Chevron 2014 Annual Report Download - page 64

Notes to the Consolidated Financial Statements
Millions of dollars, except per-share amounts
The weighted average amortization period for recognizing prior service costs (credits) recorded in “Accumulated other
comprehensive loss” at December 31, 2014, was approximately 5 and 9 years for U.S. and international pension plans,
respectively, and 7 years for other postretirement benefit plans. During 2015, the company estimates prior service
(credits) costs of $(9), $22 and $14 will be amortized from “Accumulated other comprehensive loss” for U.S. pension,
international pension and OPEB plans, respectively.
Assumptions The following weighted-average assumptions were used to determine benefit obligations and net periodic
benefit costs for years ended December 31:
Pension Benefits
2014 2013 2012 Other Benefits
U.S. Int’l. U.S. Int’l. U.S. Int’l. 2014 2013 2012
Assumptions used to determine benefit obligations:
Discount rate 3.7% 5.0% 4.3% 5.8% 3.6% 5.2% 4.3% 4.9% 4.1%
Rate of compensation increase 4.5% 5.1% 4.5% 5.5% 4.5% 5.5% N/A N/A N/A
Assumptions used to determine net periodic benefit
cost:
Discount rate 4.3% 5.8% 3.6% 5.2% 3.8% 5.9% 4.9% 4.1% 4.2%
Expected return on plan assets 7.5% 6.6% 7.5% 6.8% 7.5% 7.5% N/A N/A N/A
Rate of compensation increase 4.5% 5.5% 4.5% 5.5% 4.5% 5.7% N/A N/A N/A
Expected Return on Plan Assets The company’s estimated long-term rates of return on pension assets are driven primarily
by actual historical asset-class returns, an assessment of expected future performance, advice from external actuarial firms
and the incorporation of specific asset-class risk factors. Asset allocations are periodically updated using pension plan asset/
liability studies, and the company’s estimated long-term rates of return are consistent with these studies.
For 2014, the company used an expected long-term rate of return of 7.5 percent for U.S. pension plan assets, which account
for 72 percent of the company’s pension plan assets. In both 2013 and 2012, the company used a long-term rate of return of
7.5 for this plan.
The market-related value of assets of the major U.S. pension 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 effects 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 The discount rate assumptions used to determine the U.S. and international pension and postretirement benefit
plan obligations and expense reflect the rate at which benefits could be effectively settled, and is equal to the equivalent
single rate resulting from yield curve analysis. This analysis considered the projected benefit payments specific to the
company’s plans and the yields on high-quality bonds. At December 31, 2014, the company used a 3.7 percent discount rate
for the U.S. pension plans and 4.1 percent for the main U.S. OPEB plan. The discount rates for these plans at the end of 2013
were 4.3 and 4.7 percent, respectively, while in 2012 they were 3.6 and 3.9 percent for these plans, respectively.
Other Benefit Assumptions For the measurement of accumulated postretirement benefit obligation at December 31, 2014,
for the main U.S. postretirement medical plan, the assumed health care cost-trend rates start with 7.0 percent in 2015 and
gradually decline to 4.5 percent for 2025 and beyond. For this measurement at December 31, 2013, the assumed health care
cost-trend rates started with 7.3 percent in 2014 and gradually declined to 4.5 percent for 2025 and beyond. In both
measurements, the annual increase to company contributions was capped at 4 percent.
Assumed health care cost-trend rates can have a significant effect on the amounts reported for retiree health care costs. The
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 effects on worldwide plans:
1 Percent Increase 1 Percent Decrease
Effect on total service and interest cost components $ 13 $ (10)
Effect on postretirement benefit obligation $ 226 $ (187)
62 Chevron Corporation 2014 Annual Report