Eli Lilly 2010 Annual Report Download - page 77

FORM 10-K
The following represents our weighted-average assumptions as of December 31:
Defined Benefit
Pension Plans Retiree Health Benefit Plans
(Percents) 2010 2009 2008 2010 2009 2008
Weighted-average assumptions as of December 31
Discount rate for benefit obligation ............................ 5.6 5.9 6.7 5.8 6.0 6.9
Discount rate for net benefit costs ............................ 5.9 6.7 6.4 6.0 6.9 6.7
Rate of compensation increase for benefit obligation ............. 3.7 3.7 4.1
Rate of compensation increase for net benefit costs ............. 3.7 4.1 4.6
Expected return on plan assets for net benefit costs ............. 8.8 8.8 9.0 9.0 9.0 9.0
In evaluating the expected return on plan assets annually we consider numerous factors, including; our historical
assumptions compared with actual results, an analysis of current and future market conditions, our current and
expected asset allocations, historical returns and the views of leading financial advisers and economists for future
asset class returns. As noted, historical returns are just one of several factors considered and are not the starting
point for determining the expected return. Our 20-year annualized rate of return on our U.S. defined benefit pension
plans and retiree health benefit plan was approximately 9.4 percent as of December 31, 2010. Health-care-cost trend
rates are assumed to increase at an annual rate of 7.8 percent in 2011, decreasing by approximately 0.4 percent per
year to an ultimate rate of 5.3 percent by 2018.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as
follows:
2011 2012 2013 2014 2015 2016-2020
Defined benefit pension plans ........................... $387.8 $398.1 $408.4 $423.8 $436.0 $2,466.5
Retiree health benefit plans-gross ....................... $119.1 $121.9 $126.1 $131.3 $138.4 $ 787.2
Medicare rebates ..................................... (15.8) (10.8) (12.4) (13.9) (15.5) (98.3)
Retiree health benefit plans-net ......................... $103.3 $111.1 $113.7 $117.4 $122.9 $ 688.9
The total accumulated benefit obligation for our defined benefit pension plans was $7.23 billion and $6.67 billion at
December 31, 2010 and 2009, respectively. The projected benefit obligation and fair value of the plan assets for the
defined benefit pension plans with projected benefit obligations in excess of plan assets were $7.12 billion and $5.93
billion, respectively, as of December 31, 2010, and $7.55 billion and $6.01 billion, respectively, as of December 31,
2009. The accumulated benefit obligation and fair value of the plan assets for the defined benefit pension plans with
accumulated benefit obligations in excess of plan assets were $1.10 billion and $136.3 million, respectively, as of
December 31, 2010, and $1.01 billion and $107.4 million, respectively, as of December 31, 2009.
Net pension and retiree health benefit expense included the following components:
Defined Benefit
Pension Plans Retiree Health Benefit Plans
2010 2009 2008 2010 2009 2008
Components of net periodic benefit cost
Service cost ...................................... $ 219.2 $ 242.1 $ 260.1 $ 56.5 $ 53.7 $ 62.1
Interest cost ...................................... 431.6 417.5 409.8 121.4 119.6 105.7
Expected return on plan assets ...................... (638.2) (584.9) (603.0) (122.6) (117.9) (118.4)
Amortization of prior service cost (benefit) ............. 8.8 8.0 8.2 (37.2) (36.0) (36.0)
Recognized actuarial loss ........................... 163.0 84.5 76.6 85.0 71.8 62.7
Net periodic benefit cost ............................ $ 184.4 $ 167.2 $ 151.7 $ 103.1 $ 91.2 $ 76.1
If the health-care-cost trend rates were to be increased by one percentage point each future year, the December 31,
2010, accumulated postretirement benefit obligation would increase by $182.5 million (8.8 percent) and the
aggregate of the service cost and interest cost components of the 2010 annual expense would increase by $14.4
million (8.1 percent). A one percentage point decrease in these rates would decrease the December 31, 2010,
accumulated postretirement benefit obligation by $164.1 million (7.9 percent) and the aggregate of the 2010 service
cost and interest cost by $11.7 million (6.6 percent).
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