We sponsor a number of pension plans. Principal pension plans, together with affiliate and certain other pension plans (other pension plans), detailed in this note represent about 99% of our total pension assets.
PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension Plan.
The GE Pension Plan provides benefits to certain U.S. employees based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Certain benefit provisions are subject to collective bargaining.
The GE Supplementary Pension Plan is an unfunded plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees.
OTHER PENSION PLANS in 2004 included 34 U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. These defined benefit plans generally provide benefits to employees based on formulas recognizing length of service and earnings.
PENSION PLAN PARTICIPANTS
| (In thousands) | Principal pension plans | Other pension plans | |||
|---|---|---|---|---|---|
| Active employees | 141 | 47 | |||
| Vested former employees | 174 | 35 | |||
| Retirees and beneficiaries | 205 | 22 | |||
| Total | 520 | 104 |
Details of the cost of our pension plans follow.
COST OF PENSION PLANS
| Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (In millions) | 2004 | 2003 | 2002 | ||||||
| Expected return on plan assets | $ | (4,258 | ) | $ | (4,245 | ) | $ | (4,245 | ) |
| Service cost for benefits earned | 1,438 | 1,375 | 1,245 | ||||||
| Interest cost on benefit obligation | 2,516 | 2,390 | 2,288 | ||||||
| Prior service cost | 317 | 252 | 221 | ||||||
| Net actuarial loss (gain) recognized | 242 | (544 | ) | (905 | ) | ||||
| Total cost | $ | 255 | $ | (772 | ) | $ | (1,396 | ) | |
| Principal pension plans | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (In millions) | 2004 | 2003 | 2002 | ||||||
| Expected return on plan assets | $ | (3,958 | ) | $ | (4,072 | ) | $ | (4,084 | ) |
| Service cost for benefits earned | 1,178 | 1,213 | 1,107 | ||||||
| Interest cost on benefit obligation | 2,199 | 2,180 | 2,116 | ||||||
| Prior service cost | 311 | 248 | 217 | ||||||
| Net actuarial loss (gain) recognized | 146 | (609 | ) | (912 | ) | ||||
| Total cost | $ | (124 | ) | $ | (1,040 | ) | $ | (1,556 | ) |
| Other pension plans | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (In millions) | 2004 | 2003 | 2002 | ||||||
| Expected return on plan assets | $ | (300 | ) | $ | (173 | ) | $ | (161 | ) |
| Service cost for benefits earned | 260 | 162 | 138 | ||||||
| Interest cost on benefit obligation | 317 | 210 | 172 | ||||||
| Prior service cost | 6 | 4 | 4 | ||||||
| Net actuarial loss (gain) recognized | 96 | 65 | 7 | ||||||
| Total cost | $ | 379 | $ | 268 | $ | 160 | |||
ACTUARIAL ASSUMPTIONS are described below. The discount rates at December 31 were used to measure the year-end benefit obligations and the earnings effects for the subsequent year.
ACTUARIAL ASSUMPTIONS
| Principal pension plans | Other pension plans (weighted average) | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31 | 2004 | 2003 | 2002 | 2001 | 2004 | 2003 | 2002 | 2001 | |||||||||
| Discount rate | 5.75 | % | 6.00 | % | 6.75 | % | 7.25 | % | 5.28 | % | 5.54 | % | 5.87 | % | 6.55 | % | |
| Compensation increases | 5.00 | 5.00 | 5.00 | 5.00 | 4.02 | 3.85 | 3.90 | 4.27 | |||||||||
| Expected return on assets | 8.50 | 8.50 | 8.50 | 9.50 | 7.61 | 7.61 | 7.62 | 8.19 | |||||||||
To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. For the principal pension plans, we apply our expected rate of return to a market-related value of assets, which stabilizes variability in assets to which we apply that expected return.
We amortize experience gains and losses and effects of changes in actuarial assumptions and plan provisions over a period no longer than the average future service of employees.
FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as we may determine to be appropriate. We have not made contributions to the GE Pension Plan since 1987. We will not make any contributions to the GE Pension Plan in 2005; any GE contribution to that plan would require payment of excise taxes and would not be deductible for income tax purposes. In 2005, we expect to pay approximately $115 million for the GE Supplementary Pension Plan benefit payments and administrative expenses ($102 million in 2004), and expect to contribute approximately $340 million to other pension plans ($370 million in 2004).
BENEFIT OBLIGATIONS are described in the following table. Accumulated and projected benefit obligations (ABO and PBO) represent the obligations of a pension plan for past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on current compensation levels. PBO is ABO increased to reflect expected future compensation.
PROJECTED BENEFIT OBLIGATION
| Principal pension plans | Other pension plans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | 2004 | 2003 | 2004 | 2003 | ||||||||
| Balance at January 1 | $ | 37,827 | $ | 33,266 | $ | 4,863 | $ | 3,475 | ||||
| Service cost for benefits earned | 1,178 | 1,213 | 260 | 162 | ||||||||
| Interest cost on benefit obligations | 2,199 | 2,180 | 317 | 210 | ||||||||
| Participant contributions | 163 | 169 | 31 | 25 | ||||||||
| Plan amendments | — | 654 | 15 | 2 | ||||||||
| Actuarial loss(a) | 969 | 2,754 | 371 | 164 | ||||||||
| Benefits paid | (2,367 | ) | (2,409 | ) | (230 | ) | (148 | ) | ||||
| Acquired plans | — | — | 1,169 | 551 | ||||||||
| Exchange rate adjustments and other | — | — | 448 | 422 | ||||||||
| Balance at December 31(b) | $ | 39,969 | $ | 37,827 | $ | 7,244 | $ | 4,863 | ||||
| (a) | Principally associated with discount rate changes for principal pension plans. |
| (b) | The PBO for the GE Supplementary Pension Plan was $3.3 billion and $2.7 billion at year-end 2004 and 2003, respectively. |
ABO balances for our pension plans follow.
ACCUMULATED BENEFIT OBLIGATION
| December 31 (In millions) | 2004 | 2003 | ||||
|---|---|---|---|---|---|---|
| GE Pension Plan | $ | 35,296 | $ | 33,859 | ||
| GE Supplementary Pension Plan | 1,916 | 1,619 | ||||
| Other pension plans | 6,434 | 4,422 | ||||
Following is information about our pension plans in which the accumulated benefit obligation exceeds the fair value of plan assets:
PLANS WITH ASSETS LESS THAN ABO
| December 31 (In millions) | 2004 | 2003 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Funded plans with assets less than ABO: | |||||||||
| Plan assets | $ | 3,943 | $ | 2,640 | |||||
| Accumulated benefit obligations | 5,075 | 3,460 | |||||||
| Projected benefit obligations | 5,825 | 3,852 | |||||||
| Unfunded plans covered by book reserves:(a) | |||||||||
| Accrued pension liability | 2,948 | 2,456 | |||||||
| Accumulated benefit obligations | 2,628 | 2,201 | |||||||
| Projected benefit obligations | 4,001 | 3,330 | |||||||
| (a) Primarily related to the GE Supplementary Pension Plan. |
Pension Plan Assets are described below.
FAIR VALUE OF ASSETS
| Principal pension plans | Other pension plans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | 2004 | 2003 | 2004 | 2003 | ||||||||
| Balance at January 1 | $ | 43,879 | $ | 37,811 | $ | 3,035 | $ | 2,064 | ||||
| Actual gain on plan assets | 4,888 | 8,203 | 292 | 264 | ||||||||
| Employer contributions | 102 | 105 | 370 | 183 | ||||||||
| Participant contributions | 163 | 169 | 31 | 25 | ||||||||
| Benefits paid | (2,367 | ) | (2,409 | ) | (230 | ) | (148 | ) | ||||
| Acquired plans | — | — | 868 | 373 | ||||||||
| Exchange rate adjustments and other | — | — | 286 | 274 | ||||||||
| Balance at December 31 | $ | 46,665 | $ | 43,879 | $ | 4,652 | $ | 3,035 | ||||
Our pension plan assets are held in trust, as follows:
PLAN ASSET ALLOCATION
| Principal pension plans | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||
| December 31 | Target Allocation | Actual Allocation | Actual Allocation | ||||||
| Equity securities | 51–63 | % | 63 | % | 60 | % | |||
| Debt securities | 21–27 | 19 | 20 | ||||||
| Real estate | 4–8 | 6 | 7 | ||||||
| Private equities | 5–11 | 6 | 7 | ||||||
| Other | 3–7 | 6 | 6 | ||||||
| Total | 100 | % | 100 | % | |||||
Plan fiduciaries of the GE Pension Plan set investment policies and strategies for the GE Pension Trust. Long-term strategic investment objectives include preserving the funded status of the trust and balancing risk and return. These plan fiduciaries oversee the investment allocation process, which includes selecting investment managers, commissioning periodic asset-liability studies, setting long-term strategic targets and monitoring asset allocations. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.
GE Pension Trust assets are invested subject to the following additional guidelines:
- Short-term securities must be rated A1/P1 or better,
- Real estate may not exceed 25% of total assets (6% of trust assets at December 31, 2004),
- Investments in securities not freely tradable may not exceed 20% of total assets (11% of trust assets at December 31, 2004), and
- GE stock is limited by statute when it reaches 10% of total trust assets (7.0% and 6.3% at the end of 2004 and 2003, respectively).
| Other pension plans (weighted average) | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||
| December 31 | Target Allocation | Actual Allocation | Actual Allocation | ||||||
| Equity securities | 62 | % | 65 | % | 63 | % | |||
| Debt securities | 30 | 27 | 32 | ||||||
| Real estate | 3 | 3 | 2 | ||||||
| Other | 5 | 5 | 3 | ||||||
| Total | 100 | % | 100 | % | |||||
Our recorded assets and liabilities for pension plans are as follows:
PREPAID PENSION ASSET (LIABILITY)
| Principal pension plans | Other pension plans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31 (In millions) | 2004 | 2003 | 2004 | 2003 | ||||||||
| Funded status(a) | $ | 6,696 | $ | 6,052 | $ | (2,592 | ) | $ | (1,828 | ) | ||
| Unrecognized prior service cost | 1,260 | 1,571 | 45 | 36 | ||||||||
| Unrecognized net actuarial loss | 7,481 | 7,588 | 1,662 | 1,184 | ||||||||
| Net amount recognized | $ | 15,437 | $ | 15,211 | $ | (885 | ) | $ | (608 | ) | ||
| Amounts recorded in the Statement of Financial Position: | ||||||||||||
| Prepaid pension asset | $ | 17,629 | $ | 17,038 | $ | 158 | $ | 20 | ||||
| Accrued pension obligation(b) | (2,192 | ) | (1,827 | ) | (2,061 | ) | (1,040 | ) | ||||
| Intangible assets | — | — | 57 | 49 | ||||||||
| Accumulated other comprehensive income | — | — | 961 | 363 | ||||||||
| Net amount recognized | $ | 15,437 | $ | 15,211 | $ | (885 | ) | $ | (608 | ) | ||
| (a) | Fair value of assets less PBO, as shown in the preceding tables. |
| (b) | For principal pension plans, represents the GE Supplementary Pension Plan liability. |
Estimated future benefit payments for our pension plans are as follows:
ESTIMATED FUTURE BENEFIT PAYMENTS
| (In millions) | Principal pension plans |
Other pension plans |
||||
|---|---|---|---|---|---|---|
| 2005 | $ | 2,350 | $ | 250 | ||
| 2006 | 2,400 | 250 | ||||
| 2007 | 2,400 | 275 | ||||
| 2008 | 2,500 | 275 | ||||
| 2009 | 2,500 | 300 | ||||
| 2010–2014 | 13,500 | 1,600 | ||||
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