Discover 2015 Annual Report Download - page 141

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variables and asset class performance patterns are analyzed using empirical models. Finally, comprehensive asset class
performance projections are created by blending descriptive asset class characteristics with capital market insight and
the initial economic analyses. The expected long-term return on plan assets is a long-term assumption that generally is
expected to remain the same from one year to the next but is adjusted if there is a material change in the target asset
allocation and/or significant changes in fees and expenses paid by the Discover Pension Plan.
Discover Pension Plan Assets
The targeted asset allocation for 2016 by asset class is 45% and 55% for equity securities and fixed income
securities, respectively. The Discover Financial Services Retirement Plan Investment Committee (the “Investment
Committee”) determined the asset allocation targets for the Discover Pension Plan based on its assessment of business
and financial conditions, demographic and actuarial data, funding characteristics and related risk factors. Other
relevant factors, including industry practices and long-term historical and prospective capital market returns were
considered as well.
The Discover Pension Plan return objectives provide long-term measures for monitoring the investment
performance against growth in the pension obligations. The overall allocation is expected to help protect the Discover
Pension Plan's funded status while generating sufficiently stable real returns (net of inflation) to help cover current and
future benefit payments and to improve the Discover Pension Plan's funded status. Total Discover Pension Plan portfolio
performance is assessed by comparing actual returns with relevant benchmarks, such as the Standard & Poor's (“S&P”)
500 Index, the S&P 500 Total Return Index, the Russell 2000 Index and the MSCI All Country World Index.
Both the equity and fixed income portions of the asset allocation use a combination of active and passive
investment strategies and different investment styles. The fixed income asset allocation consists of longer duration fixed
income securities in order to help reduce plan exposure to interest rate variation and to better correlate assets with
obligations. The longer duration fixed income allocation is expected to help stabilize the funding status ratio over the
long term.
The asset mix of the Discover Pension Plan is reviewed by the Investment Committee on a regular basis. The asset
allocation strategy will change over time in response to changes in the Discover Pension Plan's funded status.
Fair Value Measurements
The Discover Pension Plan’s assets are stated at fair value. Quoted market prices in active markets are the best
evidence of fair value and are used as the basis for the measurement, if available. If a quoted market price is not
available, the estimate of the fair value is based on the best information available in the circumstances. The table below
presents information about the Discover Pension Plan assets. All of the Company's pension plan assets were categorized
as Level 2 assets within the fair value hierarchy, as defined by ASC 820, as of the end of the current period. For a
description of the fair value hierarchy, see Note 21: Fair Value Measurements and Disclosures. (dollars in millions):
December 31,
2015 2014
Amount Net Asset Allocation Amount Net Asset Allocation
Assets
Domestic small/mid cap equity fund ......................................................... $ 31 8% $ 31 8%
Emerging markets equity fund .................................................................. 26 7 30 7
Global low volatility equity fund ............................................................... 21 6 20 5
International core equity fund ................................................................... 45 12 44 11
Domestic large cap equity fund ................................................................ 50 13 54 13
Long duration fixed income fund ............................................................... 201 53 219 55
Stable value fund .................................................................................... 1 — — —
Temporary investment fund ...................................................................... 3 1 3 1
Total assets ......................................................................................... $ 378 100% $ 401 100%