Compensation Committee Matters

(Continued)

Plans Maintained by Altria

Pensions for our U.S.-based employees have been payable from a funded tax-qualified pension plan and, to the extent that tax law limitations do not allow paying the full pension under the tax-qualified plan, the balance has been payable under supplemental pension plans. Most of the pension benefits promised to our U.S.-based named executive officers have been provided under the supplemental pension plans. Contributions to the tax-qualified deferred profit-sharing plan are also limited by tax rules, with any amount above the limits being credited under the supplemental deferred profit-sharing plan. However, accruals and allocations under these supplemental plans ceased at the end of 2004 for a number of employees, including all of our U.S.-based named executive officers, and were replaced by the Target Payments described under the caption “Target Payments” below.

With respect to the supplemental retirement plan benefits earned for service before 2005, since 1996, we have paid amounts to individual trusts established by a number of employees or to employees themselves that serve to offset the benefits payable under the plans. These pre-2005 benefits promised to employees no longer participating in the supplemental plans have remained in place, but additional funding payments have been discontinued.

- Retirement Plan for Salaried Employees

- Benefit Equalization Plan

- Supplemental Management Employees' Retirement Plan

- Target Payments

- International Management Benefit Program Retirement Plan

Retirement Plan for Salaried Employees

The tax-qualified Retirement Plan for Salaried Employees, or the Retirement Plan, is a non-contributory plan maintained for the benefit of certain of our employees and those of our operating subsidiaries. Subject to tax law limits noted in the discussion of the Benefit Equalization Plan, below, compensation taken into account consists of the amount shown as annual salary and annual incentive in the Summary Compensation Table. However, the compensation taken into account for employees in salary bands A and B under all of the arrangements described in this discussion of “Plans Maintained by Altria” has been limited to annual salary and the lesser of their actual or their target annual incentive payable, assuming a business unit rating of 100 and a personal rating of “Exceeds,” with respect to service in 2006 and later years. This change does not apply to individuals who attain age 55 by December 31, 2006. The only named executive officer currently affected is Mr. Camilleri.

The pension formula generally applicable to calculate benefits for salaried employees provides for lifetime benefits following termination of employment equal to 1.75% of the employee’s highest average annual compensation (annual salary plus annual incentive) during a period of five consecutive years (minus 0.30% of such compensation up to the applicable Social Security covered compensation amount) times years of credited service (up to a maximum of 35). Social Security covered compensation is generally an amount equal to the average of the Social Security taxable wage bases for the 35-year period that ends in the year the participant reaches age 65. This amount is expressed as a single life annuity payable commencing at normal retirement age. The amount may be reduced as a result of permitted elections of continued payments to beneficiaries in the event of the employee’s death or for commencement of payments before attaining normal retirement age.

Employees who terminate employment before age 55 with vested benefits may elect to commence payment of their accrued pensions after attaining age 55. For such employees, the election to commence payments before age 65 results in a reduction in the annual amount payable at a rate of 6% per year multiplied by the number of full and partial years by which benefit commencement precedes attainment of age 65. For employees who continue in employment until age 55 or older, the reduction for early commencement is 6% for each year by which commencement precedes age 60. Thus, for example, the annual benefit a vested employee could immediately begin receiving at age 55 increases from 40% to 70% of the annuity payable at normal retirement age if the employee continues to work until age 55 before retiring.

If an employee has 30 years of service and is age 55 or older, or is 60 or older with five years of service, the annuity immediately payable on early retirement is 100% of that payable at normal retirement age. The result of becoming eligible for such an early retirement benefit is a substantial increase in the present value of the pension. Messrs. Devitre, Parrish, Szymanczyk and Wall are currently eligible for early retirement.

Benefit Equalization Plan

Tax laws applicable to the funded tax-qualified Retirement Plan limit the five-year average annual compensation that can be taken into account under the tax-qualified plan. As a result of these or certain other tax requirements, only a portion of the benefits calculated under the pension formula described above can be paid to the named executive officers and a number of other employees from the Retirement Plan. To compensate for benefits that would be lost by the application of these tax limits, all of the U.S.-based named executive officers accrued supplemental benefits with respect to accredited service in years before 2005 under the BEP. Generally, the benefits accrued under the nonqualified BEP equal the difference between the pension benefits determined under the Retirement Plan provisions described above, disregarding the tax law limits, and those that actually can be provided from the Retirement Plan after taking those limits into account.

Supplemental Management Employees’ Retirement Plan

Supplemental Management Employees’ Retirement Plan, or SERP, provides a framework for certain other retirement benefits that cannot be paid under the Retirement Plan because of tax limitations and that do not fit within the design of the BEP. The benefits provided under the SERP to any individual employee are determined in accordance with the provisions of an agreement between the individual and us. Messrs. Camilleri, Devitre and Szymanczyk have entered into SERP agreements with us.

Mr. Camilleri: Mr. Camilleri was designated a participant in the SERP in 1996 pursuant to which he was provided with a SERP benefit equal to the additional pension benefit he would receive under the Retirement Plan and the BEP if his benefits under those plans were calculated taking into account all of his service with us and our subsidiaries, including his service while covered by our plans in Switzerland (16 years and 5 months) and additional service (5 months) under Kraft pension plans. This SERP benefit is offset by any other employer-provided pension benefits. Mr. Camilleri has waived any entitlement to benefits under our Swiss plan leaving only his Kraft pension plan benefits as an offset. His SERP agreement also limits the service that can be taken into account in calculating his benefits under the SERP so that such service, when combined with his other years of service with us and our affiliates, cannot exceed 35 years, and ensures that on termination of employment at or after age 55 he will be able to elect between actuarially equivalent benefit forms providing survivor benefits to his former spouse under either 50% or 100% joint and survivor options.

Mr. Devitre: Similarly, to reflect his service with us and our subsidiaries in India, Mr. Devitre is entitled under the SERP agreements entered into in 1998 and 2004 to an annual SERP benefit equal to 2.833 years of service multiplied by 1.75% of his final average earnings as of his retirement date, but offset by the retirement benefits he became entitled to under a plan in India as a result of that service.

Mr. Szymanczyk: During 2002, in order to provide a retention incentive to Mr. Szymanczyk, we entered into a SERP agreement providing an enhancement to the benefits payable to him under the Retirement Plan and the BEP. This enhancement provided that if Mr. Szymanczyk continued employment until age 55, he would be credited with an additional five years of service for all purposes and receive his pension benefit without reduction for early commencement of payments. For employment beyond age 55, he would be credited with two years of service for each year of service until age 60. Mr. Szymanczyk attained age 55 in January 2004. Beginning with 2005, he ceased to accrue additional benefits under the BEP and the SERP, and the extra year of service to which he was entitled for each year of service until age 60 and his ability to receive his pension benefit without reduction for early commencement were compensated for as part of the Target Payments he received in lieu of continued accruals under those plans. Additionally, the Compensation Committee has limited retirement benefits for Mr. Szymanczyk beginning in 2008. The present value of Mr. Szymanczyk’s pension, calculated as if he had continued to participate in the BEP and the SERP, cannot exceed $30,000,000.

As noted previously, since 1996, we or our operating subsidiaries have made funding payments to individual trusts established by a number of employees or directly to the employees themselves. These amounts offset benefits otherwise payable at the employee’s retirement for pre-2005 vested benefits promised under both the pension and deferred profit sharing portions of the BEP and the SERP and have not been intended to increase total promised benefits. During 2007, a deposit of $139,975, less applicable tax withholding, was deposited into the trust established by Mr. Parrish with respect to pre-2005 benefits under the BEP or the SERP. No other named executive officers received deposits into their trusts with respect to pre-2005 benefits under the BEP or the SERP.

Target Payments

Beginning with 2005, arrangements were implemented to ensure compliance with tax legislation enacted at that time. Under the arrangements, most employees (including all of the U.S.-based named executive officers) who are eligible for the individual trust payments noted above have not accrued additional benefits under the BEP or the SERP. Instead, they received current payments calculated to approximate (after paying taxes on the payments) the after-tax value of the additional benefits they would have earned had they remained covered by these plans. These “Target Payments” have been made annually shortly after the close of each calendar year during which employment continues, subject to our right to discontinue the payments. Like the payments made for pre-2005 plan benefits, these payments have been made to individual trusts established by the employees, including all of the U.S.-based named executive officers, or to the employees themselves. They were not intended to represent an increase from the benefits previously promised to employees. Instead, the annual Target Payments were intended to provide amounts that employees could have saved for retirement and that had a value approximating the additional supplemental retirement plan accruals they would no longer receive.

These payments completely replaced post-2004 coverage under the supplemental retirement plans for the employees who received them from the beginning of 2005 to the beginning of 2008. The amounts of the payments varied from year to year depending on an employee’s age, salary changes, interest rates, whether the employee would have become eligible for early retirement benefits had he or she continued to be covered by the supplemental retirement plans, and other factors, just as the value of continued plan coverage would have varied from year to year based on such factors.

The portion of the Target Payment that replaced participation in the defined benefit portion of the BEP and the SERP for 2007, which was paid in early 2008, is reported under the “Present Value of Accumulated Benefits” column in the Pension Benefits table above. The Target Payment amounts shown in the column headed “Payments During Last Fiscal Year” is the amount paid in early 2007 in lieu of such participation for 2006. Target Payments that replaced participation in the deferred profit sharing plan portion of the BEP are reported under “All Other Compensation” in the Summary Compensation Table, and are shown above.

The material assumptions used in determining the benefits that our named executive officers receiving Target Payments would have accrued for service during 2007 under the defined benefit portions of the BEP and SERP if they had remained participants in those plans (and thus the Target Payments that replaced such benefits and are reported in the table) were as follows:

• for determining lump sum values, a discount rate of 4.3692% and mortality rate based on the 1994 Group Annuity Reserving table;
• a cost for providing annuity benefits based on the average of contract rates proposed by four insurance companies;
• retirement at the later of early retirement eligibility or current age;
• five-year average annual compensation taking into account 2007 salary and annual incentive paid in 2007; and
• income taxes at the highest applicable rates on benefits they otherwise would have received, on the Target Payments and on earnings on the individual trust investments made with such Target Payments.

The Target Payment amounts have also been adjusted to reflect any needed corrections in estimated data previously used and experience deviations from assumptions previously employed to help ensure that the Target Payments closely approximated the value of the BEP and SERP benefits foregone.

Beginning with the 2008 plan year, we will not continue to make Target Payments as we have done in the past. Instead, we will implement unfunded retirement benefits of equivalent value.

International Management Benefit Program Retirement Plan

For some of his service with us outside the United States, Mr. Devitre is entitled to a benefit under the International Management Benefit Program Retirement Plan, or IMBP, an unfunded arrangement that provides retirement benefits to participants for periods of service not taken into account under the Retirement Plan. The IMBP provides a benefit based on a formula that is essentially the same as that used under the Retirement Plan and takes into account all of a participant’s service with us (up to 40 years). The amount derived from this formula is then reduced by the amount of pensions, foreign social security and similar payments payable to the participant for the same service. Early retirement benefits are payable to participants pursuant to criteria identical to those used under the Retirement Plan. Mr. Devitre is eligible for early retirement under the IMBP.