Pitney Bowes 2008 Annual Report Download - page 90

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PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
71
The components of the net periodic benefit cost for defined pension plans are as follows:
United States Foreign
2008 2007 2006 2008 2007 2006
Service cost $ 29,699 $ 28,500 $ 26,771 $ 10,562 $ 13,427 $ 11,207
Interest cost 96,205 94,173 91,823 29,140 27,720 22,666
Expected return on plan assets (132,748) (127,070) (125,204) (36,713) (37,079) (31,338)
Amortization of transition cost - - - 142 (706) (654)
Amortization of prior service cost (2,560) (2,116) (2,090) 628 663 618
Recognized net actuarial loss 18,944 29,860 34,881 3,981 7,347 9,516
Curtailment - - - - 906 883
Net periodic benefit cost $ 9,540 $ 23,347 $ 26,181 $ 7,740 $ 12,278 $ 12,898
Other changes in plan assets and benefit obligations recognized in other comprehensive income was a net loss of $361.5 million (net o
f
$207.6 million of tax) in 2008 and a net gain of $52.5 million (net of $29.2 million of tax) in 2007.
Weighted average assumptions
used to determine net periodic United States Foreign
benefit costs: 2008 2007 2006 2008 2007 2006
Discount rate 6.15% 5.85% 5.60% 2.25% - 5.80% 2.25% - 5.30% 2.25% - 5.00%
Expected return on plan assets 8.50% 8.50% 8.50% 3.50% - 7.75% 3.50% - 7.75% 3.50% - 8.00%
Rate of compensation increase 4.50% 4.50% 4.50% 2.50% - 5.50% 2.50% - 5.30% 1.75% - 4.10%
U.S. Pension Plans’ Investment Strategy and Asset Allocation
Our U.S. pension plans’ investment strategy supports the objectives of the fund, which are to maximize returns within reasonable and
prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligations and the actuarial liabilities, and to
earn a nominal rate of return of at least 8.0%. The fund has established a strategic asset allocation policy to achieve these objectives.
Investments are diversified across asset classes and within each class to reduce the risk of large losses and are periodically rebalanced.
Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return
characteristics and to manage foreign currency exposure. The pension plans’ liabilities, investment objectives and investment
managers are reviewed periodically.
The expected long-term rate of return on plan assets is based on historical and projected rates of return for current and planned asset
classes in the plans’ investment portfolio after analyzing historical experience and future expectations of the returns and volatility of
the various asset classes. The overall expected rate of return for the portfolio was determined based on the target asset allocations for
each asset class, adjusted for historical and expected experience of active portfolio management results, when compared to the
benchmark returns.
The target allocation for 2009 and the asset allocation for the U.S. pension plan at December 31, 2008 and 2007, by asset category, are
as follows:
Target
Allocation Percentage of Plan Assets at
December 31,
Asset category 2009 2008 2007
U.S. equities 37% 33% 42%
Non-U.S. equities 19% 17% 23%
Fixed income 32% 39% 28%
Real estate 5% 7% 6%
Private equity 7% 4% 1%
Total 100% 100% 100%