Prudential 2006 Annual Report Download - page 158

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
16. EMPLOYEE BENEFIT PLANS (continued)
class contemplate the risk free interest rate environment as of the measurement date and then add a risk premium. The risk premium
is a range of percentages and is based upon historical information and other factors such as expected reinvestment returns and asset
manager performance.
The Company applied the same approach to the determination of the expected long-term rate of return on plan assets in 2007.
The expected long-term rate of return for 2007 is 8.00% and 9.25%, respectively, for the pension and postretirement plans.
The Company, with respect to pension benefits, uses market related value to determine the components of net periodic benefit
cost. Market related value is a measure of asset value that reflects the difference between actual and expected return on assets over a
five-year period.
The assumptions for foreign pension plans are based on local markets. There are no foreign postretirement plans.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A
one-percentage point increase and decrease in assumed health care cost trend rates would have the following effects:
Other Postretirement
Benefits
2006
(in millions)
One percentage point increase
Increase in total service and interest costs ............................................................ $ 10
Increase in postretirement benefit obligation .......................................................... 166
One percentage point decrease
Decrease in total service and interest costs ............................................................ $ 9
Decrease in postretirement benefit obligation ......................................................... 144
Pension and postretirement plan asset allocation as of September 30, 2006 and September 30, 2005, are as follows:
Pension Percentage of
Plan Assets as of
September 30
Postretirement Percentage
of Plan Assets as of
September 30
2006 2005 2006 2005
Asset category
U.S. Stocks ........................................................ 27% 29% 77% 79%
International Stocks .................................................. 7% 8% 10% 10%
Bonds ............................................................ 51% 51% 9% 7%
Short-term Investments ............................................... 0% 0% 2% 3%
Real Estate ......................................................... 6% 6% 2% 1%
Other ............................................................. 9% 6% 0% 0%
Total ............................................................. 100% 100% 100% 100%
The Company, for its domestic pension and postretirement plans, has developed guidelines for asset allocations. As of the
September 30, 2006 measurement date the range of target percentages are as follows:
Pension Investment Policy
Guidelines as of
September 30, 2006
Postretirement Investment
Policy Guidelines as of
September 30, 2006
Minimum Maximum Minimum Maximum
Asset category
U.S. Stocks ................................................ 18% 32% 54% 99%
International Stocks .......................................... 2% 8% 1% 13%
Bonds ..................................................... 45% 63% 0% 22%
Short-term Investments ....................................... 0% 16% 0% 20%
Real Estate ................................................. 0% 15% 0% 12%
Other ..................................................... 0% 15% 0% 0%
Management reviews its investment strategy on an annual basis.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
156