Chevron 2013 Annual Report Download - page 61

Chevron Corporation 2013 Annual Report 59
Other Benet Assumptions For the measurement of accu-
mulated postretirement benet obligation at December 31,
2013, for the main U.S. postretirement medical plan, the
assumed health care cost-trend rates start with 7.3 percent
in 2014 and gradually decline to 4.5 percent for 2025 and
beyond. For this measurement at December 31, 2012, the
assumed health care cost-trend rates started with 7.5 percent
in 2013 and gradually declined to 4.5 percent for 2025 and
beyond. In both measurements, the annual increase to com-
pany contributions was capped at 4 percent.
Assumed health care cost-trend rates can have a signi-
cant eect on the amounts reported for retiree health care
costs. e impact is mitigated by the 4 percent cap on the
company’s medical contributions for the primary U.S. plan.
A 1-percentage-point change in the assumed health care cost-
trend rates would have the following eects on worldwide
plans:
1 Percent 1 Percent
Increase Decrease
Eect on total service and interest cost components $ 13 $ (11)
Eect on postretirement benet obligation $ 137 $ (115)
Plan Assets and Investment Strategy e fair value hierar-
chy of inputs the company uses to value the pension assets is
divided into three levels:
Level 1: Fair values of these assets are measured using
unadjusted quoted prices for the assets or the prices of identi-
cal assets in active markets that the plans have the ability
toaccess.
Level 2: Fair values of these assets are measured based
on quoted prices for similar assets in active markets; quoted
prices for identical or similar assets in inactive markets; inputs
other than quoted prices that are observable for the asset; and
inputs that are derived principally from or corroborated by
observable market data through correlation or other means. If
Expected Return on Plan Assets e company’s estimated
long-term rates of return on pension assets are driven pri-
marily by actual historical asset-class returns, an assessment
of expected future performance, advice from external actu-
arial rms and the incorporation of specic asset-class risk
factors. Asset allocations are periodically updated using pen-
sion plan asset/liability studies, and the company’s estimated
long-term rates of return are consistent with these studies.
For 2013, the company used an expected long-term rate
of return of 7.5 percent for U.S. pension plan assets, which
account for 71 percent of the company’s pension plan assets.
In 2012 and 2011, the company used a long-term rate of
return of 7.5 and 7.8 percent for this plan.
e market-related value of assets of the major U.S. pen-
sion plan used in the determination of pension expense was
based on the market values in the three months preceding
the year-end measurement date. Management considers the
three-month time period long enough to minimize the eects
of distortions from day-to-day market volatility and still be
contemporaneous to the end of the year. For other plans,
market value of assets as of year-end is used in calculating the
pension expense.
Discount Rate e discount rate assumptions used to
determine the U.S. and international pension and postretire-
ment benet plan obligations and expense reect the rate at
which benets could be eectively settled, and is equal to the
equivalent single rate resulting from yield curve analysis. is
analysis considered the projected benet payments specic to
the company’s plans and the yields on high-quality bonds.
At December 31, 2013, the company used a 4.3 percent dis-
count rate for the U.S. pension plans and 4.7 percent for the
main U.S. OPEB plan. e discount rates at the end of 2012
and 2011 were 3.6 and 3.9 percent and 3.8 and 4.0 percent
for the U.S. pension plans and the main U.S. OPEB plans,
respectively.
Note 21 Employee Benefit Plans – Continued
Assumptions e following weighted-average assumptions were used to determine benet obligations and net periodic benet
costs for years ended December 31:
Pension Benets
2013 2012 2011 Other Benets
U.S. Int’l. U.S. Int’l. U.S. Int’l. 2013 2012 2011
Assumptions used to determine
benet obligations:
Discount rate 4.3% 5.8% 3.6% 5.2% 3.8% 5.9% 4.9% 4.1% 4.2%
Rate of compensation increase 4.5% 5.5% 4.5% 5.5% 4.5% 5.7% N/A N/A N/A
Assumptions used to determine
net periodic benet cost:
Discount rate 3.6% 5.2% 3.8% 5.9% 4.8% 6.5% 4.1% 4.2% 5.2%
Expected return on plan assets 7.5% 6.8% 7.5% 7.5% 7.8% 7.8% N/A N/A N/A
Rate of compensation increase 4.5% 5.5% 4.5% 5.7% 4.5% 6.7% N/A N/A N/A