Delta Airlines 2011 Annual Report Download - page 46

Defined Benefit Pension Plans
We sponsor defined benefit pension plans for eligible employees and retirees. These plans are closed to new entrants and frozen for future benefit
accruals. As of December 31, 2011, the unfunded benefit obligation for these plans recorded on our Consolidated Balance Sheet was $11.5 billion. During
2011, we contributed $598 million to these plans and recorded $300 million of expense in salaries and related costs on our Consolidated Statement of
Operations. In 2012, we estimate we will contribute approximately $700 million to these plans and that our expense will be approximately $370 million. The
most critical assumptions impacting our defined benefit pension plan obligations and expenses are the weighted average discount rate and the expected long-
term rate of return on the plan assets.
Weighted Average 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 to value the obligations of 4.94% and 5.69% at December 31, 2011 and 2010, 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 5.70% to 6.49% between 2009
and 2011, due to remeasurements throughout the year.
Expected Long-Term Rate of Return. The expected long-term rate of return on plan assets is based primarily on plan-specific investment studies using
historical market return and volatility data. Modest excess return expectations versus some public 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 also expect to receive a
premium for investing in less liquid private markets. We review our rate of return on plan asset assumptions annually. Our annual investment performance for
one particular year does not, by itself, significantly influence our evaluation. Our actual historical annualized three and five year rate of return on plan assets
for our defined benefit pension plans was approximately 11% and 2%, respectively, as of December 31, 2011. Our annualized five year return includes a
-26% return during 2008. 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 our annualized return target. Our expected long-term rate of return on assets for net periodic pension benefit cost for the year ended December 31,
2011was 9%.
The impact of a 0.50% change in these assumptions is shown in the table below:
Change in Assumption Effect on 2012
Pension Expense Effect on Accrued Pension Liability at
December 31, 2011
0.50% decrease in weighted average discount rate -$1 million +$1.2 billion
0.50% increase in weighted average discount rate - $4 million - $1.1 billion
0.50% decrease in expected long-term rate of return on assets +$39 million —
0.50% increase in expected long-term rate of return on assets - $39 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 frozen defined benefit plan may be amortized over a fixed 17-year period
and is calculated using an 8.85% interest rate.
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, see Note 10 of the Notes to the Consolidated Financial Statements.
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