MoneyGram 2008 Annual Report Download - page 125

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
funding policy is to make contributions to the postretirement benefits plans as benefits are paid. During 2007, the Company amended the
postretirement benefit plans for certain benefits relating to co-payments, deductibles, coinsurance and maximum benefit payments,
resulting in a $0.6 million reduction in the benefit obligation. The Company has determined that its postretirement plan is actuarially
equivalent to the Medicare Act and its application for determination of actuarial equivalence has been approved by the Medicare Retiree
Drug Subsidy program. The postretirement benefits expense for 2008, 2007 and 2006 was reduced by less than $0.2 million due to
subsidies received under the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Subsidies to be received under
the Medicare Act in 2009 are not expected to be material.
Actuarial Valuation Assumptions — The measurement date for the Company's Pension Plan, SERPs and postretirement benefit plans is
December 31. Following are the weighted average actuarial assumptions used in calculating the benefit obligation and net benefit cost as
of and for the years ended December 31:
Pension and SERPs Postretirement Benefits
2008 2007 2006 2008 2007 2006
Net periodic benefit cost:
Discount rate 6.50% 5.70% 5.90% 6.50% 5.70% 5.90%
Expected return on plan assets 8.00% 8.00% 8.00% — — —
Rate of compensation increase 5.75% 5.75% 5.75% — — —
Initial healthcare cost trend rate — — — 9.00% 9.50% 10.00%
Ultimate healthcare cost trend rate — — — 5.00% 5.00% 5.00%
Year ultimate healthcare cost trend rate is reached — — — 2013 2013 2013
Projected benefit obligation:
Discount rate 6.30% 6.50% 5.70% 6.30% 6.50% 5.70%
Rate of compensation increase 5.75% 5.75% 5.75% — — —
Initial healthcare cost trend rate — — — 8.50% 9.00% 9.50%
Ultimate healthcare cost trend rate — — — 5.00% 5.00% 5.00%
Year ultimate healthcare cost trend rate is reached — — — 2013 2013 2013
The Company utilizes a building-block approach in determining the long-term expected rate of return on plan assets. Historical markets
are studied and long-term historical relationships between equity securities and fixed income securities are preserved consistent with the
widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market
factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-term
portfolio return also takes proper consideration of diversification and rebalancing. Peer data and historical returns are reviewed for
reasonableness and appropriateness.
The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage point change in assumed
health care trends would have the following effects:
One Percentage One Percentage
(Amounts in thousands) Point Increase Point Decrease
Effect on total of service and interest cost components $ 321 $ (248)
Effect on postretirement benefit obligation 3,331 (1,746)
Pension Assets — The Company employs a total return investment approach whereby a mix of equities and fixed income securities are
used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful
consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio contains a diversified
blend of equity and fixed income securities. Furthermore, equity
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