Hess 2011 Annual Report Download - page 92

HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Components of net periodic benefit cost for funded and unfunded pension plans and the postretirement
medical plan consisted of the following:
Pension Plans Postretirement Medical Plan
2011 2010 2009 2011 2010 2009
(Millions of dollars)
Service cost ........................... $58 $49 $40 $6 $5 $3
Interest cost ........................... 89 86 83 544
Expected return on plan assets ............ (109) (86) (59) ———
Amortization of unrecognized net actuarial
losses .............................. 47 48 65 21—
Settlement loss ........................ —817 ———
Net periodic benefit cost ................. $85 $105 $146 $13 $10 $ 7
The Corporation’s 2012 pension and postretirement medical expense is estimated to be approximately
$145 million, of which approximately $85 million relates to the amortization of unrecognized net actuarial
losses.
The weighted average actuarial assumptions used by the Corporation’s funded and unfunded pension plans
were as follows:
2011 2010 2009
Weighted average assumptions used to determine benefit obligations at
December 31
Discount rate ............................................. 4.3% 5.3% 5.8%
Rate of compensation increase ............................... 4.3 4.4 4.3
Weighted average assumptions used to determine net benefit cost for years
ended December 31
Discount rate ............................................. 5.3 5.8 6.3
Expected return on plan assets ............................... 7.5 7.5 7.5
Rate of compensation increase ............................... 4.4 4.3 4.4
The actuarial assumptions used by the Corporation’s postretirement medical plan were as follows:
2011 2010 2009
Assumptions used to determine benefit obligations at December 31
Discount rate ............................................... 3.9% 4.8% 5.4%
Initial health care trend rate .................................... 8.0% 8.0% 8.0%
Ultimate trend rate ........................................... 5.0% 5.0% 4.5%
Year in which ultimate trend rate is reached ....................... 2018 2017 2013
The assumptions used to determine net periodic benefit cost for each year were established at the end of
each previous year while the assumptions used to determine benefit obligations were established at each year-
end. The net periodic benefit cost and the actuarial present value of benefit obligations are based on actuarial
assumptions that are reviewed on an annual basis. The discount rate is developed based on a portfolio of high-
quality, fixed income debt instruments with maturities that approximate the expected payment of plan
obligations. The overall expected return on plan assets is developed from the expected future returns for each
asset category, weighted by the target allocation of pension assets to that asset category.
The Corporation’s investment strategy is to maximize long-term returns at an acceptable level of risk
through broad diversification of plan assets in a variety of asset classes. Asset classes and target allocations are
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