The actual tax rate for the years ended December  31 ,  2002 ,  2003  and  2004  compared to the statutory U.S. Federal tax  rate is as follows: Year Ended December  31 , 2002 2003 2004 Income taxes at statutory rate 35 . 00 % 35 . 00 % 35 . 00 % Foreign tax differential . 20 ( 1 . 80 ) 3 . 11 Non-deductible expenses . 22 . 16 . 21 Branch remittance gains and losses (. 55 ) (. 38 ) (. 32 ) Distributor stock options and employee stock awards — 1 . 94 — Permanently reinvested controlled foreign corporation  income — — ( 2 . 89 ) Other 2 . 13 2 . 08 1 . 30 37 . 00 % 37 . 00 % 36 . 41 % The decrease in the effective tax rate in  2004  was due to the Company’s election in  2004  to permanently reinvest a  portion of the Company’s earnings from its foreign operations. The Company anticipates the remittance of these earnings  to be postponed indefinitely. The Company has a  401 (k) defined contribution plan which permits participating employees to defer up to a maximum of  15 % of their compensation, subject to limitations established by the Internal Revenue Code. Employees who work a mini- mum of  1 , 000  hours per year, who have completed at least one year of service and who are  21  years of age or older are  qualified to participate in the plan. The Company matches  100 % of the first  2 % and  50 % of the next  2 % of each participant’s  contributions to the plan. Participant contributions are immediately vested. Company contributions vest based on the  participant’s years of service at  25 % per year over four years. The Company recorded compensation expense of $ 1 . 2  million,  $ 1 . 1  million and $ 1 . 3  million for the years ended December  31 ,  2002 ,  2003  and  2004 , respectively, related to its contribu- tions to the plan.  The Company has a defined benefit pension plan for its employees in Japan. All employees of Nu Skin Japan, after  certain years of service, are entitled to pension plan benefits when they terminate employment with Nu Skin Japan. The  accrued pension liability was $ 3 . 7  million and $ 4 . 4  million as of December  31 ,  2003  and  2004 , respectively. Although Nu  Skin Japan has not specifically funded this obligation, Nu Skin Japan believes it maintains adequate cash balances for this  defined benefit pension plan. The Company recorded pension expense of $ 0 . 6  million, $ 0 . 7  million and $ 0 . 8  million for  the years ended December  31 ,  2002 ,  2003  and  2004 , respectively. The Company has an executive deferred compensation plan for select management personnel. Under this plan, the Com- pany currently makes a contribution of  10 % of each participant’s salary. In addition, each participant has the option to  defer a portion of their compensation up to a maximum of  100 % of their compensation. Participant contributions are im- mediately vested. Company contributions vest based on the earlier of (a) attaining  60  years of age, (b) continuous employ- ment of  20  years or (c) death or disability. The Company recorded compensation expense of $ 0 . 4  million, $ 0 . 6  million and  $ 0 . 7  million for the years ended December  31 ,  2002 ,  2003  and  2004 , respectively, related to its contributions to the plan.  The Company had accrued $ 3 . 3  million and $ 4 . 5  million as of December  31 ,  2003  and  2004 , respectively, related to the  Executive Deferred Compensation Plan. At December  31 ,  2003  and  2004 , the Company held forward contracts designated as foreign currency cash flow hedges  with notional amounts totaling approximately $ 64 . 3  million and $ 82 . 0  million, respectively, to hedge forecasted foreign- currency-denominated intercompany transactions. All such contracts were denominated in Japanese yen. As of December  31 ,  2003  and  2004 , $ 3 . 9  million of net unrealized losses and $ 3 . 2  million of net unrealized loss, net of related taxes, re- spectively, were recorded in accumulated other comprehensive loss. The contracts held at December  31 ,  2004  have ma- turities through December  2005  and accordingly, all unrealized gains and losses on foreign currency cash flow hedges  included in accumulated other comprehensive loss will be recognized in current earnings over the next  12  months. The  pre-tax net gain on foreign currency cash flow hedges recorded in current earnings was $ 4 . 5  million for the year ended  15 . DERIVATIVE FINANCIAL INSTRUMENTS 14 . EXECUTIVE DEFERRED COMPENSATION PLAN 13 . EMPLOYEE BENEFIT PLAN 68