Emerson 2004 Annual Report Download - page 46

44 Emerson 2004
The primary objectives for the investment of plan assets is to secure participant retirement benefits and to minimize reliance on
contributions as a source of benefit security. Plan assets are invested consistent with the provisions of prudence and diversification rules of
ERISA and with a long-term investment horizon. The expected return on plan assets assumption is determined by reviewing the investment
return of the plans for the past ten years and the historical return (since 1926) of a 70% equity / 30% debt asset allocation and evaluating
these returns in relation to expectations of various investment organizations to determine whether long-term future returns are expected
to differ significantly from the past. The Company’s pension plan asset allocations at June 30, 2003 and 2004, and target weighted-average
allocations are as follows:
U.S. Plans Non-U.S. Plans
2003 2004 Target 2003 2004 Target
Asset category
Equity securities 66% 70% 70% 52% 53% 55%
Debt securities 34% 30% 30% 36% 37% 35%
Other – – – 12% 10% 10%
100% 100% 100% 100% 100% 100%
The Company estimates that future benefit payments for the U.S. plans will be as follows: $119 in 2005, $126 in 2006, $134 in 2007, $141
in 2008, $150 in 2009 and $780 in total over the five years 2010 through 2014. Using foreign exchange rates as of September 30, 2004,
the Company estimates that future benefit payments for the non-U.S. plans will be as follows: $20 in 2005, $22 in 2006, $23 in 2007, $25 in
2008, $26 in 2009 and $156 in total over the five years 2010 through 2014. In 2005, the Company expects to contribute less than $100 to
the retirement plans.
(11) POSTRETIREMENT PLANS
The Company sponsors unfunded postretirement benefit plans (primarily health care) for U.S. retirees and their dependents.
Net postretirement plan expense for the years ended September 30, 2002, 2003 and 2004, follows:
2002 2003 2004
Service cost $ 6 7 5
Interest cost 26 27 25
Net amortization – 8 19
Net postretirement plan expense $32 42 49
The reconciliations of the actuarial present value of accumulated postretirement benefit obligations follow:
2003 2004
Benefit obligation, beginning $377 426
Service cost 7 5
Interest cost 27 25
Actuarial losses 46 30
Benefits paid (40) (37)
Acquisitions/divestitures and other 9 (5)
Benefit obligation, ending 426 444
Unrecognized net loss (89) (101)
Unrecognized prior service (costs) benefit (8) 8
Postretirement benefit liability recognized in the balance sheet $329 351
The assumed discount rates used in measuring the obligations as of September 30, 2004, 2003 and 2002, were 5.75 percent, 6.00 percent
and 7.00 percent, respectively. The assumed health care cost trend rate for 2005 was 9.5 percent, declining to 5.0 percent in the year 2013.
The assumed health care cost trend rate for 2004 was 10.0 percent, declining to 5.0 percent in the year 2013. A one-percentage-point
increase or decrease in the assumed health care cost trend rate for each year would increase or decrease the obligation as of September 30,
2004, and the 2004 postretirement plan expense by less than five percent. The Company estimates that future benefit payments will be
$39 annually for 2005 through 2009, and $195 in total over the five years 2010 through 2014.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. In
accordance with FASB Staff Position 106-2, neither the amount of postretirement benefit expense nor the accumulated postretirement
benefit obligation in the financial statements and accompanying notes reflects the effects of the Act on the Company’s postretirement
benefit plans. The Company does not expect the effects of the Act to have a material impact on the financial statements.