Emerson 2011 Annual Report Download - page 42

40 | 2011 Emerson
As of the plans’ September 30, 2011 and 2010 measurement dates, the total accumulated benefit obligation was
$4,345 and $4,246, respectively. Also, as of the plans’ respective measurement dates, the projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for retirement plans with accumulated benefit obligations
in excess of plan assets were $4,093, $3,907 and $3,380, respectively, for 2011, and $1,120, $1,043 and $618, respec-
tively, for 2010.
Future benefit payments for U.S. plans are estimated to be $174 in 2012, $183 in 2013, $192 in 2014, $200 in 2015,
$208 in 2016 and $1,157 in total over the five years 2017 through 2021. Based on foreign currency exchange rates
as of September 30, 2011, future benefit payments for non-U.S. plans are estimated to be $43 in 2012, $47 in 2013,
$49 in 2014, $55 in 2015, $55 in 2016 and $308 in total over the five years 2017 through 2021. In 2012, the Company
expects to contribute approximately $150 to its retirement plans.
The weighted-average assumptions used in the valuations of pension benefits were as follows:
u.s. plans non-u.s. plans
2009 2010 2011 2009 2010 2011
Assumptions used to determine
net pension expense:
Discount rate 6.50% 5.50% 5.00% 5.9% 5.3% 4.6%
Expected return on plan assets 8.00% 8.00% 8.00% 6.0% 5.9% 5.9%
Rate of compensation increase 3.25% 3.00% 3.00% 3.5% 3.9% 3.5%
Assumptions used to determine
benefit obligations:
Discount rate 5.50% 5.00% 4.75% 5.3% 4.6% 5.2%
Rate of compensation increase 3.00% 3.00% 3.00% 3.9% 3.5% 3.5%
The discount rate for the U.S. retirement plans was 4.75 percent as of September 30, 2011. An actuarially determined,
company-specific yield curve is used to determine the discount rate. The expected return on plan assets assumption
is determined by reviewing the investment returns of the plans for the past 10 years plus longer-term historical returns
of an asset mix approximating Emerson’s asset allocation targets, and periodically comparing these returns to expec-
tations of investment advisors and actuaries to determine whether long-term future returns are expected to differ
significantly from the past. The Company expects to reduce the assumed investment return on plan assets to 7.75 percent
for 2012. Defined benefit pension plan expense for 2012 is expected to be approximately $170, versus $145 in 2011.
The Company’s asset allocations at September 30, 2011 and 2010, and weighted-average target allocations are
as follows:
u.s. plans non-u.s. plans
2010 2011 target 2010 2011 target
Equity securities 65% 62% 60-70% 51% 50% 50-60%
Debt securities 29% 30% 25-35% 31% 32% 25-35%
Other 6% 8% 3-10% 18% 18% 10-20%
Total 100% 100% 100% 100% 100% 100%
The primary objective for the investment of plan assets is to secure participant retirement benefits while earning a
reasonable rate of return. Plan assets are invested consistent with the provisions of the prudence and diversification
rules of ERISA and with a long-term investment horizon. The Company continuously monitors the value of assets
by class and routinely rebalances to remain within target allocations. The strategy for equity assets is to minimize
concentrations of risk by investing primarily in companies in a diversified mix of industries worldwide, while targeting
neutrality in exposure to market capitalization levels, growth versus value profile, global versus regional markets, fund
types and fund managers. The approach for bonds emphasizes investment-grade corporate and government debt with
maturities matching a portion of the longer duration pension liabilities. The bonds strategy also includes a high yield
element which is generally shorter in duration. A small portion of U.S. plan assets is allocated to private equity partner-
ships and real asset fund investments for diversification, providing opportunities for above market returns. Leveraging
techniques are not used and the use of derivatives in any fund is limited to exchange-traded futures contracts and is
inconsequential.