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D. Norwest’s Contributions to the Postretirement Medical Trust
For the years 1991-94, Norwest made contributions to the
postretirement medical trust for the purpose of providing
postretirement medical benefits.
1. Funding the Postretirement Medical Trust for 1991
During the years at issue, William M. Mercer, Inc.
(hereinafter referred to as Mercer), a national actuarial firm,
prepared actuarial funding valuations for Norwest’s pension plans
and postretirement medical plans. Sometime in late 1990/early
1991, Norwest expressed to Mercer an interest in funding its
retiree medical benefits plan. Norwest understood that employers
were permitted a tax deduction for funding a reserve for
postretirement medical benefits.
On April 14, 1992, Mercer prepared and presented to Norwest a
valuation report entitled “Norwest Corporation Actuarial Funding
Valuation of the Post-retirement Medical Plans as of January 1,
1991" (the 1991 valuation). Mercer computed the present value of
future medical benefits to be $14,096,473 for active employees and
$27,759,057 for retired employees. In determining these
computations, Mercer used a pretax investment rate assumption of 9
percent and an after-tax investment rate of 5.5 percent. Mercer
divided the $14,096,473 for active employees by the “average
actuarial present value of future service” for the active employees
(4.81) to produce a 1991 funding amount of $2,930,660 for active
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