Alaska Airlines and Horizon Air 2014 Annual Report Download - page 167
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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:
2014 2013
Discount rate 4.20% 4.85%
Rate of compensation increases(a) 2.85% to 3.91% 2.90% to 3.93%
(a) Varies by plan and related work group.
Weighted average assumptions used to determine net periodic benefit cost:
2014 2013 2012
Discount rate 4.85% 3.95% 4.65%
Expected return on plan assets 6.75% 7.25% 7.25%
Rate of compensation increases(a) 2.90% to 3.93% 3.05% to 4.02% 2.94% to 4.17%
(a) Varies by plan and related work group.
The discount rate was determined using current rates earned on high-quality, long-term bonds with
maturities that correspond with the estimated cash distributions from the pension plans. At
December 31, 2014, the Company selected a discount rate using a pool of higher-yielding bonds
estimated to be more reflective of settlement rates, as management has taken steps to ultimately
terminate or settle plans that are frozen and move toward freezing benefits in active plans in the future.
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 commingled 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:
2014 2013
Asset category:
Money market fund –% 3%
Domestic equity securities 33% 39%
Non-U.S. equity securities 14% 17%
Fixed income securities 53% 41%
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.
83
ŠForm 10-K