Eli Lilly 2009 Annual Report Download - page 80

The following represents our weighted-average assumptions as of December 31:
(Percents) 2009 2008 2009 2008
Defined
Benefit
Pension
Plans
Retiree
Health
Benefit Plans
Weighted-average assumptions as of December 31
Discount rate for benefit obligation . . . . . . . . . ........................ 5.9 6.7 6.0 6.9
Discount rate for net benefit costs . . . . . . . . . ........................ 6.7 6.4 6.9 6.7
Rate of compensation increase for benefit obligation . . . . . . . . ........... 3.7 4.1 — —
Rate of compensation increase for net benefit costs . . . . . . . . . ........... 4.1 4.6 — —
Expected return on plan assets for net benefit costs. . . . . . . . . ........... 8.8 9.0 9.0 9.0
In evaluating the expected return on plan assets, we have considered our historical assumptions
compared with actual results, an analysis of current market conditions, our current and expected asset
allocations, and the views of leading financial advisers and economists for future asset class returns. Our
plan assets in our U.S. defined benefit pension and retiree health plans comprise approximately 83 percent
of our worldwide benefit plan assets. Including the investment losses due to overall market conditions in
2001, 2002, and 2008, our 20-year annualized rate of return on our U.S. defined benefit pension plans and
retiree health benefit plan was approximately 8.3 percent as of December 31, 2009. Health-care-cost trend
rates are assumed to increase at an annual rate of 8.0 percent in 2010, decreasing by approximately
0.3 percent per year to an ultimate rate of 5.3 percent by 2018.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be
paid as follows:
2010 2011 2012 2013 2014 2015-2019
Defined benefit pension plans . . . . . ....... $385.0 $391.3 $400.6 $411.6 $427.9 $2,385.2
Retiree health benefit plans-gross . . ....... $104.3 $109.6 $110.1 $115.7 $116.3 $ 656.0
Medicare rebates . . . . . ................. (19.8) (8.6) (10.1) (11.0) (12.6) (81.1)
Retiree health benefit plans-net . . . . ....... $ 84.5 $101.0 $100.0 $104.7 $103.7 $ 574.9
The total accumulated benefit obligation for our defined benefit pension plans was $6.67 billion and
$5.64 billion at December 31, 2009 and 2008, respectively. The projected benefit obligation and fair value
of the plan assets for the defined benefit pension plans with projected benefit obligations in excess of plan
assets were $7.55 billion and $6.01 billion, respectively, as of December 31, 2009, and $6.35 billion and
$4.80 billion, respectively, as of December 31, 2008. The accumulated benefit obligation and fair value of
the plan assets for the defined benefit pension plans with accumulated benefit obligations in excess of
plan assets were $1.01 billion and $107.4 million, respectively, as of December 31, 2009, and $4.98 billion
and $4.06 billion, respectively, as of December 31, 2008.
Net pension and retiree health benefit expense included the following components:
2009 2008 2007 2009 2008 2007
Defined Benefit
Pension Plans Retiree Health Benefit Plans
Components of net periodic benefit cost
Service cost . . . . . . . . . ............ $ 242.1 $ 260.1 $ 287.1 $ 53.7 $ 62.1 $ 70.4
Interest cost . . . . . . . . . ............ 417.5 409.8 362.4 119.6 105.7 101.4
Expected return on plan assets . . . . . . (584.9) (603.0) (548.2) (117.9) (118.4) (102.1)
Amortization of prior service cost
(benefit) ...................... 8.0 8.2 7.7 (36.0) (36.0) (15.7)
Recognized actuarial loss . . . . . . . . . . . 84.5 76.6 130.0 71.8 62.7 95.0
Net periodic benefit cost............ $ 167.2 $ 151.7 $ 239.0 $ 91.2 $ 76.1 $ 149.0
If the health-care-cost trend rates were to be increased by one percentage point each future year, the
December 31, 2009, accumulated postretirement benefit obligation would increase by $167.5 million
(8.3 percent) and the aggregate of the service cost and interest cost components of the 2009 annual
expense would increase by $18.9 million (10.9 percent). A one percentage point decrease in these rates
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FORM 10-K