Boeing 2010 Annual Report Download - page 99

The pension fund’s expected return on plan assets assumption is derived from a review of actual
historical returns achieved by the pension trust and anticipated future long-term performance of
individual asset classes. While consideration is given to recent trust performance and historical returns,
the assumption represents a long-term, prospective return. The expected return on plan assets
component of the net periodic benefit cost for the upcoming plan year is determined based on the
expected return on plan assets assumption and the market-related value of plan assets (MRVA). Since
our adoption of the accounting standard for pensions in 1987, we have determined the MRVA based
on a five-year moving average of plan assets. As of December 31, 2010, the MRVA is approximately
$450 greater than the fair market value of assets.
Assumed health care cost trend rates were as follows:
December 31, 2010 2009 2008
Health care cost trend rate assumed next year 7.50% 7.00% 7.50%
Ultimate trend rate 5.00% 5.00% 5.00%
Year that trend reached ultimate rate 2018 2014 2014
Assumed health care cost trend rates have a significant effect on the amounts reported for the health
care plans. To determine 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 adjustments 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 total of service and interest cost $ 51 $ (44)
Effect on postretirement benefit obligation 742 (654)
Plan Assets
Investment Strategy The overall objective of our pension assets is to earn a rate of return over time to
satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits
and address other cash requirements of the pension fund. Specific investment objectives for our long-
term investment strategy include reducing the volatility of pension assets relative to pension liabilities,
achieving a competitive, total investment return, achieving diversification between and within asset
classes and managing other risks. Investment objectives for each asset class are determined based on
specific risks and investment opportunities identified.
We update our long-term, strategic asset allocations every three-to-five years. We use various
analytics to determine the optimal asset mix and consider plan liability characteristics, liquidity
characteristics, funding requirements, expected rates of return and the distribution of returns. We
identify investment benchmarks for the asset classes in the strategic asset allocation that are market-
based and investable where possible.
Actual allocations to each asset class vary from target allocations due to periodic investment strategy
changes, market value fluctuations, the length of time it takes to fully implement investment allocation
positions (such as private equity and real estate), and the timing of benefit payments and contributions.
Short term investments and exchange-traded derivatives are used to rebalance the actual asset
allocation to the target asset allocation. The asset allocation is monitored and rebalanced on a monthly
basis.
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