Boeing 2007 Annual Report Download - page 68

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Notes to Consolidated Financial Statements
Amounts recognized in Accumulated other comprehensive
loss at December 31, 2007 are as follows:
Other
Postretirement
Pensions Benefits
Net actuarial loss $5,750 $1,620
Prior service cost/(credit) 1,219 (515)
Total recognized in Accumulated
other comprehensive loss $6,969 $1,105
The estimated amount that will be amortized from
Accumulated other comprehensive loss into net periodic
benefit cost during the year ended December 31, 2008 is
as follows:
Other
Postretirement
Pensions Benefits
Recognized net actuarial loss $396 $«85
Amortization of prior service costs 206 (93)
Total $602 $««(8)
The accumulated benefit obligation (ABO) for all pension plans
was $41,818 and $41,706 at September 30, 2007 and 2006.
All of our major tax qualified pension plans have plan assets
that exceed the ABO at September 30, 2007. Key information
for all plans with ABO in excess of plan assets as of
September 30 is as follows:
2007 2006
Projected benefit obligation $1,501 $1,602
Accumulated benefit obligation 1,255 1,342
Fair value of plan assets 465 573
The Medicare Prescription Drug, Improvement and
Modernization Act of 2003 reduced our APBO by $516 at
September 30, 2007 and $573 at September 30, 2006.
These reductions/actuarial gains are amortized over the
expected average future service of current employees.
Assumptions
At September 30, 2007 2006 2005 2004
Discount rate: pension
and OPB 6.20% 5.90% 5.50% 5.75%
Expected return on
plan assets 8.25% 8.25% 8.50% 8.50%
Rate of compensation
increase 5.50% 5.50% 5.50% 5.50%
In 2005, we modified our method of determining the discount
rate so that the discount rate for each individual pension plan
is determined separately based on the duration of each plan’s
liabilities. Previously, we determined a single discount rate for
all our postretirement benefit plans. We made the change
mainly because of the divergence in the populations of our var-
ious plans due to employee transfers, layoffs and divestitures.
The new method continues to include a matching of the plans’
expected future benefit payments against a yield curve that’s
based on high quality, non-callable bonds in the Bloomberg
index as of the measurement date, omitting bonds with the ten
percent highest and the ten percent lowest yields. The dis-
closed rate is the average rate for all the plans, weighted by
the projected benefit obligation. As of September 30, 2007,
the weighted average was 6.20%, and the rates for individual
plans ranged from 5.30% to 6.40%. As of September 30,
2006, the weighted average was 5.90%, and the rates for indi-
vidual plans ranged from 5.00% to 6.00%.
The pension fund’s expected return on assets assumption is
derived from an extensive study conducted by our Trust
Investments group and its actuaries on a periodic basis. The
study includes a review of actual historical returns achieved by
the pension trust and anticipated future long-term performance
of individual asset classes with consideration given to the relat-
ed investment strategy. While the study gives appropriate con-
sideration to recent trust performance and historical returns,
the assumption represents a long-term prospective return. The
expected return on plan assets determined on each measure-
ment date is used to calculate the net periodic benefit
cost/(income) for the upcoming plan year.
At September 30, 2007 2006
Assumed health care cost trend rates
Health care cost trend rate assumed next year 7.50% 8.00%
Ultimate trend rate 5.00% 5.00%
Year that trend reached ultimate rate 2013 2013
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. To deter-
mine the health care cost trend rates we look at a combination
of information including ongoing claims cost monitoring, annual
statistical analyses of claims data, reconciliation of forecast
claims against actual claims, review of trend assumptions of
other plan sponsors and national health trends, and adjust-
ments for plan design changes, workforce changes, and
changes in plan participant behavior. A one-percentage-point
change in assumed health care cost trend rates would have
the following effect:
Increase Decrease
Effect on postretirement benefit obligation $621 $(545)
Effect on total of service and interest cost 59 (55)
Plan Assets
Pension assets totaled $50,439 and $46,203 at September
30, 2007 and 2006. In late 2006, the Company decided to
modify the pension asset strategy with the objective of reduc-
ing volatility relative to pension liabilities, achieving a competi-
tive investment return, achieving diversification between and
within various asset classes, and managing other risks. In
order to reduce the volatility between the value of pension
assets and liabilities, the Company increased its allocation to
fixed income as well as lengthened the duration of its fixed
income holdings. The allocation to alternative investments, pri-
vate equity, real estate, real assets, hedge funds, and global
strategies, was also increased in order to address the return
and diversification objectives. Key risk management areas
addressed through this modified strategy include funded status
risk, interest rate risk, market risk, operational risk, and liquidity.
The Boeing Company and Subsidiaries