Western Union 2009 Annual Report Download - page 119

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The following table provides the components of net periodic benefit cost/(income) for the plans (in
millions):
2009 2008 2007
Year Ended December 31,
Interest cost ............................................. $23.6 $ 24.4 $ 24.6
Expected return on plan assets................................ (24.7) (27.5) (28.4)
Amortization of actuarial loss ................................ 3.6 2.7 3.6
Employee termination costs .................................. — 2.8 —
Net periodic benefit cost/(income) ............................. $ 2.5 $ 2.4 $ (0.2)
During 2008, the Company recorded $2.8 million of expense relating to the termination of certain
retirement eligible union and management plan participants in connection with the restructuring and related
activities disclosed in Note 4.
The accrued loss related to the pension liability included in accumulated other comprehensive loss, net of
tax, increased/(decreased) $11.3 million, $46.4 million and ($15.3) million in 2009, 2008 and 2007,
respectively. The significant comprehensive loss in 2008 was caused by a decline in the fair value of plan
assets, which was primarily attributable to a decrease in the value of the equity securities within the plan asset
portfolio.
The weighted-average rate assumptions used in the measurement of the Company’s benefit obligation
were as follows:
2009 2008
Discount rate ....................................................... 5.30% 6.26%
The weighted-average rate assumptions used in the measurement of the Company’s net cost/(income)
were as follows:
2009 2008 2007
Discount rate ................................................. 6.26% 6.02% 5.62%
Expected long-term return on plan assets ............................ 7.50% 7.50% 7.50%
Western Union measures the Plan’s obligations and annual expense using assumptions that reflect best
estimates and are consistent to the extent that each assumption reflects expectations of future economic
conditions. As the bulk of the pension benefits will not be paid for many years, the computation of pension
expenses and benefits is based on assumptions about future interest rates and expected rates of return on plan
assets. In general, pension obligations are most sensitive to the discount rate assumption, and it is set based on
the rate at which the pension benefits could be settled effectively. The discount rate is determined by matching
the timing and amount of anticipated payouts under the plans to the rates from an AA spot rate yield curve.
The curve is derived from AA bonds of varying maturities.
Western Union employs a building block approach in determining the long-term rate of return for plan
assets. Historical markets are studied and long-term historical relationships between equities and fixed-income
securities are considered consistent with the widely accepted capital market principle that assets with higher
volatility generate a greater return over the long run. Current market factors such as inflation and interest rates
are evaluated before long-term capital market assumptions are determined. Consideration is given to
diversification, re-balancing and yields anticipated on fixed income securities held. Peer data and historical
returns are reviewed to check for reasonableness and appropriateness. The Company then applies this rate
against a calculated value for its plan assets. The calculated value recognizes changes in the fair value of plan
assets over a five-year period.
105
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)