Medtronic 2010 Annual Report Download - page 96

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92Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
The actuarial assumptions were as follows:
U.S. Pension Benefits Non-U.S. Pension Benefits Post-Retirement Benefits
Fiscal Year Fiscal Year Fiscal Year
2010 2009 2008 2010 2009 2008 2010 2009 2008
Weighted average assumptions—
projected benefit obligation:
Discount rate 6.05% 8.25% 6.75% 4.68% 5.41% 5.37% 6.05% 8.25% 6.75%
Rate of compensation increase 3.80% 4.00% 4.24% 3.05% 2.90% 3.10% N/A N/A N/A
Initial healthcare cost trend rate pre-65 N/A N/A N/A N/A N/A N/A 8.00% 8.50% 9.00%
Initial healthcare cost trend rate post-65 N/A N/A N/A N/A N/A N/A 7.75% 8.50% 9.00%
Weighted average assumptions—net periodic benefit cost:
Discount rate 8.25% 6.75% 6.00% 5.41% 5.37% 4.42% 8.25% 6.75% 6.00%
Expected return on plan assets 8.25% 8.75% 8.75% 5.78% 5.97% 5.76% 8.25% 8.75% 8.75%
Rate of compensation increase 4.00% 4.24% 4.24% 2.90% 3.10% 3.09% N/A N/A N/A
Initial healthcare cost trend rate pre-65 N/A N/A N/A N/A N/A N/A 8.50% 9.00% 10.00%
Initial healthcare cost trend rate post-65 N/A N/A N/A N/A N/A N/A 8.00% 9.00% 10.00%
The Company’s discount rates are determined by considering
current yield curves representing high quality, long-term fixed
income instruments. The resulting discount rates are consistent
with the duration of plan liabilities.
The expected long-term rate of return on plan assets
assumptions are determined using a building block approach,
considering historical averages and real returns of each asset
class. In certain countries, where historical returns are not
meaningful, consideration is given to local market expectations of
long-term returns.
Retirement Benefit Plan Investment Strategy The Company has an
account that holds the assets for both the U.S. pension plan and
other post-retirement benefits, primarily retiree medical. For
investment purposes, the plans are managed in an identical way,
as their objectives are similar.
The Company has a Qualified Plan Committee (the Plan
Committee) that sets investment guidelines with the assistance of
an external consultant. These guidelines are established based on
market conditions, risk tolerance, funding requirements and
expected benefit payments. The Plan Committee also oversees
the investment allocation process, selects the investment managers
and monitors asset performance. As pension liabilities are long-
term in nature, the Company employs a long-term total return
approach to maximize the long-term rate of return on plan assets
for a prudent level of risk. An annual analysis on the risk versus
the return of the investment portfolio is conducted to justify the
expected long-term rate of return assumption.
The investment portfolio contains a diversified portfolio of
investment categories, including equities, fixed income securities,
hedge funds and private equity. Securities are also diversified in
terms of domestic and international securities, short- and
long-term securities, growth and value styles, large cap and small
cap stocks, active and passive management and derivative-based
styles. The Plan Committee believes with prudent risk tolerance
and asset diversification, the account should be able to meet its
pension and other post-retirement obligations in the future.
Outside the U.S., pension plan assets are typically managed by
decentralized fiduciary committees. There is significant variation
in policy asset allocation from country to country. Local
regulations, local funding rules and local financial and tax
considerations are part of the funding and investment allocation
process in each country.
Plan assets also include investments in the Company’s common
stock of $56 million and $38 million at April 30, 2010 and April 24,
2009, respectively.
The Company’s pension plan target allocations at April 30, 2010
and April 24, 2009, by asset category, is as follows:
U.S. Plans
Target
Allocation
2010 2009
Asset Category
Equity securities 55% 60%
Debt securities 20 10
Other 25 30
Total 100% 100%
Non-U.S. Plans
Target
Allocation
2010 2009
Asset Category
Equity securities 40% 37%
Debt securities 15 15
Other 45 48
Total 100% 100%