Alaska Airlines and Horizon Air 2009 Annual Report Download - page 173

NOTE 8. EMPLOYEE BENEFIT PLANS
Four defined-benefit and five defined-contribution
retirement plans cover various employee groups
of Alaska and Horizon. The defined-benefit plans
provide benefits based on an employee’s term of
service and average compensation for a
specified period of time before retirement. With
the ratification of the pilot collective bargaining
agreement in 2009, the qualified defined-benefit
pension plans are no longer open to new
entrants.
Alaska also maintains an unfunded,
noncontributory defined-benefit plan for certain
elected officers and an unfunded,
non-contributory defined-contribution plan for
other elected officers.
Accounting standards require recognition of the
overfunded or underfunded status of an entity’s
defined-benefit pension and other postretirement
plan as an asset or liability in the financial
statements and requires recognition of the
funded status in other comprehensive income.
Qualified Defined-Benefit Pension Plans
The Company’s pension plans are funded as
required by the Employee Retirement Income
Security Act of 1974 (ERISA).
The defined-benefit plan assets consist primarily
of marketable equity and fixed-income securities.
The Company uses a December 31
measurement date for these plans.
Weighted average assumptions used to
determine benefit obligations as of
December 31:
Discount rates of 5.85% and 6.20% were used
as of December 31, 2009 and 2008,
respectively. For 2009, the rate of compensation
increase used varied from 3.21% to 4.53%,
depending on the related workgroup. For 2008,
the range of compensation increases was 3.52%
to 4.53%.
Weighted average assumptions used to
determine net periodic benefit cost for the
years ended December 31:
Discount rates of 6.20%, 6.00%, and 5.75%
were used for the years ended December 31,
2009, 2008, and 2007, respectively. For all
three years, the expected return on plan assets
used was 7.75%, and the rate of compensation
increase used varied from 3.52% to 4.53%,
depending on the plan and the related
workgroup.
In determining the discount rate used, the
Company’s policy is to use the rates at or near
the end of the year on high-quality long-term
bonds with maturities that closely match the
expected timing of future cash distributions from
the plan. In determining the expected return on
plan assets, the Company assesses the current
level of expected returns on risk-free investments
(primarily government bonds), the historical level
of the risk premium associated with the other
asset classes in which the portfolio is invested
and the expectations for future returns of each
asset class. The expected return for each asset
class is then weighted based on the target asset
allocation to develop the expected long-term rate
of return on assets assumption for the portfolio.
Plan assets are invested in common comingled
trust funds invested in equity and fixed income
securities. The asset allocation of the funds in
the qualified defined-benefit plans, by asset
category, is as follows as of the end of 2009 and
2008:
2009 2008
Asset category:
Money market fund ............. 10% —%
Domestic equity securities ....... 45 49
Non-U.S. equity securities ........ 18 21
Fixed income securities ......... 27 30
Plan assets ................... 100% 100%
The Company’s investment policy focuses on
achieving maximum returns at a reasonable risk
for pension assets over a full market cycle. The
Company uses a fund manager and invests in
various asset classes to diversify risk. Target
allocations for the primary asset classes are
approximately:
Domestic equities: ...................... 50%
Non-U.S. equities: ....................... 20%
Fixed income: .......................... 30%
77
ŠForm 10-K