Texas Instruments 2010 Annual Report Download - page 28

TEXAS INSTRUMENTS 2010 ANNUAL REPORT
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Assumptions and investment policies
Defined฀Benefit
U.S.฀
Retiree฀Health฀Care
2010 2009 2010 2009
Weighted฀average฀assumptions฀used฀to฀determine฀benefit฀obligations:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.58% 6.00% 5.48% 5.54%
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.79% 3.23%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.40% 3.00%
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . 3.24% 3.06%
Weighted฀average฀assumptions฀used฀to฀determine฀net฀periodic฀benefit฀cost:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.61% 6.05% 5.54% 6.02%
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.23% 3.35%
U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . 6.50% 6.50% 6.00% 7.00%
Non-U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . 4.23% 4.59%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00% 3.50%
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . 3.06% 3.12%
We utilize a variety of methods to select an appropriate discount rate depending on the depth of the corporate bond market in the
country in which the benefit plan operates. In the U.S., we use a settlement approach whereby a portfolio of bonds is selected from
the universe of actively traded high-quality U.S. corporate bonds. The selected portfolio is designed to provide cash flows sufficient to
pay the plan’s expected benefit payments when due. The resulting discount rate reflects the rate of return of the selected portfolio of
bonds. For our non-U.S. locations with a sufficient number of actively traded high-quality bonds, an analysis is performed in which the
projected cash flows from the defined benefit plans are discounted against a yield curve constructed with an appropriate universe of
high-quality corporate bonds 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. Both the settlement approach and the yield curve approach produce a
discount rate that recognizes each plan’s distinct liability characteristics. For countries that lack a sufficient corporate bond market, a
government bond index adjusted for an appropriate risk premium is used to establish the discount rate.
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.
Assumptions used for the non-U.S. defined benefit plans reflect the different economic environments within the various countries.
The table below shows target allocation ranges for the plans that hold a substantial majority of the defined benefit assets.
Asset category
U.S.฀Defined฀
Benefit
U.S.฀Retiree฀
Health฀Care
Non-U.S.฀Defined฀
Benefit
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% 50% 25% - 60%
Fixed income securities and cash equivalents . . . . . . . . . . . . . . . . . 65% 50% 40% - 75%
We intend to rebalance the plans’ investments when they are not within the target allocation ranges. Additional contributions are
invested consistent with the target ranges and may be used to rebalance the portfolio. The investment allocations and individual
investments are chosen with regard to the duration of the obligations of each plan. Most of the assets in the retiree health care benefit
plan are invested in a series of Voluntary Employee Benefit Association (VEBA) trusts.
Weighted average asset allocations at December 31, are as follows:
U.S.฀Defined฀
Benefit
U.S.฀Retiree฀
Health฀Care
Non-U.S.฀Defined฀
Benefit
Asset category 2010 2009 2010 2009 2010 2009
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% 28% 49% 51% 49% 49%
Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . 60% 51% 41% 38% 50% 50%
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% 21% 10% 11% 1% 1%