Funded Pension Plan. In deriving our
estimated payments for the Retirement Plan and the Supplemental
Retirement Plan we used these assumptions:
- We credit interest on account balances at the actual rate for all
years through 2001 and at 5% for 2002 and later years.
- We start paying retirement benefits to the executives at normal
retirement age (age 65) as a single life annuity based on an
interest rate of 5.8% and U.S. government-approved assumptions
as to life expectancy.
- We continue to employ Messrs. Chenault, Cracchiolo, Kelly and
Linen until age 65 at their current base salaries and pay them
annual bonuses equal to their average bonus over the last five
years.
- Mr. Golub continues his employee status through April 2001.
Separate Pension Arrangement. When Mr. Golub began
employment with us in 1983, we entered into an arrangement to
compensate him for benefits he lost when he left his former employer.
Under this arrangement, when Mr. Golub retires we will calculate his
annual pension under the cash balance formula assuming he started
working for us in 1978. We will pay to Mr. Golub an amount equal to
any difference between this amount and the amount he is eligible to
receive under the Retirement Plan and Supplemental Retirement Plan
based on his actual years of service.
