Texas Instruments 2014 Annual Report Download - page 60

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54
FORM 10-K
Assumptions and investment policies
Defined Benefit
U.S. Retiree
Health Care
2014 2013 2014 2013
Weighted average assumptions used to determine benefit obligations:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.23% 5.11% 4.07% 4.83%
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.34% 3.01%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.30% 3.50%
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . 3.27% 3.11%
Weighted average assumptions used to determine net periodic benefit cost:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11% 4.59% 4.83% 3.94%
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.01% 2.74%
U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . 5.25% 5.25% 4.50% 4.75%
Non-U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . 3.75% 3.34%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50% 3.60%
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . 3.11% 3.01%
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 United States, 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. 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
Fixed income securities and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 65% 50% 60% - 100%
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% 50% 0% - 40%
We rebalance the plans’ investments when they are not within the target allocation ranges.
Weighted average asset allocations as of December 31, are as follows:
U.S. Defined
Benefit
U.S. Retiree
Health Care
Non-U.S.
Defined Benefit
Asset Category 2014 2013 2014 2013 2014 2013
Fixed income securities and cash equivalents . . . . . . . . . . . . . . . . . . 65% 65% 49% 49% 73% 70%
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% 35% 51% 51% 27% 30%
None of the plan assets related to the defined benefit pension plans and retiree health care benefit plan are directly invested in TI
common stock. As of December 31, 2014, we do not expect to return any of the defined benefit pension plans’ assets to TI in the next
12 months.