Alcoa 2009 Annual Report Download - page 140

Assumed health care cost trend rates have an effect on the amounts reported for the health care plan. A
one-percentage point change in these assumed rates would have the following effects:
1%
increase
1%
decrease
Effect on total of service and interest cost components $ 6 $ (5)
Effect on postretirement benefit obligations 86 (77)
Plan Assets
Alcoa’s pension and postretirement plans’ investment policy and weighted average asset allocations at December 31,
2009 and 2008, by asset category, are as follows:
Plan assets
at
December 31,
Asset category Policy range 2009 2008
Equity securities 30–60% 33% 38%
Debt securities 30–55% 53 47
Real estate 5–15% 5 7
Other 0–10% 9 8
Total 100% 100%
The principal objectives underlying the investment of the pension and postretirement plans’ assets are to ensure that
Alcoa can properly fund benefit obligations as they become due under a broad range of potential economic and
financial scenarios, maximize the long-term investment return with an acceptable level of risk based on such
obligations, and broadly diversify investments across and within the capital markets to protect asset values against
adverse movements in any one market. Alcoa’s strategy balances the requirement to maximize returns using potentially
higher return generating assets, such as equity securities, with the need to control the risk versus the benefit obligations
with less volatile assets, such as fixed-income securities. In early 2009, Alcoa modified its pension plans’ investment
strategy by reducing equity securities and increasing debt securities both by five percent to help reduce the future
volatility of the plans’ funded status.
Investment practices must comply with the requirements of the Employee Retirement Income Security Act of 1974
(ERISA) and any other applicable laws and regulations. The use of derivative instruments is permitted where
appropriate and necessary for achieving overall investment policy objectives. Currently, the use of derivative
instruments is not significant when compared to the overall investment portfolio.
The following section describes the valuation methodologies used by the trustee to measure the fair value of pension
and postretirement benefit plan assets, including an indication of the level in the fair value hierarchy in which each type
of asset is generally classified (see Note X for the definition of fair value and a description of the fair value hierarchy).
Equity Securities. These securities consist of direct investments in the stock of publicly traded companies. Such
investments are valued based on the closing price reported in an active market on which the individual securities are
traded. As such, the direct investments are generally classified in Level 1, while the commingled funds are generally
classified in Level 2.
Equity Securities (Commingled Funds). These securities consist of the plans’ share of commingled funds that are
invested in the stock of publicly traded companies. Such investments are valued at the net asset value of shares held at
December 31st. As such, these securities are generally included in Level 2.
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