3M 2006 Annual Report Download - page 91

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Obligation by $93 million. This change also increased pension expenses for 2006 by $64 million and postretirement
expenses by $17 million.
The Company reviews external data and its own historical trends for health care costs to determine the health care
trend rates for the postretirement medical plans. As of December 31, 2006, the Company modified its health care
trend rates assumption by raising the rate and separating the trend rates used for plan participants less than 65 years
December 31 are as follows:
Assumed health care trend rates 2006 2005
Pre-65 Post-65
Health care cost trend rate used to determine benefit obligations 9.00% 10.25% 8.00%
Rate that the cost trend rate is assumed to
decline to (ultimate trend rate) 5.00% 5.00% 5.00%
Years to Ultimate Trend Rate 9 9 3
The assumed health care trend rates shown above reflect 0¶VH[SHFWHGPHGLFDODQGGUXJFODLPVH[SHULHQFH7KH
Company has developed certain long-term strategies to help offset trend rates through care management, strategic
sourcing activities and plan design. A one percentage point change in assumed health cost trend rates would have
the following effects:
  
Health Care Cost One Percentage One Percentage
(Millions) Point Increase Point Decrease
Effect on total of service and interest cost $ 24 $ (19)
Effect on postretirement benefit obligation 205 (173)
0¶VLQYHVWPHQWVWUDWHJ\IRULWVpension and postretirement plans is to manage the plans on a going-concern basis.
The primary goal of the funds is to meet the obligations as required. The secondary goal is to earn the highest rate of
return possible, without jeopardizing its primary goal, and without subjecting the Company to an undue amount of
contribution rate volatility. Fund returns are used to help finance present and future obligations to the extent possible
within actuarially determined funding limits and tax-determined asset limits, thus reducing the level of contributions 3M
must make.
3M does not buy or sell any of its own stock as a direct investment for its pension and other postretirement benefit
funds. However, due to external investment management of the funds, the plans may indirectly buy, sell or hold 3M
stock. The aggregate amount of the shares would not be considered to be material relative to the aggregate fund
percentages.
)RUWKH86SHQVLRQSODQWKH&RPSDQ\¶VDVVXPSWLRQIRUthe expected return on plan assets was 8.75% in 2006.
Projected returns are based primarily on broad, publicly traded equity and fixed-income indices and forward-looking
estimates of active portfolio and investment management. The Company's expected long-term rate of return on U.S.
plan assets is based on an asset allocation assumption of 44% U.S. and 15% international equities, with an expected
long-term rate of return of 8.0% for both U.S. and international equities; 13% private equities with an expected long-
term rate of return of 13.0%; 28% fixed-income securities with an expected long-term rate of return of 5.0%; and an
additional rate of return of 0.95% from active investment management. These assumptions result in an 8.75%
expected rate of return on an annualized basis. The plan assets earned a rate of return in excess of 12%, 10% and
13% in 2006, 2005 and 2004, respectively. The average annual actual return on the plan assets over the past 10 and
25 years has been 10.0% and 12.7%, respectively.
associated with prescription drugs in the 65 or older age group. The assumed health care trend rates as of
of age and plan participants 65 years of age or older. The separation of the trend rates reflects the higher costs