JP Morgan Chase 2009 Annual Report Download - page 190

Notes to consolidated financial statements
JPMorgan Chase & Co./2009 Annual Report 188
result, in 2009 the Firm generally maintained the same expected
return on assets as in the prior year.
For the U.K. defined benefit pension plans, which represent the
most significant of the non-U.S. defined benefit pension plans,
procedures similar to those in the U.S. are used to develop the
expected long-term rate of return on defined benefit pension plan
assets, taking into consideration local market conditions and the
specific allocation of plan assets. The expected long-term rate of
return on U.K. plan assets is an average of projected long-term
returns for each asset class. The return on equities has been se-
lected by reference to the yield on long-term U.K. government
bonds plus an equity risk premium above the risk-free rate. The
return on “AA”-rated long-term corporate bonds has been taken as
the average yield on such bonds.
The discount rate used in determining the benefit obligation under
the U.S. defined benefit pension and OPEB plans was selected by
reference to the yields on portfolios of bonds with maturity dates
and coupons that closely match each of the plan’s projected cash
flows; such portfolios are derived from a broad-based universe of
high-quality corporate bonds as of the measurement date. In years
in which these hypothetical bond portfolios generate excess cash,
such excess is assumed to be reinvested at the one-year forward
rates implied by the Citigroup Pension Discount Curve published as
of the measurement date. The discount rate for the U.K. defined
benefit pension and OPEB plans represents a rate implied from the
yield curve of the year-end iBoxx £ corporate “AA” 15-year-plus
bond index.
The following tables present the weighted-average annualized actuarial assumptions for the projected and accumulated postretirement benefit
obligations, and the components of net periodic benefit costs, for the Firm’s U.S. and non-U.S. defined benefit pension and OPEB plans, as of
and for the periods indicated.
Weighted-average assumptions used to determine benefit obligations
U.S. Non-U.S
December 31, 2009 2008
2009 2008
Discount rate:
Defined benefit pension plans 6.00% 6.65% 2.00-5.70% 2.00-6.20%
OPEB plans 6.00 6.70 5.70 6.20
Rate of compensation increase 4.00 4.00 3.00-4.50 3.00-4.00
Health care cost trend rate:
Assumed for next year 7.75 8.50 5.40 7.00
Ultimate 5.00 5.00 4.50 5.50
Year when rate will reach ultimate 2014 2014 2014 2012
Weighted-average assumptions used to determine net periodic benefit costs
U.S. Non-U.S.
Year ended December 31, 2009 2008 2007 2009 2008 2007
Discount rate:
Defined benefit pension plans 6.65% 6.60% 5.95% 2.00-6.20% 2.25-5.80% 2.25-5.10 %
OPEB plans 6.70 6.60 5.90 6.20 5.80 5.10
Expected long-term rate of return on plan assets:
Defined benefit pension plans 7.50 7.50 7.50 2.50-6.90 3.25-5.75 3.25-5.60
OPEB plans 7.00 7.00 7.00 NA NA NA
Rate of compensation increase 4.00 4.00 4.00 3.00-4.00 3.00-4.25 3.00-4.00
Health care cost trend rate:
Assumed for next year 8.50 9.25 10.00 7.00 5.75 6.63
Ultimate 5.00 5.00 5.00 5.50 4.00 4.00
Year when rate will reach ultimate 2014 2014 2014 2012 2010 2010
The following table presents the effect of a one-percentage-point
change in the assumed health care cost trend rate on JPMorgan
Chase’s total service and interest cost and accumulated postretire-
ment benefit obligation.
1-Percentage- 1-Percentage-
Year ended December 31, 2009 point point
(in millions) increase decrease
Effect on total service and interest cost $ 2 $ (2)
Effect on accumulated postretirement
benefit obligation 36 (31)
At December 31, 2009, the Firm decreased the discount rates used
to determine its benefit obligations for the U.S. defined benefit
pension and OPEB plans in light of current market interest rates,
which will result in an increase in expense of approximately $31
million for 2010. The 2010 expected long-term rate of return on
U.S. pension plan assets and U.S. OPEB plan assets remained at
7.5% and 7.0%, respectively. The health care benefit obligation
trend assumption declined from 8.5% in 2009 to 7.75% in 2010,
declining to a rate of 5% in 2014. As of December 31, 2009, the
interest crediting rate assumption and the assumed rate of com-
pensation increase remained at 5.25% and 4.0%, respectively.
JPMorgan Chase’s U.S. defined benefit pension and OPEB plan
expense is sensitive to the expected long-term rate of return on
plan assets and the discount rate. With all other assumptions held
constant, a 25-basis point decline in the expected long-term rate of
return on U.S. plan assets would result in an increase of approxi-
mately $28 million in 2010 U.S. defined benefit pension and OPEB