Hormel Foods 2013 Annual Report Download - page 49

47
The expected long-term rate of return on plan assets is developed in consultation with outside advisors. A range is determined
based on the composition of the asset portfolio, historical long-term rates of return, and estimates of future performance.
For measurement purposes, an 8.0% annual rate of increase in the per capita cost of covered health care benefits for pre-Medi-
care and post-Medicare retirees’ coverage is assumed for 2014. The pre-Medicare and post-Medicare rate is assumed to
decrease to 5.0% for 2019, and remain at that level thereafter.
The assumed discount rate, expected long-term rate of return on plan assets, rate of future compensation increase, and health
care cost trend rate have a significant impact on the amounts reported for the benefit plans. A one-percentage-point change in
these rates would have the following effects:
1-Percentage-Point
Expense Benefit Obligation
(in thousands) Increase Decrease Increase Decrease
Pension Benefits:
Discount rate $ (9,833) $ 15,569 $ (133,968) $ 166,887
Expected long-term rate of return on plan assets (10,731) 10,731 – –
Rate of future compensation increase 1,257 (1,208) 6,636 (6,463)
Post-retirement Benefits:
Discount rate $ 1,087 $ 3,684 $ (32,338) $ 39,046
Health care cost trend rate 1,529 (1,405) 35,049 (29,181)
The actual and target weighted-average asset allocations for the Company’s pension plan assets as of the plan measurement
date are as follows:
2013 2012
Asset Category Actual Target Range Actual Target Range
Large Capitalization Equity 29.2% 15-35% 29.4% 20-35%
Hormel Foods Corporation Stock 6.7% 0-10% 5.2% 0-10%
Small Capitalization Equity 6.3% 5-15% 5.7% 5-15%
International Equity 22.0% 15-25% 19.7% 15-25%
Private Equity 4.2% 0-15% 3.6% 0-15%
Total Equity Securities 68.4% 55-75% 63.6% 55-75%
Fixed Income 30.0% 25-45% 35.0% 25-45%
Cash and Cash Equivalents 1.5% – 1.4% –
Target allocations are established in consultation with outside advisors through the use of asset-liability modeling to attempt to
match the duration of the plan assets with the duration of the Company’s projected benefit liability. The asset allocation strategy
attempts to minimize the long-term cost of pension benefits, reduce the volatility of pension expense, and achieve a healthy
funded status for the plans.
As of the 2013 measurement date, plan assets included 1.7 million shares of common stock of the Company having a market
value of $72.6 million. Dividends paid during the year on shares held by the plan were $1.1 million. In 2012, plan assets included
1.7 million shares of common stock of the Company having a market value of $48.9 million.
Based on the October 27, 2013 measurement date, the Company anticipates making contributions of $26.8 million to fund the
pension plans during fiscal year 2014. The Company also expects to make contributions of $27.1 million during 2014 that repre-
sent benefit payments for unfunded plans.
Weighted-average assumptions used to determine net peri-
odic benefit costs are as follows:
2013 2012 2011
Discount rate 4.05% 5.33% 5.82%
Rate of future compensation
increase (for plans that
base benefits on final
compensation level) 3.97% 3.93% 4.03%
Expected long-term return
on plan assets 7.90% 8.00% 8.00%
Weighted-average assumptions used to determine benefit
obligations are as follows:
2013 2012
Discount rate 4.89% 4.05%
Rate of future compensation increase
(for plans that base benefits on
final compensation level) 3.91% 3.97%