Morgan Stanley 2010 Annual Report Download - page 235

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the weighted average assumptions used to determine benefit obligations at period-
end:
Pension Postretirement
December 31,
2010
December 31,
2009
December 31,
2010
December 31,
2009
Discount rate ................................... 5.44% 5.91% 5.41% 6.00%
Rate of future compensation increase ................ 2.43 5.13 N/A N/A
N/A—Not Available.
The discount rates used to determine the benefit obligations for the U.S. pension plans, postretirement plan and
the U.K. pension plan’s liabilities were selected by the Company, in consultation with its independent actuaries,
using a pension discount yield curve based on the characteristics of the plans, 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. 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 at period-end:
December 31, 2010 December 31, 2009
Health care cost trend rate assumed for next year:
Medical .................................................... 6.98%-7.84% 7.00%-8.00%
Prescription ................................................. 9.53% 10.00%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate) . . . 4.50% 4.50%
Year that the rate reaches the ultimate trend rate ........................ 2029 2029
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 ..................... $ 2 $ (1)
Effect on postretirement benefit obligation .............................. 19 (16)
No impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 has been reflected in
the Company’s consolidated statements of income as medicare prescription drug coverage was deemed to have
no material effect on the Company’s retiree medical program.
Plan Assets. The U.S. Qualified Plan assets represent 88% 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
cash flows of the plan’s liabilities in order to help reduce plan exposure to interest rate variation and to better
align assets with obligations. The longer duration fixed income allocation is expected to help protect the plan’s
funded status and maintain the stability of plan contributions over the long run.
The allocation by investment manager of the Company’s U.S. Qualified Plan is reviewed by the Morgan Stanley
Retirement Plan Investment Committee on a regular basis. When the exposure to a given investment manager
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