Pitney Bowes 2011 Annual Report Download - page 94

PITNEY BOWES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share data)
76
Weighted-average actuarial assumptions used to determine end of year benefit obligations and net periodic pension costs include:
2011 2010 2009
United States
Used to determine benefit obligations
Discount rate 4.95% 5.60% 5.75%
Rate of compensation increase 3.50% 3.50% 3.50%
Used to determine net periodic benefit costs
Discount rate 5.60% 5.75% 6.05%
Expected return on plan assets 8.00% 8.00% 8.00%
Rate of compensation increase 3.50% 3.50% 4.25%
Foreign
Used to determine benefit obligations
Discount rate 1.80% - 6.10% 2.25% - 5.50% 2.25% - 6.00%
Rate of compensation increase 2.10% - 4.60% 2.50% - 5.50% 2.50% - 5.60%
Used to determine net periodic benefit costs
Discount rate 2.00% - 5.50% 2.25% - 6.00% 2.25% - 6.60%
Expected return on plan assets 4.00% - 7.75% 4.50% - 7.75% 4.49% - 7.75%
Rate of compensation increase 2.10% - 5.50% 2.50% - 5.60% 2.50% - 5.10%
A discount rate is used to determine the present value of our future benefit obligations. The discount rate for our U.S. pension and
postretirement medical benefit plans is determined by matching the expected cash flows associated with our benefit obligations to a
yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date. For the U.K.
retirement benefit plan, our largest foreign plan, the discount rate is determined by discounting each year’s estimated benefit payments
by an applicable spot rate, derived from a yield curve created from a large number of high quality corporate bonds. For our other
smaller foreign pension plans, the discount rate is selected based on high quality fixed income indices available in the country in
which the plan is domiciled.
The expected 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. When assessing the expected future returns for the portfolio, management placed more emphasis on the expected future
returns than historical returns.
U.S. Pension Plans’ Investment Strategy and Asset Allocation
Our U.S. pension plans’ investment strategy is 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
7.75%. 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. Investments within the private equity and real estate portfolios are comprised of limited partnership units in
primary and secondary fund of funds and units in open-ended commingled real estate funds, respectively. These types of investment
vehicles are used in an effort to gain greater asset diversification. We do not have any significant concentrations of credit risk within
the plan assets. The pension plans’ liabilities, investment objectives and investment managers are reviewed periodically.