Obligations and Funded Status Components of Net Periodic Benefit Costs Recognition of the subsidy for certain retiree groups as an offset to plan costs resulted in a $190 reduction in the APBO at December 31, 2003. The reduction in APBO is included with other deferred actuarial gains and losses. The net periodic benefit cost for postretirement benefits for the year ended December 31, 2004 reflected a reduction of $24 related to the recognition of the federal subsidy under Medicare Part D. Subsequent net periodic postretirement benefit costs will be adjusted to reflect the lower interest cost due to the lower APBO. To the extent that the deferred gains and losses are outside the corridor, the excess will continue to be recognized as prescribed under FAS 106. For other retiree groups, the impact of the potential subsidy benefit has not been recorded because those amounts could not be reasonably estimated. Alcoa has not reflected any changes in participation in the company plan as a result of the Act. The reduction in APBO represents the value of the 28% subsidy and does not reflect any other changes. The subsidy is estimated to reduce the prescription drug portion of the per capita cost by 24%. Currently, Alcoa pays a portion of the prescription drug cost for certain retirees. The benefits for certain retirees were determined to be actuarially equivalent based on an analysis of Alcoa’s existing prescription drug plan provisions and claims experience as compared to the Medicare Part D prescription drug benefit that will be effective in 2006. 59 December 31 Pen sion b enefits 2004 20 0 3 2002 Postretirement benefits 2004 2003 2002 Service cost $ 204 $ 194 $ 176 $3 1 $3 1 $2 5 Interest cost 617 609 593 221 237 224 Expected return on plan assets (719) (727 ) (776) (13) (11) (11) Amortization of prior service cost (benefit) 39 38 38 (6) (32) (32) Recognized actuarial loss 61 8 4 46 40 5 Net periodic benefit costs $ 202 $ 122 $ 35 $279 $265 $211 December 31 Pension benefits 2004 2003 Postretirement benefits 2004 2003 Change in projected benefit obligation Benefit obligation at beginning of year $10,268 $ 9,360 $ 3,661 $ 3,661 Service cost 204 194 31 31 Interest cost 617 609 221 237 Amendments (4) 20 (6) (31) Actuarial losses 220 540 276 112 Acquisitions — 17 — — Divestitures (10) — — — Benefits paid, net of participants’ contributions (668) (656) (355) (349 ) Other transfers, net 46 — — — Exchange rate 78 184 1 — Projected benefit obligation at end of year $10,751 $10,268 $ 3,829 $ 3,661 Change in plan assets Fair value of plan assets at beginning of year $ 8,386 $ 7,531 $ 137 $ 119 Actual return on plan assets 927 1,254 20 18 Acquisitions — 20 — — Employer contributions 101 87 — — Participants’ contributions 24 31 — — Benefits paid (676) (667) — — Administrative expenses (28) (17) — — Other transfers, net 27 — — — Exchange rate 39 147 — — Fair value of plan assets at end of year $ 8,800 $ 8,386 $ 157 $ 137 Funded status $ (1,951) $ (1,882) $(3,672) $(3,524 ) Unrecognized net actuarial loss 1,912 1,775 1,133 916 Unrecognized net prior service cost (benefit) 73 160 (7) (1) Net amount recognized $ 34 $ 53 $(2,546) $(2,609 ) Amounts recognized in the Consolidated Balance Sheet consist of: Prepaid benefit $ 83 $ 108 $ — $ — Accrued benefit liability (1,587) (1,599) (2,546) (2,609 ) Intangible asset 53 84 — — Accumulated other comprehensive loss 1,485 1,460 — — Amount recognized $ 34 $ 53 $(2,546) $(2,609 ) Amounts attributed to joint venture partners 17 19 38 45 Net amount recognized $ 51 $ 72 $(2,508) $(2,564 )