Document zoD61e4L1QYqJZzv3gQGbdj3B

NANCIAL REVIEW Eaton Corporation The components of pension (expense) income are as follows: Year ended December JI (Millions of dollars) Service cost - benefits earned during year Interest cost on projected benefit obligation Actual return on assets Net amortization and deferral 199J /992 S 1 42) |97| 155 < 1 7) S (1) S (39) (96) 203 (731 S (5) 1991 S (39) (92) 216 (90) J (5) The following table sets forth, by funded status, the asset (liability) recognized in the consolidated balance sheets for pension plans: December 31 199} 1992 Over- Under Over- Under funded funded funded funded (Millions of dollars) Accumulated pension benefit obligation Vested Nonvested Value of future salary projections Total projected pension benefit obligation alue of plan assets tassets in excess of or (less than) projected benefit obligation Unamortized amounts not yet recognized Initial net (asset) obligation Net (gain) loss Prior service cost Adjustment to recognize minimum liability S 979 1.032 U5 1.175 1.371 196 (4,3) 1116) S 59 S 136 III 146 10 156 68 oS.X) 7 i2 i I2i S i78] $ 900 57 957 147 1,104 [.372 268 (63) (198) 34 % 41 $ 101 8 109 14 123 40 (83) 8 (2) 11 (8) $ (74) Measurement of the projected benefit obligation was based on a discount rate of 7.25% in 1993 and 8.25% in 1992'and 1991. The expected compensation growth rate was 4.95% in 1993 and 5.95% in 1992 and 1991. The expected long-term rate of return on assets was 10% in all three years; actual returns during each of these three years exceeded the expected 10% rale. Plan assets were invested in equity and fixed income securities and other instruments. Underfunded plans are associated principally with operations outside the United States. The change in the discount rate to 7.25% at the end of 1993 had the effect of increasing the accumulated pension benefit obliga tion by $103 million with an offsetting decrease in the unamortized net gain. This change will have an immaterial effect on future expense. P(ISTKETI KK.M ENT HKNKHT PLANS OTHER THAN PENSIONS Generally, employees become eligible for posireiirement benefits other than pensions, primarily health care and life insurance for retirees in the United States, when they retire. These benefits are payable for life, although the Company retains the right to modify or terminate the plans providing these benefits. The plans are primarily contributory, with retiree contributions adjusted annually, and contain other cost sharing features, including deductibles and co-payments. Effective January I, 1993. certain plans were amended to limit the annual amount of the Company's future contributions towards employees' posiretirement health care benefits. Company policy is to pay claims as they are incurred since, unlike pensions, there is no effective method to obtain a tax deduction for prefunding of these benefits under existing United States income tax regulations. Expense for postretiremen! benefits other than pensions, with amounts for 1993 and 1992 calculated under SPAS No. 106. is as follows: Year ended December Jl IMillions of dollars) Service cost - benefits earned during year Interest cost or projected benefit obligation Amortization of unrecognized prior service cost Claims incurred and expensed 199.1 1992 1991 S 171 I 371 9 Si 331 $(12) (44) $(56) $(271 S(27) The liability recognized in the consolidated balance sheets for postretirement benefit plans other than pensions is as follows: December J/ (Millions of doJIarM Accumulated posireiiremcm benefit obligation Retirees Eligible plan participants Noneligible plan participants Unamonized amounts not vet recognized Prior service com Net loss 1992 5363 ?s 120 Ml r 75* S5-U J345 45 161 (5 S54o Measurement olThe accumulated posireiirement benefit obligation at December 31. 1993. was based on a 12% annual rate of increase in per capita cost of covered health care benefits (13% for 1992). For 1993, the rale was assumed to decrease raiably (o 5% through 2000 and remain ai that let el (hereafter (6% for 1992). The discount rate was 7.25% in 1993 and 8.5% in 1992. An increase of 1% in assumed health care cost trend rales would increase (he accumulaied postretiremem benelii obligation as of December 31. 1993 by $34 million and the net periodic cost for 1993 by $2 million. The changes in assumed rales had ihe died of increasing the accumulaied post re tirement benefit obligation by S49 million with an offsetting increase in the unamoni/.ed net loss. This change will have an immaterial effect on future expense T