E-Z-GO 2008 Annual Report Download - page 92

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Textron Inc.
We have estimated an initial medical cost trend rate of 7% in 2008, which we assume will decrease to 5% by 2019 and then remain at that level.
For the initial prescription drug cost trend rate, we have estimated a rate of 10% in 2008, which we assume will decrease to 5% by 2019 and then
remain at that level. These assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefits
other than pensions. A one-percentage-point change in these 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 $ 4 $ (3)
Effect on postretirement benefit obligations other than pensions 43 (38)
Pension Benefits
The accumulated benefit obligation for all defined benefit pension plans was $4.7 billion at January 3, 2009 and December 29, 2007, which
includes $297 million and $271 million, respectively, in accumulated benefit obligations for unfunded plans where funding is not permitted or in
foreign environments where funding is not feasible. Pension plans with accumulated benefit obligations exceeding the fair value of plan assets
were as follows:
(In millions) 2008 2007
Projected benefit obligation $ 4,867 $ 569
Accumulated benefit obligation 4,463 491
Fair value of plan assets 3,323 184
In addition to the plans in the above table, we have plans with the projected benefit obligation in excess of the fair value of plan assets at year-end
as follows:
(In millions) 2008 2007
Projected benefit obligation $ 85 $ 1,536
Accumulated benefit obligation 62 1,365
Fair value of plan assets 69 1,412
Pension Assets
We invest our pension assets 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. We are 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 our 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 our stock in the portfolios that they
manage on our behalf.
For U.S. plan assets, comprising the majority of plan assets, asset allocation target ranges were established consistent with the investment
objectives, and the assets are rebalanced periodically. The expected long-term rate of return on plan assets was determined based on a variety of
considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets
and other market considerations. At January 3, 2009, the target allocation range is 38% to 63% for equity securities, 11% to 42% for debt
securities, and 14% to 33% for each of real estate and other alternative assets. For foreign plan assets, allocations are based on expected cash
flow needs and assessments of the local practices and markets. The percentages of the fair value of total U.S. pension plan assets by major
category are as follows:
January 3, December 29,
Asset Category 2009 2007
Equity securities 48% 57%
Debt securities 30 26
Real estate 12 10
Other 10 7
Total 100% 100%
79