Target 2012 Annual Report Download - page 76

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Assumptions
Benefit Obligation Weighted Average Assumptions Postretirement
Pension Benefits Health Care Benefits
2012 2011 2012 2011
Discount rate 4.40% 4.65% 2.75% 3.60%
Average assumed rate of compensation increase 3.00 3.50 n/a n/a
Net Periodic Benefit Expense Weighted Average
Assumptions Postretirement
Pension Benefits Health Care Benefits
2012 2011 2010 2012 2011 2010
Discount rate 4.65% 5.50% 5.85% 3.60% 4.35% 4.85%
Expected long-term rate of return on plan assets 8.00 8.00 8.00 n/a n/a n/a
Average assumed rate of compensation increase 3.50 4.00 4.00 n/a n/a n/a
The discount rate used to measure net periodic benefit expense each year is the rate as of the beginning of the year
(i.e., the prior measurement date). With an essentially stable asset allocation over the following time periods, our
most recent compound annual rate of return on qualified plans’ assets was 5.7 percent, 10.0 percent, 7.8 percent,
and 9.5 percent for the 5-year, 10-year, 15-year and 20-year periods, respectively.
The market-related value of plan assets, which is used in calculating expected return on assets in net periodic
benefit cost, is determined each year by adjusting the previous year’s value by expected return, benefit payments
and cash contributions. The market-related value is adjusted for asset gains and losses in equal 20 percent
adjustments over a five-year period.
Our expected annualized long-term rate of return assumptions as of February 2, 2013 were 8.5 percent for domestic
and international equity securities, 5.5 percent for long-duration debt securities, 8.5 percent for balanced funds and
10.0 percent for other investments. These estimates are a judgmental matter in which we consider the composition
of our asset portfolio, our historical long-term investment performance and current market conditions. We review
the expected long-term rate of return on an annual basis, and revise it as appropriate. Additionally, we monitor the
mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost and
reduce volatility in our assets.
An increase in the cost of covered health care benefits of 7.5 percent was assumed for 2012 and is assumed for
2013. The rate will be reduced to 5.0 percent in 2019 and thereafter.
Health Care Cost Trend Rates – 1% Change
(millions) 1% Increase 1% Decrease
Effect on total of service and interest cost components of net periodic postretirement
health care benefit expense $1 $(1)
Effect on the health care component of the accumulated postretirement benefit
obligation 9(8)
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