Raytheon 2011 Annual Report Download - page 44

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The investment policy asset allocation ranges for our domestic pension plans, as set by the Company’s Investment Committee,
for the year ended December 31, 2011 were as follows:
Asset Category
U.S. equities
International equities
Fixed-income securities
Cash and cash equivalents
Other (including private equity, real estate and absolute return funds)
25% - 40%
10% - 30%
25% - 40%
3% - 15%
0% - 20%
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 discount rate represents the interest rate that should be used to determine the present value of future cash flows currently
expected to be required to settle the pension and postretirement benefit obligations. The discount rate assumption is determined
by using a theoretical bond portfolio model consisting of bonds AA rated or better by Moody’s for which the timing and
amount of cash flows approximate the estimated benefit payments of our pension plans. The discount rate assumption for our
domestic pension plans at December 31, 2011 is 5.00%, compared to the December 31, 2010 discount rate of 5.75% as a result
of the bond environment at December 31, 2011.
An increase or decrease of 25 basis points in the long-term ROA and the discount rate assumptions would have had the
following approximate impacts on 2011 pension results:
(In millions)
Change in assumption used to determine net periodic benefit cost for the year ended December 31, 2011
Discount rate
Long-term ROA
Change in assumption used to determine benefit obligations for the year ended December 31, 2011
Discount rate
$ 60
40
$ 540
CAS Expense—In addition to providing the methodology for calculating pension costs, CAS also prescribes the method for
assigning those costs to specific periods. While the ultimate liability for pension costs under FAS and CAS is similar, the
pattern of cost recognition is different. The key drivers of CAS pension expense include the funded status and the method
used to calculate CAS reimbursement for each of our plans. Under the existing CAS rules, which continue to apply through
2012, the discount rate used to measure liabilities is required to be consistent with the long-term ROA assumption, which
changes infrequently given its long-term nature. In addition to certain other changes, CAS Harmonization will require
contractors to compare the liability under the current CAS methodology and assumptions to a liability using a discount rate
based on high quality corporate bonds and use the greater of the two liability calculations in developing CAS expense. In
addition, unlike FAS, we can only allocate pension costs for a plan under CAS until such plan is fully funded as determined
under CAS requirements. When the estimated future CAS pension costs increase, the estimated CAS cost to be allocated to
our contracts in the future increases.