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On December 8, 2003, the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the “Act”) was signed into law. The Act, which becomes effective in 2006, introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree healthcare benefit plans that offer “qualified” prescription drug coverage to retirees. Authoritative guidance on the accounting for the federal subsidy is currently pending, and that guidance, when issued, could require plan sponsors, such as Key, to change previously reported information. Management is currently evaluating the impact of the Act on Key’s postretirement healthcare plan. The APBO and net periodic postretirement benefit cost disclosed in this note do not reflect the impact of the Act. 

Income taxes included in the consolidated statements of income are summarized below. Key files a consolidated federal income tax return. 

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Income tax expense on securities transactions totaled $3 million in 2003, $2 million in 2002 and $14 million in 2001. Income tax expense in the above table excludes equity- and gross receipts-based taxes, which are assessed in lieu of an income tax in certain states in which Key operates. These taxes are recorded in noninterest expense on the income statement and totaled $20 million in 2003, $26 million in 2002 and $29 million in 2001. 

## 17. INCOME TAXES 

## EMPLOYEE 401(K) SAVINGS PLAN 

A substantial majority of Key’s employees are covered under a savings plan that is qualified under Section 401(k) of the Internal Revenue Code. Key’s plan permits employees to contribute from 1% to 16% (1% to 10% prior to January 1, 2002) of eligible compensation, with up to 6% being eligible for matching contributions in the form of Key common shares. The plan also permits Key to distribute a discretionary profit-sharing component. Total expense associated with the plan was $54 million in 2003, $54 million in 2002 and $42 million in 2001. 

Significant components of Key’s deferred tax assets and liabilities, included in “accrued income and other assets” and “accrued expense and other liabilities,” respectively, on the balance sheet, are as follows: 

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The following table shows how Key arrived at total income tax expense and the resulting effective tax rate. 

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