Honeywell 2008 Annual Report Download - page 64

combined with current market conditions and broad asset mix considerations (see Note 22 to the financial
statements for actual and targeted asset allocation percentages for our pension plans). The discount rate reflects
the market rate on December 31 (measurement date) for high-quality fixed-income investments with maturities
corresponding to our benefit obligations and is subject to change each year. Further information on all our major
actuarial assumption is included in Note 22 to the financial statements.
The key assumptions used in developing our 2008, 2007 and 2006 net periodic pension expense for our U.S.
plans included the following:
2008 2007 2006
Discount rate 6.50% 6.00% 5.75%
Assets:
Expected rate of return 9% 9% 9%
Actual rate of return (29%) 9% 14%
Actual 10 year average annual compounded rate of
return 4% 9% 10%
The discount rate can be volatile from year to year because it is determined based upon prevailing interest
rates as of the measurement date. We will use a 6.95 percent discount rate in 2009, reflecting the increase in the
market interest rate environment since December 31, 2007. We plan to continue to use an expected rate of
return on plan assets of 9 percent for 2009 based principally on our historical experience of actual plan returns.
The net losses for our pension plans were $6.0 billion at December 31, 2008 compared with $1.7 billion at
December 31, 2007. This increase of $4.3 billion is due primarily to asset losses in our U.S. plans in 2008 due to
the poor performance of the equity markets throughout 2008. The net losses at December 31, 2008 principally
result from actual plan asset returns below expected rates of return in 2008 and from the decline each year in the
discount rate for the period 2002 through 2006. Since our adoption of SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158) as of December 31, 2006 which is
discussed in detail in Notes 1 and 22 to the financial statements such losses have been recognized as a
component of other comprehensive income (loss), net of tax. In the future we will continue to systematically
recognize such net losses in net periodic pension expense in accordance with Statement of Financial Accounting
Standards No. 87, "Employers Accounting for Pensions" (SFAS No. 87). Under SFAS No. 87, we use the market-
related value of plan assets reflecting changes in the fair value of plan assets over a three-year period. Further,
net losses in excess of 10 percent of the greater of the market-related value of plan assets or the plans' projected
benefit obligation (the corridor) are recognized over a six-year period.
Changes in net periodic pension expense may occur in the future due to changes in our expected rate of
return on plan assets and discount rate resulting from economic events. The following table highlights the
sensitivity of our U.S. pension obligations and expense to changes in these assumptions, assuming all other
assumptions remain constant:
Change in Assumption Impact on Annual
Pension Expense Impact on PBO
0.25 percentage point decrease in discount rate Increase $50 million Increase $303 million
0.25 percentage point increase in discount rate Decrease $50 million Decrease $295 million
0.25 percentage point decrease in expected rate of
return on assets Increase $29 million —
0.25 percentage point increase in expected rate of
return on assets Decrease $29 million —
Net periodic pension expense for our pension plans is expected to be approximately $170 million in 2009, a
$193 million increase from 2008 due principally to an increase in the amortization of net losses in our U.S. plans.
The increase in the amortization of net losses results principally from asset losses due to the poor performance
of the equity markets throughout 2008.
In 2008, 2007 and 2006 we were not required to make contributions to satisfy minimum statutory funding
requirements in our U.S. pension plans. However, we made voluntary cash contributions of $42, $42 and $68
million to our U.S. pension plans in 2008, 2007 and 2006, respectively, for government contracting purposes. In
December 2008, we also made a voluntary contribution of $200
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