PG&E 2012 Annual Report Download - page 43
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Expected rates of return on plan assets were developed by determining projected stock and bond returns and
then applying these returns to the target asset allocations of the employee benefit trusts, resulting in a weighted
average rate of return on plan assets. Fixed-income returns were projected based on real maturity and credit spreads
added to a long-term inflation rate. Equity returns were estimated based on estimates of dividend yield and real
earnings growth added to a long-term rate of inflation. For the Utility’s defined benefit pension plan, the assumed
return of 5.4% compares to a ten-year actual return of 10.2%.
The rate used to discount pension benefits and other benefits was based on a yield curve developed from market
data of approximately 648 Aa-grade non-callable bonds at December 31, 2012. This yield curve has discount rates
that vary based on the duration of the obligations. The estimated future cash flows for the pension and other
postretirement benefit obligations were matched to the corresponding rates on the yield curve to derive a weighted
average discount rate.
The following reflects the sensitivity of pension costs and projected benefit obligation to changes in certain
actuarial assumptions:
Increase (Decrease) Increase in 2012 Increase in Projected
in Pension Benefit Obligation at
Assumption Costs December 31, 2012
(in millions)
Discount rate ................ (0.50)% $ 110 $ 1,262
Rate of return on plan assets ..... (0.50)% 54 —
Rate of increase in compensation . . 0.50% 50 308
The following reflects the sensitivity of other postretirement benefit costs and accumulated benefit obligation to
changes in certain actuarial assumptions:
Increase Increase in 2012 Increase in Accumulated
(Decrease) in Other Postretirement Benefit Obligation at
Assumption Benefit Costs December 31, 2012
(in millions)
Health care cost trend rate . . 0.50% $ 4 $ 53
Discount rate .......... (0.50)% 2 132
Rate of return on plan assets . (0.50)% 7 —
39