Kodak 2009 Annual Report Download - page 98

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Plan Asset Investment Strategy
The investment strategy underlying the asset allocation for the pension assets is to achieve an optimal return on assets with an
acceptable level of risk while providing for the long-term liabilities, and maintaining sufficient liquidity to pay current benefits and
other cash obligations of the plans. This is primarily achieved by investing in a broad portfolio constructed of various asset classes
including equity and equity-like investments, debt and debt-like investments, real estate, private equity and other assets and
instruments. Long duration bonds are used to partially match the long-term nature of plan liabilities. Other investment objectives
include maintaining broad diversification between and within asset classes and fund managers, and managing asset volatility relative
to plan liabilities.
Every three years, or when market conditions have changed materially, each of the Company’s major pension plans will undertake
an asset allocation or asset and liability modeling study. The asset allocation and expected return on the plans’ assets are
individually set to provide for benefits and other cash obligations and within each country’s legal investment constraints.
Actual allocations may vary from the target asset allocations due to market value fluctuations, the length of time it takes to implement
changes in strategy, and the timing of cash contributions and cash requirements of the plans. The asset allocations are monitored,
and are rebalanced in accordance with the policy set forth for each plan.
Of the total plan assets attributable to the major U.S. defined benefit plans at December 31, 2009 and 2008, 97% relate to KRIP. The
expected long-term rate of return on plan assets assumption (“EROA”) is based on a combination of formal asset and liability studies
that include forward-looking return expectations given the current asset allocation. In early 2008, an asset and liability modeling
study for the KRIP was completed and resulted in a 9% EROA assumption. During the fourth quarter of 2008, the Kodak Retirement
Income Plan Committee (“KRIPCO”, the committee that oversees KRIP) reevaluated certain portfolio positions relative to current
market conditions and accordingly approved a change to the portfolio to reduce risk associated with volatility in the financial markets.
The Company originally assumed an 8% EROA for 2009 for the KRIP based on its asset allocation at December 31, 2008. During
the first quarter of 2009, KRIPCO again approved a change in the asset allocation for the KRIP. A new asset and liability study was
completed and resulted in an 8.75% EROA. As the KRIP was remeasured as of March 31, 2009, the Company’s long term
assumption for EROA for the remainder of 2009 was updated at that time to reflect the change in asset allocation.
The annual expected return on plan assets for the major non-U.S. pension plans range from 3.64% to 8.10% for 2009. Certain of the
Company’s non-U.S. pension plans adjusted their target asset positions during the fourth quarter of 2008. EROA assumptions for
2009 for those plans were based on their respective asset allocations as of the end of the year. As with the KRIP, the asset
allocations for certain of the Company’s other pension plans were reassessed during 2009 and updated. Asset and liability studies
were therefore completed for those plans during 2009. EROA assumptions for those plans were updated accordingly.
Plan Asset Risk Management
The Company evaluates its defined benefit plans’ asset portfolios for the existence of significant concentrations of risk. Types of
concentrations that are evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign
country, and individual fund. As of December 31, 2009, there were no significant concentrations (defined as greater than 10 percent of
plan assets) of risk in the Company’s defined benefit plan assets.
The Company's weighted-average asset allocations for its major U.S. defined benefit pension plans, by asset category, are as
follows:
As of December 31,
Asset Category 2009 2008 2009 Target
Equity securities 21% 6% 18%-21%
Debt securities 45% 25% 41%-47%
Real estate 6% 7% 4%-10%
Cash 2% 17% 0%-3%
Other 26% 45% 24%-30%
Total 100% 100%