Mercedes 2004 Annual Report Download - page 146

Assumptions. The measurement date for the Group’s pension
plan assets and obligations is principally December 31. The mea-
surement date for the Group’s net periodic pension cost is princi-
pally January 1. Assumed discount rates and rates of increase in
remuneration used in calculating the projected benefit obliga-
tions together with long-term rates of return on plan assets vary
according to the economic conditions of the country in which
the pension plans are situated.
The following weighted average assumptions were used to deter-
mine benefit obligations:
The following weighted average assumptions were used to deter-
mine net periodic pension cost:
Expected Return on Plan Assets. The expected rate of return
for U.S. plans is based on long-term actual portfolio results, his-
torical total market returns and an assessment of the expected
returns for the asset classes in the portfolios. The assumptions
are based on surveys of large asset portfolio managers and peer
group companies of future return expectations over the next ten
years. Accordingly, negative returns during one or several years
may not significantly change the historical long term rate of
return such as to necessitate or warrant revision of the expected
long term rate of return for U.S. plans.
A similar process is implemented to determine the expected rate
of return on plan assets for German Plans. Both capital market
surveys as well as the expertise of major banks and industry pro-
fessionals are used to determine the expected rate of return on
plan assets.
The expected rate of return on plan assets set for 2002 was 7.9%
for German Plans and 10.1% for non-German Plans (primarily U.S.
plans). During 2002, the Investment Committees of Daimler-
Chrysler decided to gradually shift the pension fund portfolio
asset distribution towards a mix more heavily weighted with fixed
income assets, which by definition, would modestly lower return
expectations. Also at that time, the Investment Committees’
analysis of market trends caused management to believe that
future long-term returns for equities and fixed income assets
would be lower than the returns experienced over the previous
25 years. The expected rates of return were therefore lowered
to 7.5% for German Plans and 8.5% for non-German Plans as of
January 1, 2003 which remained consistent through December
31, 2004.
For 2005 the expected rates of return on plan assets are the
same as the rates applied in 2004.
142
6.2
4.5
6.7
5.4
2003 2002
German Plans
5.3
3.0
5.8
3.0
5.8
4.5
2004 2003 2002
Non-German Plans
2004
4.8
3.0
(in %)
Average assumptions:
Discount rate
Rate of long-term compensation increase
6.7
8.5
5.4
7.4
10.1
5.4
2003 2002
German Plans
5.8
7.5
3.0
6.0
7.9
3.0
6.2
8.5
4.5
2004 2003 2002
Non-German Plans
2004
5.3
7.5
3.0
Average assumptions:
Discount rate
Expected return on plan assets (at the beginning of the year)
Rate of long-term compensation increase
(in %)