Morgan Stanley 2009 Annual Report Download - page 213

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the weighted average assumptions used to determine benefit obligations as of
period-end:
Pension Postretirement
December 31,
2009
December 31,
2008
December 31,
2009
December 31,
2008
Discount rate ................................... 5.91% 5.75% 6.00% 5.78%
Rate of future compensation increases ............... 5.13 5.12 n/a n/a
The discount rate used to determine the benefit obligation for the U.S. Qualified Pension Plan and postretirement
plan was selected by the Company, in consultation with its independent actuaries, using a pension discount yield
curve based on the characteristics of the U.S. Qualified Plan and postretirement liabilities, each determined
independently. The pension discount yield curve represents spot discount yields based on duration implicit in a
representative broad based Aa corporate bond universe of high-quality fixed income investments. At
December 31, 2009 and December 31, 2008, the Company’s U.S. Qualified Plan represented 83% of the total
liabilities of its U.S. pension and postretirement plans combined. The discount rate used to determine the benefit
obligation for the defined benefit portion of its U.K. pension plans were selected by the Company using a
pension discount yield curve based on the characteristics of the U.K. defined benefit pension liabilities. For all
other non-U.S. pension plans, the Company set the assumed discount rates based on the nature of liabilities, local
economic environments and available bond indices.
The following table presents assumed health care cost trend rates used to determine the postretirement benefit
obligations as of period-end:
December 31,
2009
December 31,
2008
Health care cost trend rate assumed for next year:
Medical ........................................................ 7.00%-8.00% 7.25%-9.50%
Prescription ..................................................... 10.00% 10.50%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate) ....... 4.50% 5.00%
Year that the rate reaches the ultimate trend rate ............................ 2029 2018
Assumed health care cost trend rates can have a significant effect on the amounts reported for the Company’s
postretirement benefit plans. A one-percentage point change in assumed health care cost trend rates would have
the following effects:
One-Percentage
Point Increase
One-Percentage
Point (Decrease)
(dollars in millions)
Effect on total postretirement service and interest cost ..................... $ 5 $ (4)
Effect on postretirement benefit obligation .............................. 31 (24)
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was enacted in
December 2003. For 2009 and fiscal 2008, Morgan Stanley elected not to apply for the Medicare Retiree Drug
Subsidy or take any other action related to the Act since Medicare prescription drug coverage was deemed to
have no material effect on the Company’s retiree medical program. No impact of the Act has been reflected in
the Company’s consolidated statements of income.
Plan Assets. The U.S. Qualified Plan assets represent 89% of the Company’s total pension plan assets. The
U.S. Qualified Plan uses a combination of active and risk-controlled fixed income investment strategies. The
fixed income asset allocation consists primarily of fixed income securities designed to approximate the expected
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