Emerson 2005 Annual Report Download - page 54

4 2 E M E R S O N 2 0 0 5
U.S. Plans Non-U.S. Plans
2003 2004 2005 2003 2004 2005
Weighted average assumptions used to
determine net pension expense:
Discount rate 7.25% 6.00% 6.25% 5.8% 5.2% 5.4%
Expected return on plan assets 9.00% 8.50% 8.50% 8.3% 7.2% 7.4%
Rate of compensation increase 3.75% 3.25% 3.25% 3.4% 3.3% 3.1%
Weighted average assumptions used to
determine benefit obligations as of June 30:
Discount rate 6.00% 6.25% 5.25% 5.2% 5.4% 4.7%
Rate of compensation increase 3.25% 3.25% 3.00% 3.3% 3.1% 3.0%
At September 30, 2005 and 2004, the pension assets recognized in the balance sheet were $925 and $883, and the pension liabilities
recognized in the balance sheet were $276 and $242, respectively; in addition, $282 and $254 were included in accumulated other
comprehensive income at September 30, 2005 and 2004, respectively. As of the plans’ June 30 measurement date, the projected benefit
obligation, accumulated benefit obligation, and fair value of plan assets for the retirement plans with accumulated benefit obligations in
excess of plan assets were $1,006, $938 and $656, respectively, for 2005, and $1,009, $934 and $694, respectively, for 2004. As of the
June 30, 2005 measurement date, the fair value of plan assets exceeded the accumulated benefit obligation for the primary defined benefit
pension plan by approximately $150. If the performance of the equity and bond markets in 2006 eliminates the excess, the Company could
be required to record an after-tax charge to equity of approximately $530. Effective for 2006, the Company adjusted the discount rate for
the U.S. retirement plans to 5.25 percent and adjusted the expected long-term rate of return on plan assets to 8.0 percent. Defined benefit
pension plan expense is expected to increase approximately $60 in 2006.
The primary objectives for the investment of plan assets is to secure participant retirement benefits, while earning a reasonable rate
of return. Plan assets are invested consistent with the provisions of prudence and diversification rules of ERISA and with a long-term
investment horizon. The expected return on plan assets assumption is determined by reviewing the investment return of the plans for the
past ten years and the historical return (since 1926) of an asset mix approximating Emerson’s current asset allocation targets and evaluating
these returns in relation to expectations of various investment organizations to determine whether long-term future returns are expected
to differ significantly from the past. The Company’s pension plan asset allocations at June 30, 2004 and 2005, and target weighted-average
allocations are as follows:
U.S. Plans Non-U.S. Plans
2004 2005 Target 2004 2005 Target
Asset category
Equity securities 70% 69% 66 - 70% 53% 56% 50 - 60%
Debt securities 30% 27% 26 - 32% 37% 37% 30 - 40%
Other — 4% 2 - 5% 10% 7% 5 - 10%
100% 100% 100% 100% 100% 100%
The Company estimates that future benefit payments for the U.S. plans will be as follows: $119 in 2006, $125 in 2007, $132 in 2008,
$138 in 2009, $145 in 2010 and $838 in total over the five years 2011 through 2015. Using foreign exchange rates as of September 30,
2005, the Company estimates that future benefit payments for the non-U.S. plans will be as follows: $23 in 2006, $23 in 2007, $25 in
2008, $26 in 2009, $28 in 2010 and $169 in total over the five years 2011 through 2015. In 2006, the Company expects to contribute
approximately $75 to $150 to the retirement plans.