E-Z-GO 2014 Annual Report Download - page 72

Download and view the complete annual report

Please find page 72 of the 2014 E-Z-GO annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 94

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94

Assumptions
The weighted-average assumptions we use for our pension and postretirement plans are as follows:
Pension Benefits
Postretirement Benefits
Other than Pensions
2014
2013
2012
2014
2013
2012
Net periodic benefit cost
Discount rate
4.92%
4.23%
4.94%
4.50%
3.75%
4.75%
Expected long-term rate of return on assets
7.60%
7.56%
7.58%
Rate of compensation increase
3.50%
3.47%
3.49%
Benefit obligations at year-end
Discount rate
4.18%
4.94%
4.23%
4.00%
4.50%
3.75%
Rate of compensation increases
3.49%
3.51%
3.48%
During 2014, the Society of Actuaries released new mortality tables that reflect increased life expectancy over the previous tables.
We incorporated these new tables in the 2014 fair value measurement of our U.S. pension plans which resulted in an increase in
the projected benefit obligation as of January 3, 2015.
Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 6.6% in 2014 and 7.2% in 2013. We
expect this rate to gradually decline to 5.0% by 2021 where we assume it will remain. 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
$ 1
$ (1)
Effect on postretirement benefit obligations other than pensions
18
(16)
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. 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
23% to 38%
International equity securities
11% to 22%
Debt securities
27% to 38%
Private investment partnerships
5% to 11%
Real estate
7% to 13%
Hedge funds
0% to 5%
Foreign Plan Assets
Equity securities
49% to 67%
Debt securities
28% to 41%
Real estate
3% to 12%
66 Textron Inc. Annual Report • 2014