Motorola 2006 Annual Report Download - page 73

65
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
redeployed due to circumstances not foreseen when the original plans were initiated. The Company reverses
accruals through the income statement line item where the original charges were recorded when it is determined
they are no longer required.
Retirement-Related Benefits
The Company's noncontributory pension plan (the ""Regular Pension Plan'') covers U.S. employees who
became eligible after one year of service. The benefit formula is dependent upon employee earnings and years of
service. Effective January 1, 2005, newly-hired employees were not eligible to participate in the Regular Pension
Plan. On February 20, 2007, the Company passed an amendment to the Regular Pension Plan which changes the
definition of average earnings. Under the current formula, benefits are calculated using the highest annual earnings
in any five years within the last ten calendar years. Beginning in January 2008, the benefit will be based on the
average of the five highest years of earnings within the last ten calendar years prior to December 31, 2007 averaged
with future earnings. The Company also provides defined benefit plans to some of its foreign entities (the
""Non-U.S. Plans'').
The Company also has a noncontributory supplemental retirement benefit plan (the ""Officers' Plan'') for its
elected officers. The Officers' Plan contains provisions for funding the participants' expected retirement benefits
when the participants meet the minimum age and years of service requirements. Elected officers who were not yet
vested in the Officers' Plan as of December 31, 1999 had the option to remain in the Officers' Plan or elect to have
their benefit bought out in restricted stock units. Effective December 31, 1999, no new elected officers were
eligible to participate in the Officers' Plan. Effective June 30, 2005, the salaries to be utilized for calculation of
benefits under this plan have been frozen.
The Company has an additional noncontributory supplemental retirement benefit plan, the Motorola
Supplemental Pension Plan (""MSPP''), which provides supplemental benefits in excess of the limitations imposed
by the Internal Revenue Code on the Regular Pension Plan. Elected officers covered under the Officers' Plan or
who participated in the restricted stock buy-out are not eligible to participate in MSPP. Effective January 1, 2005,
newly-hired employees are not eligible to participate in the MSPP. Effective January 1, 2007, eligible compensation
for calculation of benefits under MSPP has been capped at the IRS limit plus $175,000 or, for those in excess of
this cap at January 1, 2007, their current compensation is frozen for calculation purposes.
Certain healthcare benefits are available to eligible domestic employees meeting certain age and service requirements
upon termination of employment (the ""Postretirement Health Care Benefits Plan''). For eligible employees hired prior
to January 1, 2002, the Company offsets a portion of the postretirement medical costs to the retired participant. As of
January 1, 2005, the Postretirement Health Care Benefits Plan has been closed to new participants.
Accounting methodologies use an attribution approach that generally spreads individual events over the service
lives of the employees in the plan. Examples of ""events'' are plan amendments and changes in actuarial assumptions
such as discount rate, expected long-term rate of return on plan assets, and rate of compensation increases. The
principle underlying the required attribution approach is that employees render service over their service lives on a
relatively consistent basis and, therefore, the income statement effects of pension benefits or postretirement health
care benefits are earned in, and should be expensed in, the same pattern.
There are various assumptions used in calculating the net periodic benefit expense and related benefit
obligations. One of these assumptions is the expected long-term rate of return on plan assets. The required use of
expected long-term rate of return on plan assets may result in recognized pension income that is greater or less than
the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are
designed to approximate the actual long-term returns and therefore result in a pattern of income and expense
recognition that more closely matches the pattern of the services provided by the employees. Differences between
actual and expected returns are recognized in the net periodic pension calculation over five years.
The Company uses long-term historical actual return experience with consideration of the expected investment
mix of the plans' assets, as well as future estimates of long-term investment returns to develop its expected rate of
return assumption used in calculating the net periodic pension cost and the net retirement healthcare expense. The
Company's investment return assumption for the Regular Pension Plan and Postretirement Health Care Benefits
Plan was 8.5% in 2006 and 2005. The investment return assumption for the Officers' Plan was 6% in 2006 and
2005. At December 31, 2006, the Regular Pension Plan and the Postretirement Health Care Benefits Plan
investment portfolio were predominantly equity investments and the Officers' Plan investment portfolio was
predominantly fixed-income securities.