Pepsi 2007 Annual Report Download - page 46

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Weighted-average assumptions for pension and retiree medical expense
are as follows:
2008 2007 2006
Pension
Expense discount rate 6.3% 5.7% 5.6%
Expected rate of return on plan assets 7.6% 7.7% 7.7%
Expected rate of salary increases 4.4% 4.5% 4.4%
Retiree medical
Expense discount rate 6.4% 5.8% 5.7%
Current health care cost trend rate 8.5% 9.0% 10.0%
the difference between the expected and
actual return based on the market-related
value of assets. This market-related valua-
tion method recognizes investment gains
or losses over a fi ve-year period from the
year in which they occur, which has the
effect of reducing year-to-year volatility.
Expense in future periods will be impacted
as gains or losses are recognized in the
market-related value of assets over the
fi ve-year period.
Other gains and losses resulting from
actual experience differing from our
assumptions and from changes in our
assumptions are also determined at each
measurement date. If this net accumu-
lated gain or loss exceeds 10% of the
greater of plan assets or liabilities, a
portion of the net gain or loss is included
in expense for the following year. The cost
or benefi t of plan changes that increase or
decrease benefi ts for prior employee ser-
vice (prior service cost/(credit)) is included
in earnings on a straight-line basis over
the average remaining service period
of active plan participants, which is
approximately 11 years for pension
expense and approximately 13 years for
retiree medical expense.
Effective as of the beginning of our
2008 fi scal year, we amended our U.S.
hourly pension plan to increase the
amount of participant earnings recog-
nized in determining pension benefi ts.
Additional pension plan amendments
were also made as of the beginning of
our 2008 fi scal year to comply with legis-
lative and regulatory changes.
The health care trend rate used to
determine our retiree medical plan’s
liability and expense is reviewed annually.
Our review is based on our claim experi-
ence, information provided by our health
plans and actuaries, and our knowledge
of the health care industry. Our review
of the trend rate considers factors such
as demographics, plan design, new
medical technologies and changes in
medical carriers.
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