Discover 2009 Annual Report Download - page 135

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The following table presents the assumptions used to determine net periodic benefit cost:
Pension Postretirement
For the Years Ended November 30, For the Years Ended November 30,
2009 2008 2007 2009 2008 2007
Discount rate .......................................................................................... 8.08% 6.36% 5.97% 8.08% 6.36% 5.97%
Expected long-term rate of return on plan assets .......................................... 6.75% 6.75% 6.75% N/A N/A N/A
Rate of future compensation increases ........................................................ N/A 4.53% 4.10% N/A N/A N/A
The expected long-term rate of return on plan assets represents the Company’s best estimate and generally was
estimated by computing a weighted average return of the underlying long-term expected returns on the different asset
classes, based on the target asset allocations. For plans where there is no established target asset allocation, actual asset
allocations were used. The expected long-term return on plan assets is a long-term assumption that generally is expected
to remain the same from one year to the next but is adjusted when there is a significant change in the target asset
allocation, the fees and expenses paid by the plan or market conditions.
The following table presents assumed health care cost trend rates used to determine the postretirement benefit
obligations:
For the Years Ended
November 30,
2009 2008
Health care cost trend rate assumed for next year:
Medical..................................................................................................................................................................... 7.00%–7.90% 7.00%–8.00%
Prescription ................................................................................................................................................................ 9.60% 10.00%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate) .......................................................................... 5.00% 5.00%
Year that the rate reaches the ultimate trend rate .............................................................................................................. 2027 2027
Assumed health care cost trend rates can have a significant effect on the amounts reported for the Company’s
postretirement benefit plans. A one-percentage point change in assumed health care cost trend rates would have the
following effects (dollars in thousands):
One Percentage
Point Increase
One Percentage
Point Decrease
Effect on total of service and interest cost .............................................................................................................. $ 26 $ (23)
Effect on postretirement benefit obligation ............................................................................................................. $389 $(343)
Qualified Plan Assets. The asset allocation for the Qualified Plan at November 30, 2009 and November 30, 2008 and
the targeted asset allocation for 2010 by asset class is as follows:
For the Years Ended
November 30,
2010 Target 2009 2008
Equity securities ........................................................................................................................................................ 35.0% 38.0% 38.0%
Fixed income securities .............................................................................................................................................. 65.0 60.0 60.9
Other – primarily cash............................................................................................................................................... — 2.0 1.1
Total.................................................................................................................................................................... 100.0% 100.0% 100.0%
Qualified Plan Asset Allocation. The Company determined the asset allocation targets for the Qualified Plan based on
its assessment of business and financial conditions, demographic and actuarial data, funding characteristics and related
risk factors. Other relevant factors, including industry practices and long-term historical and prospective capital market
returns were considered as well.
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