Occidental Petroleum 2006 Annual Report Download - page 78

For pension plans outside of the United States, the assumptions used in determining the benefit obligation vary by country. For countries in
hyperinflationary environments, real discount rates were used. The real discount rates used in these countries ranged from a low of 4.8 percent to
a high of 5.5 percent at both December 31, 2006 and 2005. For countries under a more stable inflationary environment, the nominal discount
rates were used in determining the benefit obligation. The nominal discount rates used ranged from a low of 3 percent to a high of 11 percent at
December 31, 2006 and a low of 3 percent to a high of 6.8 percent at December 31, 2005. Occidental bases its discount rate for foreign pension
plans on rates indicative of government and/or investment grade corporate debt in the applicable country. The average rate of increase in future
compensation levels ranged from a low of 2 percent to a high of 10 percent in 2006 and from a low of 2 percent to a high of 6 percent in 2005,
dependent on local economic conditions and salary budgets. The expected long-term rate of return on plan assets was 5.5 percent in excess of local
inflation in both 2006 and 2005.
The postretirement benefit obligation was determined by application of the terms of medical and dental benefits and life insurance coverage,
including the effect of established maximums on covered costs, together with relevant actuarial assumptions and health care cost trend rates
projected at a Consumer Price Index (CPI) increase of 2.5 percent and 3 percent as of December 31, 2006 and 2005 (beginning in 1993,
participants other than certain union employees have paid for all medical cost increases in excess of increases in the CPI). For certain union
employees, the health care cost trend rates were projected at annual rates ranging ratably from 11 percent in 2006 to 6 percent through the year
2010 and level thereafter. A 1-percent increase or a 1-percent decrease in these assumed health care cost trend rates would result in an increase
of $20 million or a reduction of $19 million, respectively, in the postretirement benefit obligation as of December 31, 2006, and a corresponding
increase or reduction of $1 million in interest cost in 2006. The annual service costs would not be materially affected by these changes.
The actuarial assumptions used could change in the near term as a result of changes in expected future trends and other factors that,
depending on the nature of the changes, could cause increases or decreases in the plan liabilities accrued.
Asset allocations of Occidental’s defined benefit pension and funded postretirement benefit plans are as follows:
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Occidental employs a total return investment approach that uses a mix of equity and fixed income investments to maximize the long-term
return of plan assets at a prudent level of risk. The investments are monitored by Occidental’s Investment Committee in its role as fiduciary. The
Investment Committee, consisting of senior Occidental executives, selects and employs various external professional investment management
firms to manage specific assignments across the spectrum of asset classes. The resulting aggregate investment portfolio contains a diversified
blend of equity and fixed-income investments. Furthermore, equity investments are diversified across United States and non-United States
stocks, as well as differing styles and market capitalizations. Other asset classes such as private equity and real estate may be used to enhance
long-term returns while improving portfolio diversification. Investment performance is measured and monitored on an ongoing basis through
quarterly investment and manager guideline compliance reviews, annual liability measurements, and periodic studies.
Occidental expects to contribute $3 million to its defined benefit pension plans during 2007. All of the contributions are expected to be in the
form of cash.
Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:
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