Dow Chemical 2009 Annual Report Download - page 161

Table of Contents
NOTE P – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Acquisition of Rohm and Haas
With the April 1, 2009 acquisition of Rohm and Haas (see Note D), the Company assumed sponsorship of qualified and non-qualified pension and other
postretirement benefit plans that provide defined benefits to U.S. and non-U.S. employees. As a result, the Company acquired the following plan assets and
obligations from Rohm and Haas:
Plan Assets and Obligations Acquired from Rohm and Haas
on April 1, 2009 (1)
In millions
Defined Benefit
Pension
Plans
Other Postretirement
Benefits
Fair value of plan assets $ 1,439 $ 18
Projected benefit obligation $ 2,168 $ 338
(1) Does not include plan assets and obligations of Morton that were sold to K+S on October 1, 2009
(see Note E).
Pension Plans
The Company has defined benefit pension plans that cover employees in the United States and a number of other countries. The U.S. qualified plan covering
the parent company is the largest plan. Benefits are based on length of service and the employee’s three highest consecutive years of compensation. Employees
hired after January 1, 2008 earn benefits that are based on a set percentage of annual pay, plus interest.
The Company’s funding policy is to contribute to the plans when pension laws and/or economics either require or encourage funding. In 2009, Dow
contributed $355 million to its pension plans, including contributions to fund benefit payments for its non-qualified supplemental plans. Dow expects to
contribute $304 million to its pension plans in 2010.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for the plans are provided in the two tables
below:
Weighted-Average Assumptions
for All Pension Plans
Benefit Obligations
at December 31 (1)
Net Periodic Costs
for the Year (1)
2009 2008 2009 2008
Discount rate 5.71% 6.35% 6.53% 6.33%
Rate of increase in future compensation levels 4.14% 4.14% 4.01% 4.14%
Expected long-term rate of return on plan assets - - 8.03% 8.12%
Weighted-Average Assumptions
for U.S. Pension Plans
Benefit Obligations
at December 31 (1)
Net Periodic Costs
for the Year (1)
2009 2008 2009 2008
Discount rate 5.97% 6.61% 6.82% 6.75%
Rate of increase in future compensation levels 4.50% 4.50% 4.31% 4.50%
Expected long-term rate of return on plan assets - - 8.46% 8.44%
(1) 2008 assumptions do not include Rohm and Haas plans acquired on April 1, 2009.
The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors
driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but
are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected
long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The
Company’s historical experience with the pension fund asset performance is also considered. A similar process is followed in determining the expected long-
term rate of return for assets held in the Company’s other postretirement benefit plan trusts. The discount rates utilized to measure the pension and other
postretirement obligations of the U.S. qualified plans are based on the yield on high-quality fixed income investments at the measurement date. Future expected
actuarially determined cash flows of Dow’s major U.S. plans are matched against the Citigroup Pension Discount Curve (Above Median) to arrive at a single
discount rate by plan.
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