Texas Instruments 2012 Annual Report Download - page 31

ANNUAL
REPORT
TEXAS INSTRUMENTS 2012 ANNUAL REPORT • 29
Assumptions and investment policies
Defined Benefit U.S. Retiree Health Care
2012 2011 2012 2011
Weighted average assumptions used to determine benefit obligations:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16% 4.92% 3.97% 4.89%
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.80% 2.89%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50% 3.50%
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10% 3.18%
Weighted average assumptions used to determine net periodic benefit cost:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.92% 5.58% 4.86% 5.48%
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.88% 2.79%
U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00% 6.25% 5.50% 5.50%
Non-U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . 3.83% 4.17%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50% 3.40%
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.17% 3.24%
We utilize a variety of methods to select an appropriate discount rate depending on the depth of the corporate bond market in the
country in which the benefit plan operates. In the U.S., we use a settlement approach whereby a portfolio of bonds is selected from the
universe of actively traded high-quality U.S. corporate bonds. The selected portfolio is designed to provide cash flows sufficient to pay
the plan’s expected benefit payments when due. The resulting discount rate reflects the rate of return of the selected portfolio of bonds.
For our non-U.S. locations with a sufficient number of actively traded high-quality bonds, an analysis is performed in which the projected
cash flows from the defined benefit plans are discounted against a yield curve constructed with an appropriate universe of high-quality
corporate bonds available in each country. In this manner, a present value is developed. The discount rate selected is the single
equivalent rate that produces the same present value. Both the settlement approach and the yield curve approach produce a discount
rate that recognizes each plan’s distinct liability characteristics. For countries that lack a sufficient corporate bond market, a government
bond index adjusted for an appropriate risk premium is used to establish the discount rate.
Assumptions for the expected long-term rate of return on plan assets are based on future expectations for returns for each asset
class and the effect of periodic target asset allocation rebalancing. We adjust the results for the payment of reasonable expenses
of the plan from plan assets. We believe our assumptions are appropriate based on the investment mix and long-term nature of the
plans’ investments. Assumptions used for the non-U.S. defined benefit plans reflect the different economic environments within the
various countries.
The table below shows target allocation ranges for the plans that hold a substantial majority of the defined benefit assets.
Asset category U.S. Defined Benefit U.S. Retiree Health Care Non-U.S. Defined Benefit
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% 50% 25% - 60%
Fixed income securities and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . 65% 50% 40% - 75%
We intend to rebalance the plans’ investments when they are not within the target allocation ranges. Additional contributions are
invested consistent with the target ranges and may be used to rebalance the portfolio. The investment allocations and individual
investments are chosen with regard to the duration of the obligations of each plan.
Weighted average asset allocations as of December 31, are as follows:
U.S. Defined
Benefit U.S. Retiree Health Care Non-U.S. Defined Benefit
Asset category 2012 2011 2012 2011 2012 2011
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31% 35% 51% 48% 36% 32%
Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58% 63% 40% 41% 58% 66%
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11% 2% 9% 11% 6% 2%