Northrop Grumman 2009 Annual Report Download - page 45

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would have decreased or increased pension and post-retirement benefit expense for 2009 by approximately
$80 million, of which $4 million relates to post-retirement benefits, and decreased or increased the amount of
the benefit obligation recorded at December 31, 2009, by approximately $800 million, of which $70 million
relates to post-retirement benefits. The effects of hypothetical changes in the discount rate for a single year may
not be representative and may be asymmetrical or nonlinear for future years because of the application of the
accounting corridor. The accounting corridor is a defined range within which amortization of net gains and
losses is not required. Due to adverse capital market conditions in 2008 our pension plan assets experienced a
negative return of approximately 16 percent in 2008. As a result, substantially all of our plans experienced net
actuarial losses outside the 10 percent accounting corridor at the end of 2008, thus requiring accumulated gains
and losses to be amortized to expense. As a result of this condition, sensitivity of net periodic costs to changes in
the discount rate were much higher in 2009 than was the case in 2008 and prior. This condition is expected to
continue into the near future.
Expected Long-Term Rate of Return – The expected long-term rate of return on plan assets represents the average
rate of earnings expected on the funds invested in a specified target asset allocation to provide for anticipated
future benefit payment obligations. For 2009 and 2008, we assumed an expected long-term rate of return on
plan assets of 8.5 percent. An increase or decrease of 25 basis points in the expected long-term rate of return
assumption for 2009, holding all other assumptions constant, would increase or decrease our pension and post-
retirement benefit expense for 2009 by approximately $48 million.
Health Care Cost Trend Rates – The health care cost trend rates represent the annual rates of change in the cost of
health care benefits based on estimates of health care inflation, changes in health care utilization or delivery
patterns, technological advances, and changes in the health status of the plan participants. For 2009, we assumed
an expected initial health care cost trend rate of 7 percent and an ultimate health care cost trend rate of 5 percent
reached in 2014. In 2008, we assumed an expected initial health care cost trend rate of 7.5 percent and an
ultimate health care cost trend rate of 5 percent be reached in 2014.
Differences in the initial through the ultimate health care cost trend rates within the range indicated below
would have had the following impact on 2009 post-retirement benefit results:
$ in millions
1-Percentage-
Point Increase
1-Percentage-
Point Decrease
Increase (Decrease) From Change In Health Care Cost Trend Rates To
Post-retirement benefit expense $ 7 $ (8)
Post-retirement benefit liability 81 (91)
-35-
NORTHROP GRUMMAN CORPORATION
eBP - v54508-i003_a.pdf - Page 39 of 124 - March 11, 2010 - 20:02:39