Delta Airlines 2010 Annual Report Download - page 44

Table of Contents
Discount Rate. We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned on high
quality fixed income investments and yield-to-maturity analysis specific to our estimated future benefit payments. We used a weighted average discount rate
of 5.69% and 5.93% at December 31, 2010 and 2009, respectively. Our weighted average discount rate for net periodic pension benefit cost in each of the past
three years has varied from the rate selected on our measurement date, ranging from 5.93% to 7.19% between 2008 and 2010, due to remeasurements
throughout the year.
Expected Long-Term Rate of Return. The expected long-term rate of return on the assets (currently approximately 9%) is based primarily on plan-specific
investment studies using historical market returns and volatility data with forward looking estimates based on existing financial market conditions and
forecasts. Modest excess return expectations versus some market indices are incorporated into the return projections based on the actively managed structure
of the investment programs and their records of achieving such returns historically. We review our rate of return on plan asset assumptions annually. These
assumptions are largely based on the asset category rate-of-return assumptions developed annually with our pension plan investment advisors; however, our
annual investment performance for one particular year does not, by itself, significantly influence our evaluation. The investment strategy for our defined
benefit pension plan assets is to utilize a diversified mix of global public and private equity portfolios, public and private fixed income portfolios, and private
real estate and natural resource investments to earn a long-term investment return that meets or exceeds a 9% annualized return target.
The impact of a 0.50% change in these assumptions is shown in the table below:
Effect on Accrued
Effect on 2011 Pension Liability at
Change in Assumption Pension Expense December 31, 2010
0.50% decrease in weighted average discount rate +$8 million +$1.1 billion
0.50% increase in weighted average discount rate - $12 million - $1.0 billion
0.50% decrease in expected long-term rate of return on assets +$40 million —
0.50% increase in expected long-term rate of return on assets - $40 million —
Funding. Our funding obligations for qualified defined benefit plans are governed by the Employee Retirement Income Security Act. The Pension
Protection Act of 2006 allows commercial airlines to elect alternative funding rules ("Alternative Funding Rules") for defined benefit plans that are frozen.
Delta elected the Alternative Funding Rules under which the unfunded liability for a plan (1) may be funded over a fixed 17-year period beginning at the
election date and (2) is calculated using a fixed interest rate of 8.85%.The Alternative Funding Rules apply to our defined benefit pension plan for eligible
non-pilot pre-Merger Delta employees and retirees, effective April 1, 2007, and to our defined benefit pension plans for eligible pre-Merger Northwest
employees and retirees, effective October 1, 2006.
While the Pension Protection Act makes our funding obligations for these plans more predictable, factors outside our control continue to have an impact on
the funding requirements. Estimates of future funding requirements are based on various assumptions and can vary materially from actual funding
requirements. Assumptions include, among other things, the actual and projected market performance of assets; statutory requirements; and demographic data
for participants.
For additional information about our defined benefit pension plans, see Note 10 of the Notes to the Consolidated Financial Statements.
Recent Accounting Standards
In October 2009, the Financial Accounting Standards Board issued "Revenue Arrangements with Multiple Deliverables." The standard revises guidance on
the determination of when individual deliverables may be treated as separate units of accounting and the allocation of consideration among separately
identified deliverables. It also expands disclosure requirements regarding an entity's multiple element revenue arrangements. The standard is effective for
fiscal years beginning on or after June 15, 2010.
We adopted this standard on a prospective basis beginning January 1, 2011. The adoption of this standard did not have a material impact on our
Consolidated Financial Statements, although it could significantly impact our future financial results as we enter into new or materially modified revenue
arrangements related to our SkyMiles Program.
40