E-Z-GO 2009 Annual Report Download - page 87

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Notes to the Consolidated Financial Statements
78
We have estimated an initial medical cost trend rate of 7% in 2009, 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 2009, 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 37 (33)
Pension Benefits
The accumulated benefit obligation for all defined benefit pension plans was $4.8 billion at January 2, 2010 and $4.7 billion at January 3, 2009,
which includes $317 million and $297 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) 2009 2008
Projected benefit obligation $ 5,084 $ 4,867
Accumulated benefit obligation 4,685 4,463
Fair value of plan assets 3,590 3,323
Pension Assets
The expected long-term rate of return on plan assets is 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. 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, which represent the majority of our plan assets, asset allocation target ranges are established consistent with our investment
objectives and the assets are rebalanced periodically. Our target allocation ranges are 27% to 41% for domestic equity securities; 11% to 22% for
international equity securities; 11% to 42% for debt securities; 5% to 11% for private equity partnerships and 9% to 15% for real estate. For
foreign plan assets, allocations are based on expected cash flow needs and assessments of the local practices and markets. The target asset
allocation ranges for our foreign plans are 25% to 65% for equity securities; 25% to 53% for debt securities and 0% to 17% for real estate.