Raytheon 2014 Annual Report Download - page 117

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
108
Weighted-Average Net Periodic Benefit Cost Assumptions Other Benefits
2014 2013 2012
Discount rate 5.01% 4.00% 5.00%
Expected long-term rate of return on plan assets 8.24% 8.24% 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% 4.00%
Gradually declining to an ultimate trend rate 4.00% 4.00% 4.00%
Year that the rate reaches ultimate trend rate ** *
* Currently at the ultimate trend rate.
Weighted-Average Year-End Benefit Obligation Assumptions Pension Benefits Other Benefits
2014 2013 2014 2013
Discount rate 4.06% 5.06% 4.05% 5.01%
Rate of compensation increase
Range 2% -7% 2% -7% 2% -7% 2% -7%
Average 4.40% 4.39% 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 year-end benefit obligation discount rate for our domestic Pension Benefits plans was 4.08% and 5.08%
at December 31, 2014 and December 31, 2013, respectively. Our foreign Pension Benefits plan assumptions have been included
in the Pension Benefits assumptions in the table above.
The long-term 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 long-term ROA used to calculate net periodic pension cost is set annually
at the beginning of each year. Given the long-term nature of the ROA assumption, which we believe should not be solely
reactive to short-term market conditions that may not persist, we expect the long-term ROA to remain unchanged unless there
are significant changes in our investment strategy, the underlying economic assumptions, or other major factors. To establish
our long-term ROA assumption, we employ a “building block” approach. As part of our annual process for determining
whether it is appropriate to change our long-term ROA assumption, we first review the existing long-term ROA assumption
against a statistically determined reasonable range of outcomes. For purposes of determining the long-term ROA assumption
for 2014 and prior, we considered this range to be between the 25th and 75th percentile likelihood of achieving a long-term
return over future years (consistent with Actuarial Standard of Practice No. 27 in effect at the time). Therefore, it is less than
25 percent likely that the long-term return of the pension plan would fall below or above the 25th and 75th percentiles points,
respectively (i.e., it is 50 percent likely that the long-term return of the pension plan will be within the 25th and 75th percentile
range). The building block approach and the reasonable range of outcomes are based upon our asset allocation assumptions
and long-term capital market assumptions. Such assumptions incorporate the economic outlook for various asset classes over
short- and long-term periods and also take into consideration other factors, including historical market performance, inflation
and interest rates. The reasonable range of long-term returns that was used to validate the long-term ROA assumption for the
calculation of the net periodic benefit cost for 2014, 2013 and 2012, are shown below.
Percentile 2014 2013 2012
25th 5.53% 5.62% 6.15%
75th 9.65% 9.41% 9.84%