Motorola 2007 Annual Report Download - page 75

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. The Company also provides defined benefit plans which cover non-U.S. employees in certain jurisdictions,
principally the United Kingdom, Germany, Ireland, Japan and Korea (the “Non-U.S. Plans”). Any other pension
plans are not material to the Company either individually or in the aggregate.
The Company also has a noncontributory supplemental retirement benefit plan (the “Officers’ Plan”) for its
elected officers. The Officers’ Plan contains provisions for vesting and 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, newly elected officers are
not eligible to participate in the Officers’ Plan. Effective June 30, 2005, salaries were frozen for this plan.
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 were not eligible to participate in the MSPP. Effective January 1, 2007, eligible
compensation has been capped at the IRS limit plus $175,000 or, for those in excess of this cap at January 1,
2007, the eligible compensation used to compute the employee’s MSPP benefit is the greater of: (i) the employee’s
frozen January 1, 2007 eligible compensation amount, or (ii) the earnings cap for the given year.
In February 2007, the Company amended the Regular Pension Plan and the MSPP, modifying the definition of
average earnings. For years ended prior to December 31, 2007, benefits were calculated using the rolling average
of the highest annual earnings in any five years within the previous ten calendar year period. Beginning in January
2008, the benefit calculation will be based on the set of the five highest years of earnings within the ten calendar
years prior to December 31, 2007, averaged with earnings from each year after 2007. Also effective January 2008,
the Company amended the Regular Pension Plan, modifying the vesting period from five years to three years.
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 2007 and 2006. The investment return assumption for the Officers’ Plan was 6% in 2007 and
2006. At December 31, 2007, 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS