Boeing 2013 Annual Report Download - page 100

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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, 2013, the MRVA is approximately $1,340 less than the fair market value
of assets.
Assumed health care cost trend rates were as follows:
December 31, 2013 2012 2011
Health care cost trend rate assumed next year 7.00% 7.50% 7.50%
Ultimate trend rate 5.00% 5.00% 5.00%
Year that trend reached ultimate rate 2018 2018 2018
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 $57 ($47)
Effect on postretirement benefit obligation 681 (575)
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 periodically update our long-term, strategic asset allocations. 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.