Wells Fargo 2007 Annual Report Download - page 120

117
Year ended December 31,
2007 2006 2005
Pension Other Pension Other Pension Other
benefits(1) benefits benefits(1) benefits benefits(1) benefits
Discount rate 5.75% 5.75% 5.75% 5.75% 6.0% 6.0%
Expected return on plan assets 8.75 8.75 8.75 8.75 9.0 9.0
Rate of compensation increase 4.0 — 4.0 — 4.0 —
(1) Includes both qualified and nonqualified pension benefits.
The weighted-average assumptions used to determine the net periodic benefit cost were:
The long-term rate of return assumptions above were
derived based on a combination of factors including
(1) long-term historical return experience for major asset
class categories (for example, large cap and small cap
domestic equities, international equities and domestic fixed
income), and (2) forward-looking return expectations for
these major asset classes.
To account for postretirement health care plans we use
health care cost trend rates to recognize the effect of expected
changes in future health care costs due to medical inflation,
utilization changes, new technology, regulatory requirements
and Medicare cost shifting. We assumed average annual
increases of 8% (before age 65) and 9% (after age 65) for
health care costs for 2008. The rates of average annual
increases are assumed to trend down 1% each year until the
trend rates reach an ultimate trend of 5% in 2011 (before
age 65) and 2012 (after age 65). Increasing the assumed
health care trend by one percentage point in each year would
increase the benefit obligation as of December 31, 2007,
by $49 million and the total of the interest cost and service
cost components of the net periodic benefit cost for 2007
by $4 million. Decreasing the assumed health care trend by
one percentage point in each year would decrease the benefit
obligation as of December 31, 2007, by $43 million and the
total of the interest cost and service cost components of the
net periodic benefit cost for 2007 by $3 million.
The investment strategy for assets held in the Retiree
Medical Plan Voluntary Employees’ Beneficiary Association
(VEBA) trust and other pension plans is maintained separate
from the strategy for the assets in the Cash Balance Plan.
The general target asset mix is 55–65% equities and 35–45%
fixed income. In addition, the strategy for the VEBA trust
assets considers the effect of income taxes by utilizing a
combination of variable annuity and low turnover investment
strategies. Members of the EBRC formally review the investment
risk and performance of these assets on a quarterly basis.
Other benefits payments are expected to be reduced by
prescription drug subsidies from the federal government
provided by the Medicare Prescription Drug, Improvement
and Modernization Act of 2003, as follows:
(in millions) Pension benefits
Non- Other
Qualified qualified benefits
Year ended December 31,
2008 $ 456 $ 44 $ 45
2009 474 45 49
2010 489 44 53
2011 433 37 57
2012 444 35 59
2013-2017 2,338 170 322
Future benefits, reflecting expected future service that
we expect to pay under the pension and other benefit
plans, follow.
(in millions) Year ended December 31,
2007 2006 2005
Outside professional services $899 $942 $835
Outside data processing 482 437 449
Travel and entertainment 474 542 481
Contract services 448 579 596
Advertising and promotion 412 456 443
Other Expenses
Expenses exceeding 1% of total interest income and noninterest
income in any of the years presented that are not otherwise
shown separately in the financial statements or Notes to
Financial Statements were:
(in millions) Other benefits
subsidy receipts
Year ended December 31,
2008 $ 5
2009 5
2010 6
2011 6
2012 6
2013-2017 33