Raytheon 2012 Annual Report Download - page 119

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
111
Retirement Plan Assumptions
Weighted-Average Net Periodic Benefit Cost Assumptions Pension Benefits
2012 2011 2010
Discount rate 5.00% 5.73% 6.23%
Expected long-term rate of return on plan assets 8.68% 8.68% 8.68%
Rate of compensation increase
Range 2% -7% 2% -7% 2% -7%
Average 4.40% 4.50% 4.51%
Weighted-Average Net Periodic Benefit Cost Assumptions Other Benefits
2012 2011 2010
Discount rate 5.00% 5.50% 6.00%
Expected long-term rate of return on plan assets 8.25% 8.25% 8.25%
Rate of compensation increase
Range 2% -7% 2% -7% 2% -7%
Average 4.50% 4.50% 4.50%
Health care trend rate in the next year 4.00% 4.00% 7.00%
Gradually declining to an ultimate trend rate 4.00% 4.00% 4.00%
Year that the rate reaches ultimate trend rate ** 2027
* Currently at the ultimate trend rate.
Weighted-Average Year-End Benefit Obligation Assumptions Pension Benefits Other Benefits
2012 2011 2012 2011
Discount rate 4.15% 5.00% 4.00% 5.00%
Rate of compensation increase
Range 2% -7% 2% -7% 2% -7% 2% - 7%
Average 4.40% 4.40% 4.50% 4.50%
Health care trend rate in the next year 4.00% 4.00%
Gradually declining to an ultimate trend rate of 4.00% 4.00%
Year that the rate reaches the ultimate trend rate **
* Currently at the ultimate trend rate.
The weighted-average discount rate for our domestic Pension Benefits plans was 4.15% and 5.00% at December 31, 2012
and December 31, 2011, 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. We employ 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. Also, historical returns are reviewed to assess
reasonableness and appropriateness.
In validating the 2012 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 2012 was 8.75%,
consistent with our 2011 assumption. Our domestic pension plans’ actual rates of return were approximately 12%, (1)% and
11% for 2012, 2011 and 2010, respectively. The difference between the actual rate of return and our long-term ROA assumption