Texas Instruments 2009 Annual Report Download - page 27

TEXAS INSTRUMENTS 2009 ANNUAL REPORT PAGE 25
The following table summarizes the change in the fair values for Level 3 plan assets for the year ending December 31, 2009:
Level 3 Plan Assets
U.S.
Defined
Benefit
Non-U.S.
Defined
Benefit
Balance, December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28 $56
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —(9)
Unrealized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2
Balance, December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34 $49
The investments in our major benefit plans largely consist of low-cost, broad-market index funds to mitigate risks of concentration
within market sectors. In recent years, our investment policy has shifted toward a closer matching of the interest-rate sensitivity of
the plan assets and liabilities. The appropriate mix of equity and bond investments is determined primarily through the use of detailed
asset-liability modeling studies that look to balance the impact of changes in the discount rate against the need to provide asset growth
to cover future service cost. Most of our plans around the world have added a greater proportion of fixed income securities with return
characteristics that are more closely aligned with changes in the liabilities caused by discount rate volatility. For the U.S. plans, we
utilize an option collar strategy to reduce the volatility of returns on investments in U.S. equity funds.
The only Level 3 assets in our worldwide benefit plans are certain private equity limited partnerships in our U.S. pension plan
and diversified hedge funds in a non-U.S. pension plan. These investments are valued using inputs from the fund managers and
internal models.
Assumptions and investment policies
Defined Benefit Retiree Health Care
2009 2008 2009 2008
Weighted average assumptions used to determine benefit obligations:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00%6.14%5.54%6.02%
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.23%3.15%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00%3.50%
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.06%3.12%
Weighted average assumptions used to determine net periodic benefit cost:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05%6.26%6.02%5.96%
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.35%3.51%
U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.50%6.50%7.00%7.00%
Non-U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.59%4.73%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50%3.50%
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12%3.43%
In order to select a discount rate for purposes of valuing the plan obligations, an analysis is performed in which the projected cash
flows from significant defined benefit and retiree health care plans are matched with a yield curve based on an appropriate universe of
high-quality corporate bonds that are available in each country. In this manner, a present value is developed. The discount rate selected
is the single equivalent rate that produces the same present value. This approach produces a discount rate that recognizes each plan’s
distinct liability characteristics. Assumptions used for the non-U.S. defined benefit plans reflect the different economic environments
within the various countries.
Assumptions for the expected long-term rate of return on plan assets are based on future expectations for returns for each asset class
and the effect of periodic target asset allocation rebalancing. We adjust the results for the payment of reasonable expenses of the plan from
plan assets. We believe our assumptions are appropriate based on the investment mix and long-term nature of the plans’ investments.