US Bank 2004 Annual Report Download - page 93
Download and view the complete annual report
Please find page 93 of the 2004 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.its funding objectives, the Committee has determined that diversified among various domestic equity categories and
an asset allocation strategy investing in 100 percent equities international equities is appropriate.
The following unaudited table provides a summary of asset allocations adopted by the Company compared with a typical
asset allocation alternative:
2004
Asset Allocation Expected Returns
December 2004 December 2003
Typical Standard
Asset Class Asset Mix Actual Target Actual Target (a) Compound Average Deviation
Domestic equities
Large Cap********************* 30% 53% 55% 42% 55% 8.0% 9.5% 18.0%
Mid Cap ********************** 15 16 19 15 19 8.4 10.4 21.1
Small Cap ********************* 15 7 6 19 6 8.6 11.1 24.0
International equities ********** 10 22 20 21 20 8.3 10.4 21.9
Fixed income ******************* 30————
Other *************************** —2—3—
Total mix or weighted rates**** 100% 100% 100% 100% 100% 8.5 10.0 18.0
LTROR assumed *************** 7.8% 8.9% (b) 8.9%
Standard deviation************** 13.9% 18.0% 18.0%
Sharpe ratio (c)***************** .409 .386 .389
(a) The target asset allocation was modified in December 2003, effective January 1, 2004, to reduce the potential volatility of the portfolio without significantly reducing the expected returns.
The change in the allocation was completed by the second quarter of 2004 and the year end variations from the target allocation were a result of that change.
(b) The LTROR assumed for the target asset allocation strategy of 8.9 percent is based on a range of estimates evaluated by the Company including the compound expected return of
8.5 percent and the average expected return of 10.0 percent.
(c) The Sharpe ratio is a direct measure of reward-to-risk. The Sharpe ratio for these asset allocation strategies is considered to be within acceptable parameters.
In accordance with its existing practices, the death benefits to certain retired employees through several
independent pension consultant utilized by the Company retiree medical programs. The Company adopted one retiree
updated the analysis of expected rates of return and medical program for all future retirees on January 1, 2002.
evaluated peer group data, market conditions and other For certain eligible employees, the provisions of the USBM
factors relevant to determining the LTROR assumptions for retiree medical plan and the Mercantile retiree medical plan
pension costs for 2003 and 2004. The analysis performed remained in place until December 31, 2002. Generally, all
late in 2004 indicated that the LTROR assumption of employees may become eligible for retiree health care
8.9 percent, used in both 2003 and 2004, continued to be benefits by meeting defined age and service requirements.
in line with expected returns based on current economic The Company may also subsidize the cost of coverage for
conditions and the Company expects to continue using this employees meeting certain age and service requirements.
LTROR in 2005. The LTROR was first reduced to the The medical plan contains other cost-sharing features such
current LTROR of 8.9 percent in 2003 to reflect the longer as deductibles and coinsurance. The estimated cost of these
impact of the poor market performance of equities in 2001 retiree benefit payments is accrued during the employees’
and 2002. Regardless of the extent of the Company’s active service.
analysis of alternative asset allocation strategies, economic In December 2003, the Medicare Prescription Drug,
scenarios and possible outcomes, plan assumptions Improvement and Modernization Act of 2003 (the Act) was
developed for the LTROR are subject to imprecision and enacted. The Act established a prescription drug benefit
changes in economic factors. As a result of the modeling under Medicare, known as ‘‘Medicare Part D’’, and a
imprecision and uncertainty, the Company considers a federal subsidy to sponsors of retiree health care benefit
range of potential expected rates of return, economic plans that provide a benefit that is at least actuarially
conditions for several scenarios, historical performance equivalent to Medicare Part D. As a result, the Company
relative to assumed rates of return and asset allocation and recognized the expected benefit of the Act on its retiree
LTROR information for a peer group in establishing its medical plan on a prospective basis in 2004 and reduced
assumptions. the liability by $34.6 million.
Post-Retirement Medical Plans In addition to providing
pension benefits, the Company provides health care and
U.S. BANCORP 91