United Airlines 2014 Annual Report Download - page 88
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Table of Contents
Discount rate 4.07% 4.94%
Discount rate 4.94% 4.12%
Expected return on plan assets 4.00% 4.00%
Health care cost trend rate assumed for next year 7.00% 7.25%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023) 5.00% 5.00%
During 2014, the Company experienced changes in its benefit obligations related to changes in discount rates and mortality tables in its pension plans and
other postretirement benefit plans. The Company used the Society of Actuaries’ 2014 mortality tables, modified to reflect the Social Security Administration
Trustee’s Report on current projections regarding expected longevity improvements.
The Company selected the 2014 discount rate for most of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2014, that would
provide the necessary cash flows to match projected benefit payments.
We develop our expected long-term rate of return assumption for such plans based on historical experience and by evaluating input from the trustee
managing the plans’ assets. Our expected long-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our
goal of earning the highest rate of return while maintaining risk at acceptable levels. The plans strive to have assets sufficiently diversified so that adverse or
unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review our actual
asset allocation and the pension plans’ investments are periodically rebalanced to our targeted allocation when considered appropriate. United’s plan assets
are allocated within the following guidelines:
Percent of
Total
Expected Long-Term
Rate of Return
Equity securities 40-54 % 10 %
Fixed-income securities 26-34 4
Alternatives 14-20 7
Other 4-8 6
One-hundred percent of other postretirement plan assets are invested in a deposit administration fund.
Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement plans. A 1% change in the assumed health
care trend rate for the Company would have the following additional effects (in millions):
Effect on total service and interest cost for the year ended December 31, 2014 $ 13 $ (11)
Effect on postretirement benefit obligation at December 31, 2014 254 (220)
A one percentage point decrease in the weighted average discount rate would increase the postretirement benefit liability by approximately $247 million and
increase the estimated 2014 benefits expense by approximately $10 million.
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