Avon 2010 Annual Report Download - page 93

Assumptions
Weighted-average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of December 31 were
as follows:
Pension Benefits
Postretirement BenefitsU.S. Plans Non-U.S. Plans
2010 2009 2010 2009 2010 2009
Discount rate 4.80% 5.35% 5.60% 6.04% 5.28% 5.83%
Rate of compensation increase 4.00-6.00% 4.00-6.00% 3.98% 3.51% N/A N/A
The discount rate used for determining future pension obligations for each individual plan is based on a review of long-term bonds that
receive a high-quality rating from a recognized rating agency. The discount rates for our most significant plans were based on the internal
rate of return for a portfolio 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 5.21% at
December 31, 2010, from 5.70% at December 31, 2009.
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
2010 2009 2008 2010 2009 2008 2010 2009 2008
Discount rate 5.35% 6.05% 6.20% 6.04% 6.42% 5.70% 5.83% 6.23% 6.26%
Rate of compensation increase 4.00-6.00 4.00-6.00 4.00-6.00 4.04 3.69 3.20 N/A N/A N/A
Rate of return on assets 8.00 8.00 8.00 7.31 7.38 7.46 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, 2010, the assumed rate of return on
assets globally was 7.65%, which represents the weighted-average rate of return on all plan assets, including the U.S. and non-U.S. plans.
The assumed rate of return for determining 2010 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 40% in corporate and government bonds and mortgage-backed securities
(which are expected to earn approximately 4% to 6% in the long term) and 60% in equity securities and high yield 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 7.31% for determining 2010 net cost.
Plan Assets
Our U.S. and non-U.S. funded pension and postretirement plans target and weighted-average asset allocations at December 31, 2010 and
2009, by asset category were as follows:
U.S. Pension Plan Non-U.S. Pension Plans U.S. Postretirement Plan
% of Plan Assets % of Plan Assets % of Plan Assets
Target at Year End Target at Year End Target at Year End
Asset Category 2011 2010 2009 2011 2010 2009 2011 2010 2009
Equity securities 58-62% 55% 63% 55-65% 61% 60% 50% –% –%
Debt securities 38-42 37 37 30-40 33 33 50 100 100
Real Estate – – 2 – –
Other – 8 – 0-10 4 7 – – –
Total 100% 100% 100% 100% 100% 100% 100% 100% 100%
A V O N 2010 F-29