Dow Chemical 2011 Annual Report Download - page 218

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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 Towers Watson RATE:Link yield curve (based on 60th to 90th percentile bond
yields) to arrive at a single discount rate for each plan.
The accumulated benefit obligation for all defined benefit pension plans was $21.6 billion at December 31, 2011 and
$20.1 billion at December 31, 2010.
Pension Plans with Accumulated Benefit Obligations in Excess
of Plan Assets at December 31
In millions
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
2011
$ 21,003
$ 19,990
$ 13,993
2010
$ 18,424
$ 17,571
$ 12,912
In addition to the U.S. qualified defined benefit pension plan, U.S. employees may participate in defined contribution plans
(Employee Savings Plans or 401(k) plans) by contributing a portion of their compensation, which is partially matched by the
Company. Defined contribution plans also cover employees in some subsidiaries in other countries, including Australia, Brazil,
Canada, Italy, Spain and the United Kingdom. Expense recognized for all defined contribution plans was $163 million in 2011,
$184 million in 2010 and $156 million in 2009.
Other Postretirement Benefits
The Company provides certain health care and life insurance benefits to retired employees. The Company’s plans outside of the
United States are not significant; therefore, this discussion relates to the U.S. plans only. The plans provide health care benefits,
including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits. In general, for
employees hired before January 1, 1993, the plans provide benefits supplemental to Medicare when retirees are eligible for
these benefits. The Company and the retiree share the cost of these benefits, with the Company portion increasing as the retiree
has increased years of credited service, although there is a cap on the Company portion. The Company has the ability to change
these benefits at any time. Employees hired after January 1, 2008 are not covered under the plans.
The Company funds most of the cost of these health care and life insurance benefits as incurred. In 2011, Dow did not
make any contributions to its other postretirement benefit plan trusts. Likewise, Dow does not expect to contribute assets to its
other postretirement benefits plan trusts in 2012.
The weighted-average assumptions used to determine other postretirement benefit obligations and net periodic benefit
costs for the U.S. plans are provided below:
U.S. Plan Assumptions for Other
Postretirement Benefits
Discount rate
Expected long-term rate of return on plan assets
Initial health care cost trend rate
Ultimate health care cost trend rate
Year ultimate trend rate to be reached
Benefit Obligations
at December 31
2011
4.66%
—
8.28%
5.00%
2019
2010
5.15%
—
8.70%
5.00%
2019
Net Periodic Costs
for the Year
2011
5.15%
3.60%
8.70%
5.00%
2019
2010
5.69%
4.35%
9.13%
5.00%
2019