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74 Textron Inc. Annual Report ● 2012
Assumptions
The weighted-average assumptions we use for our pension and postretirement plans are as follows:
Pension Benefits
Postretirement Benefits
Other than Pensions
2012 2011 2010 2012 2011 2010
Net periodic benefit cost
Discount rate 4.94% 5.71% 6.20% 4.75% 5.50% 5.50%
Expected long-term rate of return on assets 7.58% 7.84% 8.26%
Rate of compensation increase 3.49% 3.99% 4.00%
Benefit obligations at year-end
Discount rate 4.23% 4.95% 5.71% 3.75% 4.75% 5.50%
Rate of compensation increases 3.48% 3.49% 3.99%
Assumed healthcare cost trend rates are as follows:
2012 2011
Medical cost trend rate 8.4% 9.0%
Prescription drug cost trend rate 8.4% 9.0%
Rate to which medical and prescription drug cost trend rates will gradually decline 5.0% 5.0%
Year that the rates reach the rate where we assume they will remain 2021 2021
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:
(In millions)
One-
Percentage-
Point
Increase
One-
Percentage-
Point
Decrease
Effect on total of service and interest cost components $ 3 $ (2)
Effect on postretirement benefit obligations other than pensions 41 (36)
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. For foreign plan assets, allocations are based on expected
cash flow needs and assessments of the local practices and markets. Our target allocation ranges are as follows:
U.S. Plan Assets
Domestic equity securities 26% to 40%
International equity securities 11% to 22%
Debt securities 26% to 34%
Private equity partnerships 5% to 11%
Real estate 7% to 13%
Hedge funds 0% to 5%
Foreign Plan Assets
Equity securities 36% to 70%
Debt securities 30% to 60%
Real estate 3% to 17%