JP Morgan Chase 2013 Annual Report Download - page 234

Notes to consolidated financial statements
240 JPMorgan Chase & Co./2013 Annual Report
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 2014 are as follows.
Defined benefit pension plans OPEB plans
(in millions) U.S. Non-U.S. U.S. Non-U.S.
Net loss/(gain) $ 35 $ 47 $ — $ —
Prior service cost/(credit) (41) (2) — —
Total $ (6) $ 45 $ — $ —
The following table presents the actual rate of return on plan assets for the U.S. and non-U.S. defined benefit pension and
OPEB plans.
U.S. Non-U.S.
Year ended December 31, 2013 2012 2011 2013 2012 2011
Actual rate of return:
Defined benefit pension plans 15.95% 12.66% 0.72% 3.74 - 23.80% 7.21 - 11.72% (4.29)-13.12%
OPEB plans 13.88 10.10 5.22 NA NA NA
Plan assumptions
JPMorgan Chase’s expected long-term rate of return for U.S.
defined benefit pension and OPEB plan assets is a blended
average of the investment advisor’s projected long-term (10
years or more) returns for the various asset classes,
weighted by the asset allocation. Returns on asset classes
are developed using a forward-looking approach and are
not strictly based on historical returns. Equity returns are
generally developed as the sum of inflation, expected real
earnings growth and expected long-term dividend yield.
Bond returns are generally developed as the sum of
inflation, real bond yield and risk spread (as appropriate),
adjusted for the expected effect on returns from changing
yields. Other asset-class returns are derived from their
relationship to the equity and bond markets. Consideration
is also given to current market conditions and the short-
term portfolio mix of each plan; as a result, in 2013 the
Firm generally maintained the same expected return on
assets as in the prior year.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, procedures similar to those in the U.S. are used to
develop the expected long-term rate of return on plan
assets, taking into consideration local market conditions
and the specific allocation of plan assets. The expected
long-term rate of return on U.K. plan assets is an average of
projected long-term returns for each asset class. The return
on equities has been selected by reference to the yield on
long-term U.K. government bonds plus an equity risk
premium above the risk-free rate. The expected return on
“AA” rated long-term corporate bonds is based on an
implied yield for similar bonds.
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
selected by reference to the yields on portfolios of bonds
with maturity dates and coupons that closely match each of
the plan’s projected cash flows; such portfolios are derived
from a broad-based universe of high-quality corporate
bonds as of the measurement date. In years in which these
hypothetical bond portfolios generate excess cash, such
excess is assumed to be reinvested at the one-year forward
rates implied by the Citigroup Pension Discount Curve
published as of the measurement date. The discount rate
for the U.K. defined benefit pension plan represents a rate
implied from the yield curve of the year-end iBoxx £
corporate “AA” 15-year-plus bond index.
The following tables present the weighted-average annualized actuarial assumptions for the projected and accumulated
postretirement benefit obligations, and the components of net periodic benefit costs, for the Firm’s significant U.S. and non-
U.S. defined benefit pension and OPEB plans, as of and for the periods indicated.
Weighted-average assumptions used to determine benefit obligations
U.S. Non-U.S.
December 31, 2013 2012 2013 2012
Discount rate:
Defined benefit pension plans 5.00% 3.90% 1.10 - 4.40% 1.40 - 4.40%
OPEB plans 4.90 3.90 ——
Rate of compensation increase 3.50 4.00 2.75 - 4.60 2.75 - 4.10
Health care cost trend rate:
Assumed for next year 6.50 7.00 ——
Ultimate 5.00 5.00 ——
Year when rate will reach ultimate 2017 2017 ——