First Data 2013 Annual Report Download - page 102

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The weighted-average rate assumptions used in the measurement of the Company’s net cost are as follows:

  
Discount rate 4.06%4.71%5.21%
Expected long-term return on plan assets 5.55%6.11%6.83%
Rate of compensation increase (a) 1.96%3.60%4.24%
(a) The rate of compensation increases generally apply to active plans.
The Company employs a building block approach in determining the long-term rate of return for plan assets with proper consideration of diversification
and re-balancing. Historical markets are studied and long-term historical relationships between equities and fixed-income securities are preserved consistent
with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as
inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are reviewed to check for
reasonableness and appropriateness. All assumptions are the responsibility of management.
The Company’s pension plan target asset allocation, based on the investment policy as of December 31, 2013, is as follows:
 
 
 
Equity securities 40%60%
Debt securities 60%40%
The Company employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term
return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities and plan funded status. The
investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and
global equity investments. In addition, private equity securities comprise a very small part of the equity allocation. The fixed income allocation is a
combination of fixed income investment strategies designed to contribute to the total rate of return of all plan assets while minimizing risk and supporting the
duration of plan liabilities.
Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and
periodic asset and liability studies. The general philosophy of the Benefit Committee in setting the allocation percentages for the domestic plan shown above is
to adhere to the appropriate allocation mix necessary to support the underlying plan liabilities as influenced significantly by the demographics of the
participants and the frozen nature of the plan.
The goal of the Board of Trustees of the United Kingdom plan is the acquisition of secure assets of appropriate liquidity which are expected to generate
income and capital growth to meet, together with new contributions from the Company, the cost of current and future benefits, as set out in the Trust Deed and
Rules. The Trustees, together with the plan’s consultants and actuaries, further design the asset allocation shown above to limit the risk of the assets failing to
meet the liabilities over the long term. Currently the equity allocation is diversified amongst both United Kingdom and non-United Kingdom equities from
North America, Europe, Japan and Asia Pacific. A small portion is allocated to other global emerging market equity securities. Fixed income is allocated
primarily to United Kingdom government bond securities with the remaining portion in investment-grade corporate bonds.
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