Wells Fargo 2011 Annual Report Download - page 217

benefit cost was determined using initial annual trend rates of
8.0%. These rates were assumed to decrease 0.25% per year
until they reached ultimate rates of 5.0% in 2023. Increasing the
assumed health care trend by one percentage point in each year
would increase the benefit obligation as of December 31, 2011, by
$63 million and the total of the interest cost and service cost
components of the net periodic benefit cost for 2011 by
$3 million. Decreasing the assumed health care trend by one
percentage point in each year would decrease the benefit
obligation as of December 31, 2011, by $56 million and the total
of the interest cost and service cost components of the net
periodic benefit cost for 2011 by $3 million.
Investment Strategy and Asset Allocation
We seek to achieve the expected long-term rate of return with a
prudent level of risk given the benefit obligations of the pension
plans and their funded status. Our overall investment strategy is
designed to provide our Cash Balance Plan with a balance of
long-term growth opportunities and short-term benefit
strategies while ensuring that risk is mitigated through
diversification across numerous asset classes and various
investment strategies. We target the asset allocation for our Cash
Balance Plan at a target mix range of 35-55% equities, 35-55%
fixed income, and approximately 10% in real estate, venture
capital, private equity and other investments. The Employee
Benefit Review Committee (EBRC), which includes several
members of senior management, formally reviews the
investment risk and performance of our Cash Balance Plan on a
quarterly basis. Annual Plan liability analysis and periodic
asset/liability evaluations are also conducted.
The investment strategy for assets held in the Retiree Medical
Plan Voluntary Employees' Beneficiary Association (VEBA) trust
is established separately from the strategy for the assets in the
Cash Balance Plan. The general target asset mix is 20-40%
equities and 60-80% 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.
Projected Benefit Payments
Future benefits that we expect to pay under the pension and
other benefit plans are presented in the following table. 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.
Pension benefits
Other benefits
Non-
Future
Subsidy
(in millions)
Qualified
qualified
benefits
receipts
Year ended
December 31,
2012
$
788
73
102
14
2013
768
70
105
14
2014
749
67
107
15
2015
746
63
110
10
2016
742
63
111
10
2017-2021
3,455
286
548
49
215