First Data 2010 Annual Report Download - page 111

Table of Contents
FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2010 2009 2008
Discount rate 5.40% 5.62% 6.52%
Rate of compensation increase* 4.00% 4.00% 3.76%
* 2010 and 2009 applies to a plan in Greece. 2008 applies to plans in the United Kingdom, Germany, Greece and Austria.
The weighted-average rate assumptions used in the measurement of the Company's net cost are as follows:
As of December 31, 2010 2009 2008
Discount rate 5.55% 6.19% 5.94%
Expected long-term return on plan assets 6.86% 6.95% 6.84%
Rate of compensation increase* 4.00% 3.85% 3.82%
* 2010 applies to Greece. 2009 applies to plans in the United Kingdom (through June 2009) and Greece. 2008 applies to plans in the United Kingdom,
Germany, Greece and Austria.
Assumptions for the U.S. plans and the foreign plans are comparable in all of the above periods. The Company employs a building block approach in
determining the long-term rate of return for plan assets with proper consideration of diversification and re-balancing. Historical markets are studied and long-
term historical relationships between equities and fixed-income securities are preserved consistent with the widely accepted capital market principle that
assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-
term capital market assumptions are determined. Peer data and historical returns are reviewed to check for reasonableness and appropriateness. All
assumptions are the responsibility of management.
Plan assets. The Company's pension plan target asset allocation, based on the investment policy as of December 31, 2010, is as follows:
Asset Category
Target
allocation
U.S. plans
Target
allocation
Foreign plans
Equity securities 40% 60%
Debt securities 60% 40%
The Company employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term
return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities and plan funded status. The
investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and
non-U.S. stocks, as well as growth, value, and small, mid and large capitalizations. In addition, private equity securities comprise a very small part of the
equity allocation. The fixed income allocation is a combination of fixed income investment strategies designed to contribute to the total rate of return of all
plan assets while minimizing risk and supporting the duration of plan liabilities.
Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and
periodic asset and liability studies. The general philosophy of the Investment Council in setting the allocation percentages for the domestic plan shown above
is to adhere to the appropriate allocation mix necessary to support the underlying plan liabilities as influenced significantly by the demographics of the
participants and the frozen nature of the plan.
The goal of the Board of Trustees of the United Kingdom plan is the acquisition of secure assets of appropriate liquidity which are expected to generate
income and capital growth to meet, together with new contributions from the Company, the cost of current and future benefits, as set out in the Trust Deed
and Rules. The Trustees, together with the plan's consultants and actuaries, further design the asset allocation shown above to limit the risk of the assets
failing to meet the liabilities over the long term. Currently the equity allocation is diversified amongst both United Kingdom and non-United Kingdom
equities from North America, Europe, Japan and Asia Pacific. A small portion is allocated to other global emerging market equity securities. Fixed income is
allocated primarily to United Kingdom government bond securities with the remaining portion in investment-grade corporate bonds.
Fair value measurements. Financial instruments included in plan assets carried and measured at fair value on a recurring basis are classified in the
table below according to the hierarchy described in Note 7 (in millions):
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