financials > notes to consolidated financial statements > note 16 (continued)
note 16 (page 2 of 3)

Additional Information
We evaluate each pension plan to determine whether any additional minimum liability is required. As a result of changes in interest rates and changes in investment returns, an adjustment to the additional minimum pension liability was required for a small number of plans. The adjustment in the liability is recorded as a charge or (credit) to Accumulated Other Comprehensive Loss, net of tax, in shareowners’ investment in the consolidated balance sheets.
(dollars in millions )
Years Ended December 31, 2004   2003   2002  
Increase (decrease) in minimum liability included in other
   comprehensive income, before tax		 $ 587   $ (513 ) $ 1,342  

Assumptions
The weighted-average assumptions used in determining benefit obligations follows:
  Pension   Health Care and Life  
At December 31,   2004     2003     2004     2003  
Discount rate   5.75 %   6.25 %   5.75 %   6.25 %
Rate of future increases in compensation   5.00 %   5.00 %   4.00 %   4.00 %
The weighted-average assumptions used in determining net periodic cost follows:
  Pension Health Care and Life  
Years Ended December 31,   2004     2003     2002     2004     2003     2002  
Discount rate   6.25 %   6.75 %   7.25 %   6.25 %   6.75 %   7.25 %
Expected return on plan assets   8.50     8.50     9.25     8.50     8.50     9.10  
Rate of compensation increase   5.00     5.00     5.00     4.00     4.00     4.00  

In order to project the long-term target investment return for the total portfolio, estimates are prepared for the total return of each major asset class over the subsequent 10-year period, or longer. Those estimates are based on a combination of factors including the following: observable current market interest rates, consensus earnings expectations, historical long-term performance and value-added, and the use of conventional long-term risk premiums. To determine the aggregate return for the pension trust, the projected return of each individual asset class is then weighted according to the allocation to that investment area in the trust’s long-term asset allocation policy. The projected long-term results are then also compared to the investment return earned over the previous 10 years.

The assumed Health Care Cost Trend Rates follows:
    Health Care and Life  
At December 31,   2004     2003     2002  
Health care cost trend rate assumed for next year   10.00 %   10.00 %   11.00 %
Rate to which cost trend rate gradually declines   5.00     5.00     5.00  
Year the rate reaches level it is assumed to remain thereafter   2009     2008     2007  
Assumed health care trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
(dollars in millions )
One-Percentage-Point Increase   Decrease  
Effect on 2004 total service and interest cost $ 245   $ (192 )
Effect on postretirement benefit obligation as of December 31, 2004   3,135     (2,537 )
Medicare Drug Act
On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Drug Act) was signed into law. The Medicare Drug Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. We sponsor several postretirement health care plans that provide prescription drug benefits that are deemed actuarially equivalent to the Medicare Part D. We elected to recognize the impact of the federal subsidy on our accumulated postretirement benefit obligation and net postretirement benefit costs in the fourth quarter of 2003. We anticipate the recognition of the Medicare Drug Act to decrease our accumulated postretirement benefit obligation by $1,337 million and have reduced our net postretirement benefit cost as follows:
(dollars in millions )
Years Ended December 31, 2004   2003  
Service cost $ 18   $ 1  
Interest cost   82     5  
Actuarial gain   55     7  
Net periodic benefit cost $ 155   $ 13  
For continuation of Note 16, see next page.
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* This is an interactive electronic version of Verizon’s 2004 Annual Report to Shareholders, and it is intended to be complete and accurate. The contents of this version are qualified in their entirety by reference to the printed version. A reproduction of the printed version is available in PDF format on this website