General Dynamics 2013 Annual Report Download - page 61

The following table represents amounts deferred in AOCL on the
Consolidated Balance Sheets on December 31, 2013, that we expect
to recognize in our retirement benefit cost in 2014:
Pension Benefits
Other Post-
retirement
Benefits
Prior service (credit) cost $ (67) $ 5
Net actuarial loss 294 9
A pension plan’s funded status is the difference between the plan’s
assets and its PBO. The PBO is the present value of future benefits
attributed to employee services rendered to date, including
assumptions about future compensation levels. A pension plan’s
accumulated benefit obligation (ABO) is the present value of future
benefits attributed to employee services rendered to date, excluding
assumptions about future compensation levels. The ABO for all
defined-benefit pension plans was $11.5 billion and $10.6 billion on
December 31, 2012 and 2013, respectively. On December 31, 2012
and 2013, some of our pension plans had an ABO that exceeded the
plans’ assets. Summary information for those plans follows:
December 31 2012 2013
PBO $ (11,956) $ (10,627)
ABO (11,323) (10,275)
Fair value of plan assets 7,028 7,988
Retirement Plan Assumptions
We calculate the plan assets and liabilities for a given year and the net
periodic benefit cost for the subsequent year using assumptions
determined as of December 31 of the year in question.
The following table summarizes the weighted average assumptions
used to determine our benefit obligations:
Assumptions on December 31 2012 2013
Pension Benefits
Discount rate 4.22% 4.95%
Rate of increase in compensation levels 3.77% 3.70%
Other Post-retirement Benefits
Discount rate 3.97% 4.74%
Healthcare cost trend rate:
Trend rate for next year 8.00% 8.00%
Ultimate trend rate 5.00% 5.00%
Year rate reaches ultimate trend rate 2019 2019
The following table summarizes the weighted average assumptions
used to determine our net periodic benefit costs:
Assumptions for Year Ended December 31 2011 2012 2013
Pension Benefits
Discount rate 5.73% 5.22% 4.22%
Expected long-term rate of return on assets 8.37% 8.24% 8.14%
Rate of increase in compensation levels 3.86% 3.77% 3.79%
Other Post-retirement Benefits
Discount rate 5.54% 5.13% 3.97%
Expected long-term rate of return on assets 8.03% 8.03% 8.03%
We base the discount rate on a current yield curve developed from a
portfolio of high-quality fixed-income investments with maturities
consistent with the projected benefit payout period. We determine the
long-term rate of return on assets based on consideration of historical
and forward-looking returns and the current and expected asset
allocation strategy.
These assumptions are based on our best judgment, including
consideration of current and future market conditions. Changes in these
estimates impact future pension and post-retirement benefit costs. As
discussed above, we defer recognition of the cumulative benefit cost for
our government plans in excess of costs allocable to contracts to provide
a better matching of revenues and expenses. Therefore, the impact of
annual changes in financial reporting assumptions on the cost for these
plans does not affect our operating results either positively or negatively.
For our domestic pension plans that represent the majority of our total
obligation, the following hypothetical changes in the discount rate and
expected long-term rate of return on plan assets would have had the
following impact in 2013:
Increase
25 basis
points
Decrease
25 basis
points
Increase (decrease) to net pension cost from:
Change in discount rate $ (37) $ 31
Change in long-term rate of return on plan assets (16) 16
General Dynamics Annual Report 2013 57