Raytheon 2011 Annual Report Download - page 116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
108
Weighted-Average Net Periodic Benefit Cost Assumptions
Discount rate
Expected Long-term rate of return on plan assets
Rate of compensation increase
Range
Average
Health care trend rate in the next year
Gradually declining to an ultimate trend rate
Year that the rate reaches ultimate trend rate
Other Benefits
2011
5.50%
8.25%
2% -7%
4.50%
4.00%
4.00%
*
2010
6.00%
8.25%
2% -7%
4.50%
7.00%
4.00%
2027
2009
6.75%
8.75%
2% -7%
4.50%
7.40%
4.00%
2029
* Currently at the ultimate trend rate.
Weighted-Average Year-End Benefit Obligation Assumptions
December 31:
Discount rate
Rate of compensation increase
Range
Average
Health care trend rate in the next year
Gradually declining to an ultimate trend rate of
Year that the rate reaches the ultimate trend rate
Pension Benefits
2011
5.00%
2% -7%
4.40%
2010
5.73%
2% -7%
4.50%
Other Benefits
2011
5.00%
2% - 7%
4.50%
4.00%
4.00%
*
2010
5.50%
2% - 7%
4.50%
4.00%
4.00%
*
* Currently at the ultimate trend rate.
The discount rate for our domestic Pension Benefits plans was 5.00% and 5.75% at December 31, 2011 and December 31,
2010, respectively. Our foreign Pension Benefits plan assumptions have been included in the Pension Benefits assumptions
in the table above.
The long-term rate of return on plan assets (ROA) represents the average rate of earnings expected over the long term on the
assets invested to provide for anticipated future benefit payment obligations. The Company employs a “building block”
approach in determining the long-term ROA assumption. Historical markets are studied and long-term relationships between
equities and fixed income are assessed. Current market factors such as inflation and interest rates are evaluated before long-
term capital market assumptions are determined. The long-term ROA assumption is also established giving consideration to
investment diversification, rebalancing and active management of the investment portfolio. Peer data and historical returns
are reviewed periodically to assess reasonableness and appropriateness.
In validating the 2011 long-term ROA assumption, we reviewed our pension plan asset performance since 1986. Our average
actual annual rate of return since 1986 has exceeded our estimated 8.75% assumed return. Based upon these analyses and our
internal investing targets, we determined our long-term ROA assumption for our domestic pension plans in 2011 was 8.75%,
consistent with our 2010 assumption. Our domestic pension plans’ actual rates of return were approximately (1)%, 11% and
17% for 2011, 2010 and 2009, respectively. The difference between the actual rate of return and our long-term ROA assumption
is included in deferred losses. If we significantly change our long-term investment allocation or strategy, then our long-term
ROA assumption could change.
The long-term ROA assumptions for foreign Pension Benefits plans are based on the asset allocations and the economic
environment prevailing in the locations where the Pension Benefits plans reside. Foreign pension assets do not make up a
significant portion of the total assets for all of our Pension Benefits plans.
The effect of a 1% increase or (decrease) in the assumed health care trend rate for each future year for the aggregate of service
cost and interest cost is $1 million or $(1) million, respectively, and for the accumulated postretirement benefit obligation is
$12 million or $(11) million, respectively.