Avon 2014 Annual Report Download - page 110

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
2014 2013 2014 2013 2014 2013
Discount rate 3.83% 4.54% 3.34% 4.58% 4.12% 4.91%
Rate of compensation increase 4.00% 3.91% 3.30% 3.63% N/A N/A
The discount rate used for determining future pension obligations for each individual defined benefit pension 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. defined benefit pension plans determined on
this basis has decreased to 3.55% at December 31, 2014, from 4.56% at December 31, 2013.
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
2014 2013 2012 2014 2013 2012 2014 2013 2012
Discount rate 4.54% 3.55% 4.10% 4.58% 4.59% 5.30% 4.91% 3.99% 4.66%
Rate of compensation increase 4.00% 3.86% 3.82% 3.63% 3.88% 4.13% N/A N/A N/A
Rate of return on assets 7.50% 7.75% 7.75% 6.41% 6.70% 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, 2014, the assumed rate of return on
assets globally was 6.86%, which represents the weighted-average rate of return on all plan assets, including the U.S. and non-U.S. defined
benefit pension plans.
The assumed rate of return for determining 2014 net costs for the U.S. defined benefit pension plan was 7.50%. In addition, the current
rate of return assumption for the U.S. defined benefit pension plan was based on an asset allocation of approximately 70% in corporate and
government bonds and mortgage-backed securities (which are expected to earn approximately 2% to 3% in the long term) and
approximately 30% in equity securities and high yield securities (which are expected to earn approximately 6% to 9% in the long term). In
addition to the physical assets, the asset portfolio has derivative instruments which increase our exposure to higher yielding securities. Similar
assessments were performed in determining rates of return on non-U.S. defined benefit pension plan assets, to arrive at our weighted-
average assumed rate of return of 6.41% for determining 2014 net cost.