ADP 2015 Annual Report Download - page 66

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Assumptions used to determine the net pension expense generally were:
Years ended June 30,
2016
2015
2014
Discount rate
4.25%
4.05%
4.50%
Expected long-term rate of return on assets
7.00%
7.25%
7.25%
Increase in compensation levels
4.00%
4.00%
4.00%
The discount rate is based upon published rates for high-quality fixed-income investments that produce cash flows that approximate the timing and
amount of expected future benefit payments.
The expected long-term rate of return on assets is determined based on historical and expected future rates of return on plan assets considering the target
asset mix and the long-term investment strategy.
Plan Assets
The Company's pension plans' asset allocations at June 30, 2016 and 2015 by asset category were as follows:
2016
2015
Cash and cash equivalents
3%
9%
Fixed income securities
42%
33%
U.S. equity securities
18%
17%
International equity securities
14%
19%
Global equity securities
23%
22%
100%
100%
The Company's pension plans' asset investment strategy is designed to ensure prudent management of assets, consistent with long-term return objectives
and the prompt fulfillment of all pension plan obligations. The investment strategy and asset mix were developed in coordination with an asset liability study
conducted by external consultants to maximize the funded ratio with the least amount of volatility.
The pension plans' assets are currently invested in various asset classes with differing expected rates of return, correlations, and volatilities, including
large capitalization and small capitalization U.S. equities, international equities, U.S. fixed income securities, and cash.
The target asset allocation ranges for the U.S. plan are generally as follows:
U.S. fixed income securities 35% - 45%
U.S. equity securities 14% - 24%
International equity securities 11% - 21%
Global equity securities 20% - 30%
The pension plans' fixed income portfolio is designed to match the duration and liquidity characteristics of the pension plans' liabilities. In addition, the
pension plans invest only in investment-grade debt securities to ensure preservation of capital. The pension plans' equity portfolios are subject to diversification
guidelines to reduce the impact of losses in single investments. Investment managers are prohibited from buying or selling commodities and from the short selling
of securities.
None of the pension plans' assets are directly invested in the Company's stock, although the pension plans may hold a minimal amount of Company stock
to the extent of the Company's participation in equity indices.
The pension plans' investments included in Level 1 are valued using closing prices for identical instruments that are traded on active exchanges. The
pension plans' investments included in Level 2 are valued utilizing inputs obtained from an independent pricing service, which are reviewed by the Company for
reasonableness. To determine the fair value of our Level
63