Notes to Consolidated Financial Statements continued 2016 Collective Bargaining Negotiations In the collective bargaining agreements ratified in June 2016, Verizon’s annual postretirement benefit obligation for retiree healthcare remains capped at the levels established by the previous contracts ratified in 2012. Effective January 2016, prior to reaching these new collective bargaining agreements, certain retirees began to pay for the costs of retiree healthcare in accordance with the provisions relating to caps in the previous contracts. In reaching new collective bargaining agreements in 2016, there is a mutual understanding that the substantive postretirement benefit plans provide that Verizon’s annual postretirement benefit obligation for retiree healthcare is capped and, accordingly, we began accounting for the contractual healthcare caps in June 2016. We also adopted changes to our defined benefit pension plans and other postretirement benefit plans to reflect the agreed upon terms and conditions of the collective bargaining agreements. The impact was a reduction in our postretirement benefit plan obligations of approximately $5.1 billion and an increase in our defined benefit pension plan obligations of approximately $0.4 billion, which have been recorded as a net increase to Accumulated other comprehensive income of $2.9 billion (net of taxes of $1.8 billion). The amount recorded in Accumulated other comprehensive income will be reclassified to net periodic benefit cost on a straight-line basis over the average remaining service period of the respective plans’ participants, which, on a weighted-average basis, is 12.2 years for defined benefit pension plans and 7.8 years for other postretirement benefit plans. The above-noted reclassification resulted in a decrease to net periodic benefit cost and increase to pre-tax income of approximately $0.7 billion and $0.4 billion, respectively, during 2017 and 2016. Information for pension plans with an accumulated benefit obligation in excess of plan assets follows: (dollars in millions) At December 31, 2017 2016 Projected benefit obligation $ 21,300 $ 21,048 Accumulated benefit obligation 21,242 20,990 Fair value of plan assets 18,923 14,596 Net Periodic Cost The following table summarizes the benefit cost (income) related to our pension and postretirement health care and life insurance plans: (dollars in millions) Pension Health Care and Life Years Ended December 31, 2017 2016 2015 2017 2016 2015 Service cost $ 280 $ 322 $ 374 $ 149 $ 193 $ 324 Amortization of prior service cost (credit) 39 21 (5) (949) (657) (287) Expected return on plan assets (1,262) (1,045) (1,270) (53) (54) (101) Interest cost 683 677 969 659 746 1,117 Remeasurement loss (gain), net 337 1,198 (209) 546 1,300 (2,659) Net periodic benefit (income) cost 77 1,173 (141) 352 1,528 (1,606) Curtailment and termination benefits 11 4 — — — — Total $ 88 $ 1,177 $ (141) $ 352 $ 1,528 $ (1,606) Other pre-tax changes in plan assets and benefit obligations recognized in other comprehensive (income) loss are as follows: (dollars in millions) Pension Health Care and Life At December 31, 2017 2016 2017 2016 Prior service cost (benefit) $ — $ 428 $ (544) $ (5,142) Reversal of amortization items Prior service (benefit) cost (39) (21) 949 657 Amounts reclassified to net income — 87 — 451 Total recognized in other comprehensive (income) loss (pre-tax) $ (39) $ 494 $ 405 $(4,034) Amounts reclassified to net income for the year ended December 31, 2016 includes the reclassification to Selling, general and administrative expense of a pre-tax pension and postretirement benefit curtailment gain of $0.5 billion ($0.3 billion net of taxes) due to the transfer of employees to Frontier, which caused the elimination of a significant amount of future service in three of our defined benefit pension plans and one of our other postretirement benefit plans requiring us to recognize a portion of the prior service credits. See Note 2 for additional information. The estimated prior service cost for the defined benefit pension plans that will be amortized from Accumulated other comprehensive income into net periodic benefit (income) cost over the next fiscal year is not significant. The estimated prior service cost for the defined benefit postretirement plans that will be amortized from Accumulated other comprehensive income into net periodic benefit income over the next fiscal year is $1.0 billion. 84 verizon.com/2017AnnualReport
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