US Bank 2006 Annual Report Download - page 90

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plans of acquired companies into its existing pension plans Funding Practices The Company’s funding policy is to
when it becomes practicable. contribute amounts to its plans sufficient to meet the
Under the current plan’s benefit structure, a minimum funding requirements of the Employee Retirement
participant’s future retirement benefits are based on a Income Security Act of 1974, plus such additional amounts
participant’s highest consecutive five-year average annual as the Company determines to be appropriate. There were
compensation during his or her last 10 years before no minimum funding requirements in 2006 or 2005 and the
retirement or termination from the Company. Prior to the Company anticipates no minimum funding requirement in
merger with Firstar Corporation, two of the previous 2007. Any contributions made to the plan are invested in
companies had cash balance pension benefit structures accordance with established investment policies and asset
under which the participants earned retirement benefits allocation strategies.
based on their average compensation over their entire Investment Policies and Asset Allocation In establishing its
career, while the former Firstar Corporation retirement investment policies and asset allocation strategies, the
benefit structure was based on final average pay and years Company considers expected returns and the volatility
of service, similar to the current plan. Plan assets primarily associated with different strategies. The independent
consist of various equities, equity mutual funds and other consultant performs modeling that projects numerous
miscellaneous assets. outcomes using a broad range of possible scenarios,
In general, the Company’s pension plan objectives including a mix of possible rates of inflation and economic
include maintaining a funded status sufficient to meet growth. Starting with current economic information, the
participant benefit obligations over time while reducing model bases its projections on past relationships between
long-term funding requirements and pension costs. The inflation, fixed income rates and equity returns when these
Company has an established process for evaluating all the types of economic conditions have existed over the previous
plans, their performance and significant plan assumptions, 30 years, both in the U.S. and in foreign countries.
including the assumed discount rate and the long-term rate Generally, based on historical performance of the
of return (‘‘LTROR’’). Annually the Company’s various investment asset classes, investments in equities have
Compensation Committee (‘‘the Committee’’), assisted by outperformed other investment classes but are subject to
outside consultants, evaluates plan objectives, funding higher volatility. While an asset allocation including bonds
policies and plan investment policies considering its long- and other assets generally has lower volatility and may
term investment time horizon and asset allocation strategies. provide protection in a declining interest rate environment,
The process also evaluates significant plan assumptions. it limits the pension plan’s long-term up-side potential.
Although plan assumptions are established annually, the Given the pension plan’s investment horizon and the
Company may update its analysis on an interim basis in financial viability of the Company to meet its funding
order to be responsive to significant events that occur objectives, the Committee has determined that an asset
during the year, such as plan mergers and amendments. allocation strategy investing in 100 percent equities
In addition to the funded qualified pension plan, the diversified among various domestic equity categories and
Company maintains a non-qualified plan that is unfunded international equities is appropriate. At December 31, 2006
and the aggregate accumulated benefit obligation exceeds and 2005, plan assets of the qualified retirement plans
the assets. The assumptions used in computing the present included mutual funds that have asset management
value of the accumulated benefit obligation, the projected arrangements with related parties totaling $1.2 billion and
benefit obligation and net pension expense are substantially $1.1 billion, respectively.
consistent with those assumptions used for the funded
qualified plan.
88 U.S. BANCORP