Capital One 2015 Annual Report Download - page 211

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
192 Capital One Financial Corporation (COF)
Table 17.5: Assumptions Used in the Accounting for the Plans
December 31,
2015 2014 2015 2014
Defined Pension
Benefits
Other Postretirement
Benefits
Assumptions for benefit obligations at measurement date:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2% 3.9% 4.2% 3.9%
Assumptions for periodic benefit cost for the year ended:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 4.6 3.9 4.6
Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 6.5 6.5 6.5
Assumptions for year-end valuations:
Health care cost trend rate assumed for next year:
Pre-age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 7.0 7.3
Post-age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 7.1 7.4
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) . . . . . . . . . . N/A N/A 4.5 4.5
Year the rate reaches the ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 2037 2028
To develop the expected long-term rate of return on plan assets assumption, consideration was given to 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 was then weighted based on the target asset allocation to develop the expected long-term rate of return on the plan
assets assumption for the portfolio.
Assumed health care trend rates have a significant effect on the amounts reported for the other postretirement benefit plans. A one-
percentage point change in assumed health care cost trend rates would have the following effects:
Table 17.6: Sensitivity Analysis
Year Ended December 31,
(Dollars in millions) 2015 2014
1% Increase 1% Decrease 1% Increase 1% Decrease
Effect on year-end postretirement benefit obligation. . . . . . . . . . . . . . . . . . . . . . $ 5 $ (4) $ 7 $ (6)
Effect on total service and interest cost components . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
Plan Assets
The qualified defined benefit pension plan asset allocations as of the annual measurement dates are as follows:
Table 17.7: Plan Assets
December 31,
2015 2014
Common collective trusts(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57% 59%
Corporate bonds (Standard & Poor’s [“S&P”] rating of A or higher) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Corporate bonds (S&P rating of lower than A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 12
Government securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 16
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Municipal bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100%
__________
(1) Common collective trusts include domestic and international equity securities.