Lockheed Martin 2007 Annual Report Download - page 94

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The increase in the discount rate from December 31, 2006 to December 31, 2007 resulted in a decrease in the projected
benefit obligations of our defined benefit pension plans at December 31, 2007 of approximately $1,792 million.
The actuarial assumptions used to determine the net expense related to our defined benefit pension and postretirement
benefit plans for the years ended December 31, 2007, 2006 and 2005, as appropriate, are as follows:
Pension and Postretirement
Cost Assumptions
2007 2006 2005
Discount rates 5.875% 5.625% 5.75%
Expected long-term rates of return on assets 8.50 8.50 8.50
Rates of increase in future compensation levels 5.00 5.00 5.50
The long-term rate of return assumption represents the expected average rate of earnings on the funds invested or to be
invested to provide for the benefits included in the benefit obligations. That assumption is determined based on a number of
factors, including historical market index returns, the anticipated long-term asset allocation of the plans, historical plan return
data, plan expenses and the potential to outperform market index returns.
The medical trend rates used in measuring the postretirement benefit obligation were 10.0% in 2007 and 11.0% in 2006,
and were assumed to ultimately decrease to 5.0% by the year 2013. An increase or decrease of one percentage point in the
assumed medical trend rates would result in a change in the postretirement benefit obligation of 4% and (4)% at
December 31, 2007, and a change in the 2007 postretirement service cost plus interest cost of 5% and (4)%. The medical
trend rate for 2008 is 10.0%.
For defined benefit pension plans in which the accumulated benefit obligation (ABO) was in excess of the fair value of
the plans’ assets, the PBO, ABO and fair value of the plans’ assets were as follows:
(In millions) 2007 2006
Projected benefit obligation $3,045 $3,983
Accumulated benefit obligation 3,045 3,912
Fair value of plan assets 3,041 3,639
The asset allocations of our plans at December 31, 2007 and 2006, by asset category, were as follows:
Defined Benefit
Pension Plans
Retiree Medical and Life
Insurance Plans
2007 2006 2007 2006
Asset category:
Equity securities 61% 63% 59% 63%
Debt securities 30 31 38 35
Other 9632
100% 100% 100% 100%
Lockheed Martin Investment Management Company (LMIMCO), our wholly-owned subsidiary, has the fiduciary
responsibility for making investment decisions related to the assets of our defined benefit pension plans and retiree medical
and life insurance plans. LMIMCO’s investment objectives for the assets of the defined benefit pension plans are to minimize
the net present value of expected funding contributions and to meet or exceed the rate of return assumed for plan funding
purposes over the long term. The investment objective for the assets of the retiree medical and life insurance plans is to meet
or exceed the rate of return assumed for the plans for funding purposes over the long term. The nature and duration of benefit
obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining
an appropriate asset allocation to achieve the investment objectives.
Investment policies and strategies governing the assets of the plans are designed to achieve investment objectives within
prudent risk parameters. Risk management practices include the use of external investment managers and the maintenance of
a portfolio diversified by asset class, investment approach and security holdings, and the maintenance of sufficient liquidity
to meet benefit obligations as they come due.
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