Lockheed Martin 2013 Annual Report Download - page 85

We expect that approximately $1.0 billion, or $700 million net of tax, of actuarial losses and prior service cost related to
postretirement benefit plans included in accumulated other comprehensive loss at the end of 2013 to be recognized in net
periodic benefit cost during 2014. Of this amount, $970 million, or $625 million net of tax, primarily relates to actuarial losses
associated with our qualified defined benefit plans and is included in our expected 2014 pension expense of $1.3 billion.
Actuarial Assumptions
The actuarial assumptions used to determine the benefit obligations at December 31 of each year, and to determine the
net periodic benefit cost for each subsequent year, were as follows:
Qualified Defined Benefit
Pension Plans
Retiree Medical and
Life Insurance Plans
2013 2012 2011 2013 2012 2011
Discount rate 4.75% 4.00% 4.75% 4.50% 3.75% 4.50%
Expected long-term rate of return on assets 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Rate of increase in future compensation levels 4.30% 4.30% 4.30%
Health care trend rate assumed for next year 8.75% 9.00% 9.50%
Ultimate health care trend rate 5.00% 5.00% 5.00%
Year that the ultimate health care trend rate is reached 2029 2029 2021
The increase in the discount rate from December 31, 2012 to December 31, 2013 resulted in a decrease in the projected
benefit obligations of our qualified defined benefit pension plans of approximately $4.4 billion at December 31, 2013. The
decrease in the discount rate from December 31, 2011 to December 31, 2012 resulted in an increase in the projected benefit
obligations of our qualified defined benefit pension plans of approximately $4.5 billion at December 31, 2012.
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 based on several factors including
historical market index returns, the anticipated long-term asset allocation of plan assets, the historical return data, plan
expenses, and the potential to outperform market index returns.
Plan Assets
Investment policies and strategies – Lockheed Martin Investment Management Company (LMIMCo), our wholly-
owned subsidiary, has the fiduciary responsibility for making investment decisions related to the assets of our postretirement
benefit plans. LMIMCo’s investment objectives for the assets of these plans are (1) to minimize the net present value of
expected funding contributions; (2) to ensure there is a high probability that each plan meets or exceeds our actuarial long-
term rate of return assumptions; and (3) to diversify assets to minimize the risk of large losses. 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; 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.
LMIMCo’s investment policies require that asset allocations of postretirement benefit plans be maintained within the
following approximate ranges:
Asset Class
Asset Allocation
Ranges
Cash and cash equivalents 0-20%
Equity 15-55%
Fixed income 10-60%
Alternative investments:
Private equity funds 0-15%
Real estate funds 0-10%
Hedge funds 0-20%
Commodities 0-25%
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