Canon 2005 Annual Report Download - page 75

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Assumptions
Weighted-average assumptions used to determine benefit obli-
gations are as follows:
December 31 2005 2004
Discount rate 2.7% 2.7%
Assumed rate of increase in
future compensation levels 3.3% 3.0%
Weighted-average assumptions used to determine net periodic
benefit cost are as follows:
Year ended December 31 2005 2004 2003
Discount rate 2.7% 2.7% 2.7%
Assumed rate of increase in
future compensation levels 3.0% 2.0% 2.0%
Expected long-term rate of
return on plan assets 4.6% 3.6% 3.6%
Canon determines the expected long-term rate of return based
on the expected long-term return of the various asset cate-
gories in which it invests. Canon considers the current expecta-
tions for future returns and the actual historical returns of each
plan asset category.
Plan assets
The weighted-average asset allocations of Canon’s benefit
plans at December 31, 2005 and 2004 and target asset alloca-
tion by asset category are as follows:
December 31 Target
2005 2004 allocation
Asset category:
Equity securities 50.8% 43.0% 46.3%
Debt securities 34.6% 37.2% 35.6%
Cash 0.7% 1.7% 0.3%
Life insurance company
general accounts 13.5% 14.5% 17.1%
Other 0.4% 3.6% 0.7%
100.0% 100.0% 100.0%
Canon’s investment policies are designed to ensure adequate
plan assets are available to provide future payments of pension
benefits to eligible participants. Taking into account the
expected long-term rate of return on plan assets, Canon for-
mulates a “model” portfolio comprised of the optimal combi-
nation of equity securities and debt securities. Plan assets are
invested in individual equity and debt securities using the
guidelines of the “model” portfolio in order to produce a total
return that will match the expected return on a mid-term to
long-term basis. Canon evaluates the gap between expected
return and actual return of invested plan assets on an annual
basis to determine if such differences necessitate a revision in
the formulation of the “model” portfolio. Canon revises the
“model” portfolio when and to the extent considered neces-
sary to achieve the expected long-term rate of return on plan
assets.
The plan’s equity securities include common stock of the
Company and certain of its subsidiaries in the amounts of
¥1,311 million ($11,110 thousand) and ¥946 million at Decem-
ber 31, 2005 and 2004, respectively.
December 31 Thousands of
Millions of yen U.S. dollars
2005 2004 2005
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligations ¥ 587,162 577,022 $ 4,975,949
Fair value of plan assets 510,287 411,918 4,324,466
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligations 545,375 512,216 4,621,822
Fair value of plan assets 506,634 386,921 4,293,508
The projected benefit obligations and the fair value of plan
assets for the pension plans with projected benefit obligations
in excess of plan assets, and the accumulated benefit obliga-
tions and the fair value of plan assets for the pension plans
with accumulated benefit obligations in excess of plan assets
are as follows: