Alaska Airlines and Horizon Air 2013 Annual Report Download - page 158

NOTE 8. EMPLOYEE BENEFIT PLANS
Four defined-benefit and five defined-contribution
retirement plans cover various employee groups
of Alaska and Horizon. The defined-benefit plans
provide benefits based on an employee’s term of
service and average compensation for a
specified period of time before retirement. The
qualified defined-benefit pension plans are
closed to new entrants.
Accounting standards require recognition of the
overfunded or underfunded status of an entity’s
defined-benefit pension and other postretirement
plan as an asset or liability in the financial
statements and requires recognition of the
funded status in AOCL.
Qualified Defined-Benefit Pension Plans
The Company’s pension plans are funded as
required by the Employee Retirement Income
Security Act of 1974 (ERISA). The defined-benefit
plan assets consist primarily of marketable
equity and fixed-income securities. The Company
uses a December 31 measurement date for
these plans.
Weighted average assumptions used to
determine benefit obligations as of
December 31:
Discount rates of 4.85% and 3.95% were used
as of December 31, 2013 and 2012,
respectively. For 2013, the rate of compensation
increase used varied from 2.90% to 3.93%,
depending on the related work group. For 2012,
the rate of compensation increases was 3.05%
to 4.02%.
Weighted average assumptions used to
determine net periodic benefit cost for the
years ended December 31:
Discount rates of 3.95%, 4.65%, and 5.55%
were used for the years ended December 31,
2013, 2012, and 2011, respectively. Expected
return on plan assets used was 7.25%, 7.25%
and 7.75% for the years ended December 31,
2013, 2012, and 2011, respectively. The rate of
compensation increase used varied from 3.05%
to 4.02% for the year ended December 31,
2013, 2.94% to 4.17% for the year ended
December 31, 2012, and 2.99% to 4.35% for
the year ended December 31, 2011, depending
on the plan and the related work group.
In determining the discount rate used, the
Company’s policy is to use the rates at the end
of the year on high-quality long-term bonds with
maturities that closely match the expected timing
of future cash distributions from the plan. In
determining the expected return on plan assets,
the Company assesses the current level of
expected returns on risk-free investments
(primarily government bonds), the historical level
of the risk premium associated with the other
asset classes in which the portfolio is invested
and the expectations for future returns of each
asset class. The expected return for each asset
class is then weighted based on the target asset
allocation to develop the expected long-term rate
of return on assets assumption for the portfolio.
Plan assets are invested in common commingled
trust funds invested in equity and fixed income
securities. The asset allocation of the funds in
the qualified defined-benefit plans, by asset
category, is as follows as of December 31:
2013 2012
Asset category:
Money market fund ............. 3% 5%
Domestic equity securities ....... 39% 43%
Non-U.S. equity securities ........ 17% 20%
Fixed income securities ......... 41% 32%
Plan assets ................... 100% 100%
The Company’s investment policy focuses on
achieving maximum returns at a reasonable risk
for pension assets over a full market cycle. The
Company uses a fund manager and invests in
various asset classes to diversify risk. Target
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