Union Pacific 2007 Annual Report Download - page 71

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67
Our policy with respect to funding the qualified plans is to fund at least the minimum required by the Pension
Protection Act of 2006 and not more than the maximum amount deductible for tax purposes. All
contributions made to the qualified pension plans in 2006 were voluntary and were made with cash generated
from operations. At December 31, 2007, our qualified pension plans were fully funded. No required
contributions are expected in 2008.
The OPEB plans are not funded and are not subject to any minimum regulatory funding requirements. Benefit
payments for each year represent claims paid for medical and life insurance, and we anticipate our 2008 OPEB
payments will be made from cash generated from operations.
Benefit Payments
The following table details expected benefit payments for the years 2008 though 2017:
Millions of Dollars Pension OPEB
2008 .............................................................................................................................
.
$ 125 $ 27
2009 .............................................................................................................................
.
128 28
2010 .............................................................................................................................
.
131 29
2011 .............................................................................................................................
.
137 29
2012 .............................................................................................................................
.
142 29
Years 2013 – 2017 .......................................................................................................
.
795 139
Asset Allocation Strategy
Our pension plan asset allocation at December 31, 2007 and 2006, and target allocation for 2008, are as
follows:
Target
Allocation
Percentage of Plan Assets
December 31,
2008 2007 2006
Equity securities.............................................................................
.
60% to 70% 68% 70%
Debt securities................................................................................
.
20% to 30% 23 26
Real estate.......................................................................................
.
2% to 8% 4 2
Commodities .................................................................................
.
4% to 6% 5 2
Total ......................................................................................................................... 100% 100%
The investment strategy for pension plan assets is to maintain a broadly diversified portfolio designed to
achieve our target of an average long-term rate of return of 8%. While we believe we can achieve a long-term
average rate of return of 8%, we cannot be certain that the portfolio will perform to our expectations. Assets
are strategically allocated among equity, debt, and other instruments in order to achieve a diversification level
that mitigates wide swings in investment returns. Asset allocation target ranges for equity, debt, and other
portfolios are evaluated at least every three years with the assistance of an independent external consulting
firm. Actual asset allocations are monitored monthly, and rebalancing actions are executed at least quarterly, if
needed.
Plan assets are valued at fair value. Investments in securities traded on national security exchanges are valued
at their closing market prices on the valuation date; where no sale was made on the valuation date, the security
is valued at its bid price. Securities traded in the over-the-counter market are valued at their last sale or bid
price. Investments in mortgage-backed securities are carried at estimated fair value based on the characteristics
of the underlying mortgages. Certain short-term investments are carried at cost, which approximates fair