Raytheon 2014 Annual Report Download - page 48

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The investment policy asset allocation ranges for our domestic pension plans, as set by our Investment Committee, for the
year ended December 31, 2014 were as follows:
Asset Category
Global equity (combined U.S. and international equity) 40%–60%
U.S. equities 25%–40%
International equities 15%–25%
Fixed-income securities 25%–40%
Cash and cash equivalents 1%–10%
Private equity and private real estate 3%–20%
Other (including absolute return funds) 5%–20%
Our 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 our pension and other postretirement benefit obligations. The discount rate assumption is
determined by using a theoretical bond portfolio model consisting of bonds rated AA or better by Moody’s for which the
timing and amount of cash flows approximate the estimated benefit payments for each of our pension plans. The discount rate
assumption for our domestic pension plans at December 31, 2014 is 4.08%, which represents a weighted-average discount
rate across our plans, compared to the December 31, 2013 discount rate of 5.08% as a result of the bond environment at
December 31, 2014.
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 prior CAS rules, the discount rate used to measure
liabilities was 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 requires contractors to compare the liability under the prior
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 allocated to our contracts in the future increases.
Other FAS and CAS Considerations—An increase or decrease of 25 basis points in the discount rate assumption would have
had the following approximate impacts on 2014 FAS pension results:
(In millions)
Impact of change in discount rate on net periodic benefit cost $ 70
Impact of change in discount rate on benefit obligations 710
Changes in the high-quality corporate bond rate assumption could impact the CAS discount rate for purposes of determining
CAS pension expense due to CAS Harmonization. However in 2014, the CAS pension expense was not impacted by this
assumption due to the passage of HATFA which extended the provisions of pension funding relief as described above. The
discount rate assumption will impact CAS pension expense in future periods as the provisions of HATFA phase out.