Analyzing and Interpreting Pension and Health Care Footnote Norfolk Southern Railroad reports the following pension and other postretirement benefits footnote as part of its 10-K report. Other Post- Pension Retirement December 31, 2018 ($ millions) Benefits Benefits Change in Benefit Obligation Benefit obligation at beginning of year $2,541 $510 Service cost 39 7 Interest cost 83 15 Actuarial losses (gains) (149) (24) Benefits paid/settlements (143) (42) Benefit obligation at end of year $2,371 $466 Change in plan assets Fair Value of plan assets at beginning of year $2,373 $201 Actual return on plan assets (143) (19) Employer contribution 18 18 Benefits paid (143) (42) Fair value of plan assets at end of year $2,105 $158 Net cost benefit Service cost $ 39 $ 7 Interest cost 83 15 Expected return on plan assets (177) (15) Amortization of net losses 57 Amortization of prior service cost (benefit) (24) Net cost (benefit) $ 2 $(17) (a) Describe what is meant by service cost and interest cost (the service and interest costs appear both in the reconciliation of the PBO and in the computation of pension expense). Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is the expense we incur on funds borrowed by the pension plan. Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is an expense that accrues on the pension obligation during the year. Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year. Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is the expense we incur on funds borrowed by the pension plan. (b) What is the actual return on the pension and other postretirement benefits plan investments in 2018? Use a negative sign to indicate the actual return was a loss, if applicable. $ million Was Norfolk Southern's profitability impacted by this amount? The actual return for the pension plans is the income or loss that is reported in Norfolk Southern's income statement. The expected return (not the actual return) on the pension plan assets impacts Norfolk Southern's income for 2018. Pension expense is reduced by this amount. Norfolk Southern's profit is reduced by the expected return on pension assets. The actual return for both plans is the income or loss that is reported in Norfolk Southern's income statement. (C) Provide an example under which an "actuarial gain," such as the 2018 gain of $149 million that Norfolk Southern reports, might arise. A increase in the amount of benefit payments, A decrease in the expected return assumption. A decrease in the actual return on plan assets. An increase in the discount rate. (d) What is the source of funds to make payments to retirees? pension and other postretirement benefit obligations pension and other postretirement benefit liabilities pension and other postretirement benefit assets operating cash flows (e) How much cash did Norfolk Southern contribute to its pension and other postretirement benefits plans in 2018? Pension = $ million Postretirement benefits = $ million (f) How much cash did retirees receive in 2018 from the pension plan and other postretirement benefits plans? Pension = $ million Postretirement benefits = $ million How much cash did Norfolk Southern pay these retirees in 2018? $ million (g) Show the computation of the funded status for the pension and other postretirement benefits plans in 2018. Do not use negative signs with your answers. Pension : $2,371 million - $ million = $ millio underfunded overfunded Postretirement benefits: $466 million - $ million = $ . Analyzing and Interpreting Pension and Health Care Footnote Norfolk Southern Railroad reports the following pension and other postretirement benefits footnote as part of its 10-K report. Other Post- Pension Retirement December 31, 2018 ($ millions) Benefits Benefits Change in Benefit Obligation Benefit obligation at beginning of year $2,541 $510 Service cost 39 7 Interest cost 83 15 Actuarial losses (gains) (149) (24) Benefits paid/settlements (143) (42) Benefit obligation at end of year $2,371 $466 Change in plan assets Fair Value of plan assets at beginning of year $2,373 $201 Actual return on plan assets (143) (19) Employer contribution 18 18 Benefits paid (143) (42) Fair value of plan assets at end of year $2,105 $158 Net cost benefit Service cost $ 39 $ 7 Interest cost 83 15 Expected return on plan assets (177) (15) Amortization of net losses 57 Amortization of prior service cost (benefit) (24) Net cost (benefit) $ 2 $(17) (a) Describe what is meant by service cost and interest cost (the service and interest costs appear both in the reconciliation of the PBO and in the computation of pension expense). Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is the expense we incur on funds borrowed by the pension plan. Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is an expense that accrues on the pension obligation during the year. Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year. Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is the expense we incur on funds borrowed by the pension plan. (b) What is the actual return on the pension and other postretirement benefits plan investments in 2018? Use a negative sign to indicate the actual return was a loss, if applicable. $ million Was Norfolk Southern's profitability impacted by this amount? The actual return for the pension plans is the income or loss that is reported in Norfolk Southern's income statement. The expected return (not the actual return) on the pension plan assets impacts Norfolk Southern's income for 2018. Pension expense is reduced by this amount. Norfolk Southern's profit is reduced by the expected return on pension assets. The actual return for both plans is the income or loss that is reported in Norfolk Southern's income statement. (C) Provide an example under which an "actuarial gain," such as the 2018 gain of $149 million that Norfolk Southern reports, might arise. A increase in the amount of benefit payments, A decrease in the expected return assumption. A decrease in the actual return on plan assets. An increase in the discount rate. (d) What is the source of funds to make payments to retirees? pension and other postretirement benefit obligations pension and other postretirement benefit liabilities pension and other postretirement benefit assets operating cash flows (e) How much cash did Norfolk Southern contribute to its pension and other postretirement benefits plans in 2018? Pension = $ million Postretirement benefits = $ million (f) How much cash did retirees receive in 2018 from the pension plan and other postretirement benefits plans? Pension = $ million Postretirement benefits = $ million How much cash did Norfolk Southern pay these retirees in 2018? $ million (g) Show the computation of the funded status for the pension and other postretirement benefits plans in 2018. Do not use negative signs with your answers. Pension : $2,371 million - $ million = $ millio underfunded overfunded Postretirement benefits: $466 million - $ million = $