Red Lobster 2016 Annual Report Download - page 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DARDEN
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 47
We set the discount rate assumption annually for each of the plans
at their valuation dates to reflect the yield of high-quality fixed-income debt
instruments, with lives that approximate the maturity of the plan benefits.
Additionally, for our mortality assumption as of fiscal year end, we selected
the most recent RP-2014 mortality tables and MP-2015 mortality improve-
ment scale to measure the benefit obligations.
The expected long-term rate of return on plan assets is based upon
several factors, including our historical assumptions compared with actual
results, an analysis of current market conditions, asset fund allocations
and the views of leading financial advisers and economists. We reduced
our expected long-term rate of return on plan assets for our defined benefit
plans from 8.0 percent used in fiscal 2014 to 7.0 percent used in fiscal
2015 and then to 6.5 percent for fiscal 2016 in connection with our current
expectations for long-term returns and target asset fund allocation. In devel-
oping our expected rate of return assumption, we have evaluated the actual
historical performance and long-term return projections of the plan assets,
which give consideration to the asset mix and the anticipated timing of the
pension plan outflows. We employ a total return investment approach whereby
a mix of equity and fixed-income investments are used to maximize the long-
term return of plan assets for what we consider a prudent level of risk. Our
historical 10-year, 15-year and 20-year rates of return on plan assets,
calculated using the geometric method average of returns, are approximately
6.8 percent, 7.6 percent and 8.7 percent, respectively, as of May 29, 2016.
Our Benefit Plans Committee sets the investment policy for the Defined
Benefit Plans and oversees the investment allocation, which includes setting
long-term strategic targets. Our overall investment strategy is to achieve
appropriate diversification through a mix of equity investments, which may
include U.S., international, and private equities, as well as long-duration bonds
and real estate investments. Currently, our target asset fund allocation is
40.0 percent high-quality, long-duration fixed-income securities, 31.0 percent
U.S. equities, 16.0 percent international equities, 10.0 percent absolute-
return funds and 3.0 percent real estate securities. The investment policy
establishes a re-balancing band around the established targets within which
the asset class weight is allowed to vary. Equity securities, absolute-return
funds, international equities and fixed-income securities include investments
in various industry sectors. Investments in real estate securities follow differ-
ent strategies designed to maximize returns, allow for diversification and
provide a hedge against inflation. Our current positioning is neutral on
investment style between value and growth companies and large and small
cap companies. We monitor our actual asset fund allocation to ensure that
it approximates our target allocation and believe that our long-term asset
fund allocation will continue to approximate our target allocation. Investments
held in the U.S. commingled fund, U.S. corporate securities, U.S. Treasury
securities, an international commingled fund, a global fixed-income com-
mingled fund and public sector utility securities represented approximately
31.1 percent, 15.6 percent, 10.7 percent, 10.3 percent, 10.1 percent and
6.1 percent respectively, of total plan assets and represents the only significant
concentrations of risk related to a single entity, sector, country, commodity or
investment fund. No other single sector concentration of assets exceeded
5.0 percent of total plan assets.