Delta Airlines 2015 Annual Report Download - page 47

TableofContents
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,2015,theunfundedbenefitobligationfortheseplansrecordedonourConsolidatedBalanceSheetwas$11.2billion.During2015,we
contributed$1.2billiontotheseplansandrecorded$240millionofexpenseinsalariesandrelatedcostsonourConsolidatedStatementofOperations.In2016,we
estimatewewillcontributeatleast$1.0billiontotheseplans,including$500millionofcontributionsabovetheminimumfundingrequirements,andthatour
expensewillbeapproximately$250million.Themostcriticalassumptionsimpactingourdefinedbenefitpensionplanobligationsandexpensesarethediscount
rate,theexpectedlong-termrateofreturnonplanassetsandlifeexpectancy.
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4.57%and4.14%atDecember31,2015and2014,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4.10%to4.99%between2013and2015.
ExpectedLong-TermRateofReturn.Our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assetsassumptionsannually.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earnalong-termreturnthatmeetsor
exceedsourannualizedreturntargetwhiletakinganacceptablelevelofriskandmaintainingsufficientliquiditytopaycurrentbenefitsandothercashobligations
oftheplan.Thisisachievedbyinvestinginagloballydiversifiedmixofpublicandprivateequity,fixedincome,realassets,hedgefundsandotherassetsand
instruments.Ourexpectedlong-termrateofreturnonassetsfornetperiodicpensionbenefitcostfortheyearendedDecember31,2015was9%.
Theimpactofa0.50%changeintheseassumptionsisshowninthetablebelow:
ChangeinAssumption
Effecton2016
PensionExpense
EffectonAccrued
PensionLiabilityat
December31,2015
0.50%decreaseinweightedaveragediscountrate -$1million +$1.3billion
0.50%increaseinweightedaveragediscountrate -$2million -$1.2billion
0.50%decreaseinexpectedlong-termrateofreturnonassets +$50million —
0.50%increaseinexpectedlong-termrateofreturnonassets -$50million —
LifeExpectancy.WehavehistoricallyutilizedtheSocietyofActuaries'("SOA")publishedmortalitydataindevelopingabestestimateoflifeexpectancy.
During2014,theSOApublishedupdatedmortalitytablesforU.S.plansandanupdatedimprovementscale,whichbothreflectimprovedlongevity.Basedonan
evaluationofthesenewtablesandourperspectiveoffuturelongevity,weupdatedthemortalityassumptionsin2014forpurposesofmeasuringpensionandother
postretirementandpostemploymentbenefitobligations.Theimprovementinlifeexpectancyincreasesourbenefitobligationsandfutureexpenseasbenefit
paymentsarepaidoveranextendedperiodoftime.In2015,wereviewedthemortalityassumptionsandconcludedthattheassumptionsusedin2014continueto
representourbestestimateoflong-termlifeexpectancy.Wewillcontinuetoreviewourassumptionsonanannualbasis.
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%discountrate.Inaddition,becauseofstatutorypensionfundingreliefthatappliestous,wehaveuntil2031tofullyfundourpensionplans.
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