Travelers 2015 Annual Report Download - page 236

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
Assumptions and Health Care Cost Trend Rate Sensitivity
The following table summarizes assumptions used with regard to the Company’s qualified and
nonqualified domestic pension plans and the domestic postretirement benefit plans.
(at and for the year ended December 31,) 2015 2014
Assumptions used to determine benefit obligations
Discount rate:
Qualified domestic pension plan .......................... 4.50% 4.10%
Nonqualified domestic pension plan ....................... 4.37% 4.10%
Domestic postretirement benefit plan ...................... 4.35% 4.10%
Future compensation increase rate .......................... 4.00% 4.00%
Assumptions used to determine net periodic benefit cost
Discount rate ......................................... 4.10% 4.96%
Expected long-term rate of return on assets:
Pension plan ........................................ 7.25% 7.50%
Postretirement benefit plan .............................. 4.00% 4.00%
Assumed health care cost trend rates
Following year:
Medical (before age 65) ................................ 6.75% 7.00%
Medical (age 65 and older) .............................. 7.50% 6.50%
Rate to which the cost trend rate is assumed to decline (ultimate
trend rate) .......................................... 5.00% 5.00%
Year that the rate reaches the ultimate trend rate:
Medical (before age 65) ................................ 2022 2022
Medical (age 65 and older) .............................. 2025 2020
The discount rate assumption used to determine the benefit obligation is based on a yield-curve
approach. Under this approach, individual spot rates from the yield curve of a hypothetical portfolio of
high quality fixed maturity corporate bonds (rated Aa) available at the year-end valuation date, for
which the timing and amount of cash outflows correspond with the timing and amount of the estimated
benefit payouts of the Company’s benefit plan, are applied to expected future benefits payments in
measuring the projected benefit obligation. The discount rate assumption used to determine benefit
obligations disclosed above represents the weighted average of the individual spot rates. For 2015,
separate discount rate assumptions were used for the qualified domestic pension plan, nonqualified
domestic plan and the domestic postretirement plan reflecting the different expected duration of cash
flows of each plan to provide a better estimate of the benefit obligation for these plans.
The discount rate assumption used to determine the net periodic benefit cost is the single weighted
average discount rate derived from the yield curve used to measure the benefit obligation at the
beginning of the year.
In choosing the expected long-term rate of return on plan assets, the Company selected the rate
that was set as the return objective by the Company’s Benefit Plans Investment Committee, which had
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