JP Morgan Chase 2015 Annual Report Download - page 236

Notes to consolidated financial statements
226 JPMorgan Chase & Co./2015 Annual Report
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 2016 are as follows.
Defined benefit pension plans OPEB plans
(in millions) U.S. Non-U.S. U.S. Non-U.S.
Net loss/(gain) $ 231 $ 23 $ — $ —
Prior service cost/(credit) (34) (2) — —
Total $ 197 $ 21 $ — $ —
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, 2015 2014 2013 2015 2014 2013
Actual rate of return:
Defined benefit pension plans 0.88% 7.29% 15.95% (0.48) – 4.92% 5.62 – 17.69% 3.74 – 23.80%
OPEB plans 1.16 9.84 13.88 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.
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
provided by our actuaries. This rate 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 of
appropriate duration from the analysis of yield curves
provided by our actuaries.
In 2014, the Society of Actuaries (“SOA”) completed a
comprehensive review of mortality experience of uninsured
private retirement plans in the U.S. In October 2014, the
SOA published new mortality tables and a new mortality
improvement scale that reflects improved life expectancies
and an expectation that this trend will continue. In 2014,
the Firm adopted the SOA’s tables and projection scale,
resulting in an estimated increase in PBO of $533 million.
In 2015, the SOA updated the projection scale to reflect two
additional years of historical data. The Firm has adopted the
updated projection scale resulting in an estimated decrease
in PBO in 2015 of $112 million.
At December 31, 2015, the Firm increased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
market interest rates, which will result in a decrease in
expense of approximately $63 million for 2016. The 2016
expected long-term rate of return on U.S. defined benefit
pension plan assets and U.S. OPEB plan assets are 6.50%
and 5.75%, respectively. For 2016, the initial health care
benefit obligation trend assumption has been set at 5.50%,
and the ultimate health care trend assumption and the year
to reach the ultimate rate remains at 5.00% and 2017,
respectively, unchanged from 2015. As of December 31,
2015, the interest crediting rate assumption and the
assumed rate of compensation increase remained at 5.00%
and 3.50%, respectively.
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.