Canon 2015 Annual Report Download - page 68

CANON ANNUAL REPORT 2015
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japanese plans Foreign plans
Millions of yen Millions of yen
Prior service credit ¥ (12,785) ¥ (132)
Actuarial loss 10,830 3,213
December 31 Japanese plans Foreign plans
2015 2014 2015 2014
Discount rate 1.1% 1.1% 3.0% 2.9%
Assumed rate of increase in future compensation levels 3.0% 3.0% 2.0% 2.0%
The estimated prior service credit and actuarial loss for the defined benefit pension plans that will be amortized from accumu-
lated other comprehensive income (loss) into net periodic benefit cost over the next year are summarized as follows:
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
Weighted-average assumptions used to determine net periodic benefi t cost are as follows:
Years ended December 31 Japanese plans Foreign plans
2015 2014 2013 2015 2014 2013
Discount rate 1.1% 1.6% 1.8% 2.9% 3.9% 3.6%
Assumed rate of increase in future compensation levels 3.0% 3.0% 3.0% 2.0% 2.3% 2.2%
Expected long-term rate of return on plan assets 3.1% 3.1% 3.1% 5.6% 4.9% 5.2%
Canon determines the expected long-term rate of return
based on the expected long-term return of the various asset
categories in which it invests. Canon considers the current
expectations for future returns and the actual historical returns
of each plan asset category.
Plan assets
Canon’s investment policies are designed to ensure adequate
plan assets are available to provide future payments of pen-
sion benefits to eligible participants. Taking into account the
expected long-term rate of return on plan assets, Canon for-
mulates a “model” portfolio comprised of the optimal combi-
nation of equity securities and debt securities. Plan assets are
invested in individual equity and debt securities using the guide-
lines of the “model” portfolio in order to produce a total return
that will match the expected return on a mid-term to long-
term basis. Canon evaluates the gap between expected return
and actual return of invested plan assets on an annual basis to
determine if such differences necessitate a revision in the for-
mulation of the “model” portfolio. Canon revises the “model”
portfolio when and to the extent considered necessary to
achieve the expected long-term rate of return on plan assets.
Canon’s model portfolio for Japanese plans consists of three
major components: approximately 20% is invested in equity
securities, approximately 55% is invested in debt securities,
and approximately 25% is invested in other investment vehi-
cles, primarily consisting of investments in life insurance
company general accounts.
Outside Japan, investment policies vary by country, but the
long-term investment objectives and strategies remain con-
sistent. Canon’s model portfolio for foreign plans has been
developed as follows: approximately 35% is invested in equity
securities, approximately 35% is invested in debt securities,
and approximately 30% is invested in other investment vehi-
cles, primarily consisting of investments in real estate assets.
The equity securities are selected primarily from stocks
that are listed on the securities exchanges. Prior to investing,
Canon has investigated the business condition of the investee
companies, and appropriately diversified investments by type
of industry and other relevant factors. The debt securities are
selected primarily from government bonds, public debt instru-
ments, and corporate bonds. Prior to investing, Canon has
investigated the quality of the issue, including rating, interest
rate, and repayment dates, and has appropriately diversified
the investments. Pooled funds are selected using strategies
consistent with the equity and debt securities described above.
As for investments in life insurance company general accounts,
the contracts with the insurance companies include a guaran-
teed interest rate and return of capital. With respect to invest-
ments in foreign investment vehicles, Canon has investigated
the stability of the underlying governments and economies,
the market characteristics such as settlement systems and
the taxation systems. For each such investment, Canon has
selected the appropriate investment country and currency.