Discover 2014 Annual Report Download - page 143

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range of possible economic scenarios and evaluate their likelihood. Historical relationships between key economic
variables and asset class performance patterns are analyzed using empirical models. Finally, comprehensive asset class
performance projections are created by blending descriptive asset class characteristics with capital market insight and
the initial economic analyses. 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 if there is a material change in the target asset
allocation and/or significant changes in fees and expenses paid by the Discover Pension Plan.
Discover Pension Plan Assets
The targeted asset allocation for 2015 by asset class is 45% and 55% for equity securities and fixed income
securities, respectively. The Discover Financial Services Retirement Plan Investment Committee (the “Investment
Committee”) determined the asset allocation targets for the Discover Pension 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.
The Discover Pension Plan return objectives provide long-term measures for monitoring the investment
performance against growth in the pension obligations. The overall allocation is expected to help protect the Discover
Pension Plan's funded status while generating sufficiently stable real returns (net of inflation) to help cover current and
future benefit payments and to improve the Discover Pension Plan's funded status. Total Discover Pension Plan portfolio
performance is assessed by comparing actual returns with relevant benchmarks, such as the Standard & Poor's (“S&P”)
500 Index, the S&P 500 Total Return Index, the Russell 2000 Index and the MSCI All Country World Index.
Both the equity and fixed income portions of the asset allocation use a combination of active and passive
investment strategies and different investment styles. The fixed income asset allocation consists of longer duration fixed
income securities in order to help reduce plan exposure to interest rate variation and to better correlate assets with
obligations. The longer duration fixed income allocation is expected to help stabilize the funding status ratio over the
long term.
The asset mix of the Discover Pension Plan is reviewed by the Investment Committee on a regular basis. The asset
allocation strategy will change over time in response to changes in the Discover Pension Plan's funded status.