Avon 2009 Annual Report Download - page 88

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assumptions
Weighted-average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of December 31 were
as follows:
Pension Benefits
U.S. Plans Non-U.S. Plans Postretirement Benefits
2009 2008 2009 2008 2009 2008
Discount rate 5.35% 6.05% 5.85% 6.17% 5.83% 6.23%
Rate of compensation increase 4.00-6.00% 4.00-6.00% 3.44% 3.51% N/A N/A
The discount rate used for determining future pension obliga-
tions for each individual plan is based on areview of long-term
bonds that receive ahigh-quality rating from arecognized rating
agency. The discount rates for our most significant plans were
based on the internal rate of return for aportfolio of high-quality
bonds with maturities that are consistent with the projected
future benefit payment obligations of each plan. The weighted-
average discount rate for U.S. and non-U.S. plans determined on
this basis has decreased to 5.61% at December 31, 2009, from
6.11% at December 31, 2008.
Weighted-average assumptions used to determine net benefit cost recorded in the Consolidated Statements of Income for the years ended
December 31 were as follows:
Pension Benefits
U.S. Plans Non-U.S. Plans Postretirement Benefits
2009 2008 2007 2009 2008 2007 2009 2008 2007
Discount rate 6.05% 6.20% 5.90% 6.17% 5.56% 4.93% 6.23% 6.26% 5.90%
Rate of compensation increase 4.00-6.00 4.00-6.00 5.00 3.51 3.10 2.99 N/A N/A N/A
Rate of return on assets 8.00 8.00 8.00 7.18 7.31 6.85 N/A N/A N/A
In determining the long-term rates of return, we consider the
nature of each plan’s investments, an expectation for each plan’s
investment strategies, historical rates of return and current
economic forecasts, among other factors. We evaluate the
expected rate of return on plan assets annually and adjust as
necessary. In determining the net cost for the year ended
December 31, 2009, the assumed rate of return on assets glob-
ally was 7.6%, which represents the weighted-average rate of
return on all plan assets, including the U.S. and non-U.S. plans.
The majority of our pension plan assets relate to the U.S. pension
plan. The assumed rate of return for determining 2009 net costs
for the U.S. plan was 8%.
In addition, the current rate of return assumption for the U.S.
plan was based on an asset allocation of approximately 32% in
corporate and government bonds and mortgage-backed secu-
rities (which are expected to earn approximately 4% to 6% in
the long term) and 68% in equity securities (which are expected
to earn approximately 7% to 10% in the long term). Similar
assessments were performed in determining rates of return on
non-U.S. pension plan assets, to arrive at our weighted-average
rate of return of 7.18% for determining 2009 net cost.