McKesson 2014 Annual Report Download - page 96

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
93
Our defined benefit pension plan liabilities are valued using a discount rate based on a yield curve developed from a portfolio
of high quality corporate bonds rated AA or better whose maturities are aligned with the expected benefit payments of our plans.
For March 31, 2014, our U.S. defined benefit liabilities are valued using a weighted average discount rate of 3.58%, which
represents an increase of 18 basis points from our 2013 weighted-average discount rate of 3.40%. Our non-U.S defined benefit
pension plan liabilities are valued using a weighted-average discount rate of 3.92%.
Sensitivity to changes in the weighted-average discount rate for our pension plans is as follows:
U.S. Plans Non-U.S. Plans
(In millions) One Percentage
Point Increase One Percentage
Point Decrease One Percentage
Point Increase One Percentage
Point Decrease
Increase (decrease) on projected benefit
obligation $ (35) $ 40 $ (97) $ 119
Increase (decrease) on net periodic pension
cost (2) 2 (3) 4
Plan Assets
Investment Strategy: The overall objective for U. S. pension plan assets is to generate long-term investment returns consistent
with capital preservation and prudent investment practices, with a diversification of asset types and investment strategies. Periodic
adjustments are made to provide liquidity for benefit payments and to rebalance plan assets to their target allocations.
The target allocations for U.S. plan assets at March 31, 2014 and 2013 are 50% equity investments, 45% fixed income
investments including cash and cash equivalents and 5% real estate. Equity investments include common stock, preferred stock,
and equity commingled funds. Fixed income investments include corporate bonds, government securities, mortgage-backed
securities, asset-backed securities, other directly held fixed income investments, and fixed income commingled funds. The real
estate investment is in a commingled real estate fund.
For both our and Celesio’s plan assets outside of the U.S., the investment strategies are subject to local regulations and the
asset/liability profiles of the plans in each individual country. Plan assets of the non-U.S. plans are broadly invested in a manner
appropriate to the nature and duration of the expected future retirement benefits payable under the plans. Plan assets are primarily
invested in high-quality corporate and government bond funds and equity securities. Assets are properly diversified to avoid
excessive reliance on any particular asset, issuer or group of undertakings so as to avoid accumulations of risk in the portfolio as
a whole.
We develop the expected long-term rate of return assumption based on the projected performance of the asset classes in which
plan assets are invested. The target asset allocation was determined based on the liability and risk tolerance characteristics of the
plans and at times may be adjusted to achieve overall investment objectives.