First Data 2012 Annual Report Download - page 102

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted-average rate assumptions used in the measurement of the Company’ s net cost are as follows:
(a) The rate of compensation increases generally apply to active plans.
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, 2012, is as
follows:
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 global equity investments. 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 Benefit Committee 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.
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Year ended December 31,
2012 2011 2010
Discount rate 4.71%5.21%5.55%
Expected long-term return on plan assets 6.11% 6.83% 6.86%
Rate of compensation increase (a) 3.60%4.24%4.00%
Target Target
allocation allocation
Asset Category U.S. plans Foreign plans
Equity securities 40% 60%
Debt securities 60% 40%