E-Z-GO 2005 Annual Report Download - page 85

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Textron’s pension assets are invested with the objective of achieving a total rate of return, over the long term, sufficient to fund future pension
obligations and to minimize future pension contributions. Textron is willing to tolerate a commensurate level of risk to achieve this objective
based on the funded status of the plans and the long-term nature of Textron’s pension liability. Risk is controlled by maintaining a portfolio of
assets that is diversified across a variety of asset classes, investment styles and investment managers. All of the assets are managed by external
investment managers, and the majority of the assets are actively managed. Where possible, investment managers are prohibited from owning
Textron stock in the portfolios that they manage on behalf of Textron.
For U.S. plan assets, comprising the majority of plan assets, asset allocation target ranges were established consistent with the investment objec-
tives, and the assets are rebalanced periodically. The expected long-term rate of return on plan assets was determined based on a variety of con-
siderations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and
the advice of outside advisors. At December 31, 2005, the target allocation range is 44% - 70% for equity securities, 13% - 33% for debt securi-
ties and 7% - 13% for both real estate and for other assets. For foreign plan assets, allocations are based on expected cash flow needs and
assessments of the local markets. Textron’s percentages of the fair value of total pension plan assets by major category are as follows:
December 31, January 1,
Asset Category 2005 2005
Equity securities 58% 59%
Debt securities 23% 24%
Real estate 9% 8%
Other 10% 9%
Total 100% 100%
Postretirement Benefits Other than Pensions
For measurement purposes, Textron has assumed an annual medical and prescription drug healthcare cost trend rate of 11% for covered health-
care benefits in 2005. The medical rate is assumed to decrease to 5% by 2009 and remain at that level. The prescription drug rate is expected to
rise to 12% in 2006, then decrease to 5% by 2013 and remain at that level. Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
One- One-
Percentage- Percentage-
Point Point
(In millions) Increase Decrease
Effect on total of service and interest cost components $ 5 $ (4)
Effect on postretirement benefit obligations other than pensions $ 55 $ (49)
During the third quarter of 2004, Textron adopted FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the “Act”). The Act provides for a prescription drug benefit under
Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide benefits that are at least
actuarially equivalent to Medicare Part D. Textron has determined that the benefits it provides meet the equivalency tests as defined in the Act and
has included the effects of the subsidy as a reduction to the accumulated projected benefit obligation of approximately $50 million. The total
impact of the subsidy on the net periodic benefit cost for postretirement benefits other than pensions in 2005 and 2004 was approximately $10
million and $7 million, respectively.
Estimated Future Cash Flow Impact
In 2006, Textron expects to contribute in the range of $25 million to $30 million to fund its qualified pension plans and does not expect to con-
tribute to its other postretirement benefit plans. The benefit payments provided below reflect expected future employee service, as appropriate,
that are expected to be paid, net of estimated participant contributions. The benefit payments are based on the same assumptions used to measure
Textron’s benefit obligation at the end of fiscal 2005. Pension benefit payments will primarily be made out of qualified pension trusts. Postretire-
ment benefits other than pensions are paid out of Textron’s assets.
Notes to the Consolidated Financial Statements