United Technologies 2012 Annual Report Download - page 83

Notes to Consolidated Financial Statements 2012 ANNUAL REPORT 81
Net settlements and curtailment losses for pension benefits
includes curtailment losses of approximately $17 million related to,
and recorded in, discontinued operations for the year ended
December 31, 2012.
Other changes in plan assets and benefit obligations recog-
nized in other comprehensive loss in 2012 are as follows:
(DOLLARS IN MILLIONS)
Current year actuarial loss $ 1,493
Amortization of actuarial loss (722)
Current year prior service credit (195)
Amortization of prior service credit 24
Amortization of transition obligation (1)
Other 4
Total recognized in other comprehensive loss $ 603
Net recognized in net periodic pension cost and other
comprehensive loss $ 1,266
The estimated amount that will be amortized from accumu-
lated other comprehensive loss into net periodic pension cost in
2013 is as follows:
(DOLLARS IN MILLIONS)
Net actuarial loss $ 964
Prior service credit (42)
$ 922
Major assumptions used in determining the benefit obliga-
tion and net cost for pension plans are presented in the following
table as weighted-averages:
Benefit Obligation Net Cost
2012 2011 2012 2011 2010
Discount rate 4.0% 4.7% 4.6% 5.4% 5.9%
Salary scale 4.2% 4.3% 4.3% 4.4% 4.4%
Expected return on plan
assets ––7.7% 7.9% 8.0%
In determining the expected return on plan assets, we
consider the relative weighting of plan assets, the historical
performance of total plan assets and individual asset classes, and
economic and other indicators of future performance. In addition,
we may consult with and consider the opinions of financial and
other professionals in developing appropriate capital market
assumptions. Return projections are also validated using a simu-
lation model that incorporates yield curves, credit spreads and risk
premiums to project long-term prospective returns.
The plans’ investment management objectives include
maintaining an adequate level of diversification, reducing interest
rate and market risk, and providing adequate liquidity to meet
immediate and future benefit payment requirements. The overall
investment strategy targets a mix of 65% growth seeking assets
and 35% income generating assets using a wide diversification of
asset types, fund strategies and investment managers. The growth
seeking allocation consists of global public equities in developed
and emerging countries, private equity, real estate and balanced
market risk strategies. Within public equities, 9% of the total
investment portfolio is an enhanced equity strategy that invests in
publicly traded equity and fixed income securities, derivatives and
foreign currency. Investments in private equity are primarily via lim-
ited partnership interests in buy-out strategies with smaller alloca-
tions to distressed debt funds. The real estate strategy is principally
concentrated in directly held U.S. core investments with some
smaller investments in international, value-added and opportunistic
strategies. Within the income generating assets, the fixed income
portfolio is mainly a broadly diversified portfolio of corporate bonds.
The plans have continued their pension risk management
techniques designed to reduce the plan’s interest rate risk. More
specifically, the plans have incorporated liability hedging programs
that include the adoption of a risk reduction objective as part of the
long-term investment strategy. Under this objective the interest rate
hedge is dynamically increased as funded status improves. The
hedging programs incorporate a range of assets and investment
tools, each with ranging interest rate sensitivity. The investment
portfolios are currently hedging 40% to 50% of the interest rate
sensitivity of the pension plan liabilities.