Motorola 2012 Annual Report Download - page 51

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In February 2007, we 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 was 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, we amended the Regular Pension Plan, modifying the vesting period
from five years to three years.
In December 2008, we amended the Regular Pension Plan, the Officers’ Plan and the MSPP (collectively, the “2008
Amended Pension Plans”) such that, effective March 1, 2009: (i) no participant shall accrue any benefit or additional benefit on
or after March 1, 2009, and (ii) no compensation increases earned by a participant on or after March 1, 2009 shall be used to
compute any accrued benefit.
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, we offset 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.
During the year ended December 31, 2012, the Company announced an amendment to the Postretirement Health Care
Benefits Plan. Starting January 1, 2013, benefits under the plan to participants over age 65 will be paid to a retiree health
reimbursement account instead of directly providing health insurance coverage to the participants. Covered retirees will be
able to use the annual subsidy they receive through this account toward the purchase of their own health care coverage from
private insurance companies and for reimbursement of eligible health care expenses. This change has resulted in a
remeasurement of the plan where $139 million of the net liability was reduced through a decrease in accumulated other
comprehensive loss of $87 million, net of taxes. The majority of the reduced liability will be recognized over approximately
three years, which is the period in which the remaining employees eligible for the plan will qualify for benefits under the plan.
Accounting methodologies use an attribution approach that generally spreads the effects of individual events over the
service lives of the participants in the plan, or estimated average lifetime when almost all of the plan participants are considered
"inactive." 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.
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 the 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 either of the service
life or average lifetime of the employees. Differences between actual and expected returns are recognized in the net periodic
pension calculation over five years.
We use 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 our expected rate of return assumption used in
calculating the net periodic pension cost and the net retirement healthcare expense. Our investment return assumption for the
Regular Pension Plan and Postretirement Healthcare Benefits Plan was 8.25% in both 2012 and 2011. At December 31, 2012,
the Regular Pension Plan and the Postretirement Health Care Benefits Plan investment portfolios were predominantly equity
investments and the Officers’ Plan investment portfolio was predominantly fixed-income securities.
A second key assumption is the discount rate. The discount rate assumptions used for pension benefits and postretirement
health care benefits reflect, at December 31 of each year, the prevailing market rates for high-quality, fixed-income debt
instruments that, if the obligation was settled at the measurement date, would provide the necessary future cash flows to pay the
benefit obligation when due. Our discount rates for measuring our U.S. pension obligations were 4.35% and 5.10% at
December 2012 and 2011, respectively. Our discount rates for measuring the Postretirement Health Care Benefits Plan
obligation were 3.80% and 4.75% at December 31, 2012 and 2011, respectively.
A final set of assumptions involves the cost drivers of the underlying benefits. The rate of compensation increase is a key
assumption used in the actuarial model for pension accounting and is determined by us based upon our long-term plans for such
increases. Our 2012 and 2011 rate for future compensation increase for the Regular Pension Plan and Officers’ Plan was 0%, as
the salaries to be utilized for calculation of benefits under these plans have been frozen. For the Postretirement Health Care
Benefits Plan, we review external data and our own historical trends for health care costs to determine the health care cost trend
rates. The health care cost trend rate used to determine the December 31, 2012, accumulated postretirement benefit obligation
is 8.50% for 2013, then grading down to a rate of 5% in 2020. The health care cost trend rate used to determine the
December 31, 2011 accumulated postretirement benefit obligation was 7.25% for 2012, remaining flat at 7.25% through 2015,
then grading down to a rate of 5% in 2019.