Alcoa 2015 Annual Report Download - page 179

For 2015, 2014, and 2013, the expected long-term rate of return used by management was based on the prevailing and
planned strategic asset allocations, as well as estimates of future returns by asset class. These rates fell within the
respective range of the 20-year moving average of actual performance and the expected future return developed by
asset class. In 2015, the decrease of 25 basis points in the expected long-term rate of return was due to a decrease in the
20-year moving average of actual performance. For 2016, management anticipates that 7.75% will be the expected
long-term rate of return.
Assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows (assumptions for non-
U.S plans did not differ materially):
2015 2014 2013
Health care cost trend rate assumed for next year 5.5% 5.5% 5.5%
Rate to which the cost trend rate gradually declines 4.5% 4.5% 4.5%
Year that the rate reaches the rate at which it is assumed to remain 2019 2018 2017
The assumed health care cost trend rate is used to measure the expected cost of gross eligible charges covered by
Alcoa’s other postretirement benefit plans. For 2016, a 5.5% trend rate will be used, reflecting management’s best
estimate of the change in future health care costs covered by the plans. The plans’ actual annual health care cost trend
experience over the past three years has ranged from 4.0%. to 9.6% Management does not believe this three-year range
is indicative of expected increases for future health care costs over the long-term.
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 other postretirement benefit obligations $126 $(113)
Effect on total of service and interest cost components 5 (5)
Plan Assets
Alcoa’s pension plans’ investment policy and weighted average asset allocations at December 31, 2015 and 2014, by
asset class, were as follows:
Plan assets
at
December 31,
Asset class Policy range 2015 2014
Equities 20–55% 30% 33%
Fixed income 25–55% 43 45
Other investments 15–35% 27 22
Total 100% 100%
The principal objectives underlying the investment of the pension 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 various asset classes to protect asset values against adverse movements.
Specific objectives for long-term investment strategy include reducing the volatility of pension assets relative to
pension liabilities and achieving risk factor diversification across the balance of the asset portfolio. A portion of the
assets are matched to the interest rate profile of the benefit obligation through long duration fixed income investments
and exposure to broad equity risk has been decreased and diversified through investments in discretionary and
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