Nokia 2005 Annual Report Download - page 220

Notes to the Consolidated Financial Statements (Continued)
39. Differences between International Financial Reporting Standards and US Generally
Accepted Accounting Principles (Continued)
The Group’s pension plan weighted average asset allocation as a percentage of Plan Assets at
December 31, 2005, and 2004, by asset category are as follows:
2005 2004
Domestic Foreign Domestic Foreign
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Asset Category:
Equity securities .................................... 25 26 36 23
Debt securities ...................................... 72 62 61 52
Insurance contracts .................................. —11—11
Real estate ......................................... 2— 2—
Short-term investments .............................. 11114
Total ............................................. 100 100 100 100
The objective of the investment activities is to maximize the excess of plan assets over projected
benefit obligations, within an accepted risk level, taking into account the interest rate and
inflation sensitivity of the assets as well as the obligations. As of December 31, 2005 the target
asset allocation for both domestic as well as foreign plans was 100% long dated debt securities. In
addition, a risk limit has been approved to tactically deviate from the target asset allocation.
The Pension Committee of the Group, consisting of the CFO, Head of Group Treasury, Head of HR
and other HR representatives, approves both the target asset allocation as well as the deviation
limit. Derivative instruments can be used to change the portfolio asset allocation and risk
characteristics.
Weighted average assumptions used in calculation of the Domestic and Foreign plans’ net periodic
benefit cost for years ending December 31, are as follows:
2005 2004
Domestic Foreign Domestic Foreign
%%%%
Discount rate for determining present values ............. 4.75 5.00 5.25 5.30
Expected long term rate of return on plan assets .......... 5.00 5.31 6.00 6.87
Annual rate of increase in future compensation levels ...... 3.50 3.82 3.50 3.49
Pension increases ................................... 2.00 2.38 2.30 2.27
The assumption for weighted average expected return on plan assets is based on the target asset
allocation at the beginning of the year as well as the expected deviation limit utilization. The
expected returns for the various asset classes are based on 1) a general inflation expectation
and 2) asset class specific long-term historical real returns, which are assumed to be indicative of
future expectations without requiring further adjustments.
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