In its December 31, 2008 Consolidated Financial Statements, Cola-Cola reports a substantial shift in its net pension liability ($1,328 million) relative to December 31, 2007 ($85 million).

a. Given a portion of Coca-Cola's Note 16 reconciliations provided below, write a memorandum explaining the change in the net pension liability.

(Amounts in millions) 2008

Benefit obligation at the beginning of the year .. $3,517

Service cost ................. 114

Interest cost ................ 205

Foreign currency exchange rate changes ..... (141)

Amendments ................ (13)

Actuarial loss (gain) .............. 125

Benefits paid* ............... (199)

Settlements/curtailments ............ (4)

Special termination benefits .......... 11

Other .................... 3

Benefit obligation at the end of the year .... $3,618

Fair value of plan assets at beginning of year ... $3,428

Actual return on plan assets ......... (961)

Employer contributions ............. 96

Foreign currency exchange rate changes .... (118)

Benefits paid* ............... (155)

Settlements/curtailments ............ (3)

Other .................... 3

Fair value of plan assets at the end of the year . $2,290

b. For each item in the reconciliation, explain whether the effect on the PBO and the fair value of plan assets is reflected in current period pension expense or as a change in other comprehensive income.

c. Provide a general justification for keeping some PBO and fair value of plan asset changes out of current period net income.

d. In the same note, Coca-Cola indicates that it changed a key assumption during the period. The expected rate of increase in compensation levels was decreased by 1 percent. What effect does this assumption change have on the pension liability (PBO) and current and future pension expense?