Valero 2015 Annual Report Download - page 56

Table of Contents
Accruals for environmental liabilities are based on best estimates of probable undiscounted future costs over a 20-year time period
using currently available technology and applying current regulations, as well as our own internal environmental policies. However,
environmental liabilities are difficult to assess and estimate due to uncertainties related to the magnitude of possible remediation, the
timing of such remediation, and the determination of our obligation in proportion to other parties. Such estimates are subject to change
due to many factors, including the identification of new sites requiring remediation, changes in environmental laws and regulations and
their interpretation, additional information related to the extent and nature of remediation efforts, and potential improvements in
remediation technologies.
The amount of our accruals for environmental matters as of December 31, 2015 and 2014 are included in Note 9 of Notes to
Consolidated Financial Statements.
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We have significant pension and other postretirement benefit liabilities and costs that are developed from actuarial valuations. Inherent
in these valuations are key assumptions including discount rates, expected return on plan assets, future compensation increases, and
health care cost trend rates. These assumptions are disclosed and described in Note 13 of Notes to Consolidated Financial Statements.
Changes in these assumptions are primarily influenced by factors outside of our control. For example, the discount rate assumption
represents a yield curve comprised of various long-term bonds that have an average rating of double-A when averaging all available
ratings by the recognized rating agencies, while the expected return on plan assets is based on a compounded return calculated
assuming an asset allocation that is representative of the asset mix in our pension plans. To determine the expected return on plan
assets, we utilized a forward-looking model of asset returns. The historical geometric average return over the 10 years prior to
December 31, 2015 was 5.69 percent. The actual return on assets for the years ended December 31, 2015, 2014, and 2013 was
1.46 percent, 7.33 percent, and 19.38 percent, respectively. These assumptions can have a significant effect on the amounts reported in
our financial statements. For example, a 0.25 percent decrease in the assumptions related to the discount rate or expected return on plan
assets or a 0.25 percent increase in the assumptions related to the health care cost trend rate or rate of compensation increase would
have the following effects on the projected benefit obligation as of December 31, 2015 and net periodic benefit cost for the year ending
December 31, 2016 (in millions):
Pension
Benefits
Other
Postretirement
Benefits
Increase in projected benefit obligation resulting from:
Discount rate decrease $ 101
$ 11
Compensation rate increase 10
n/a
Health care cost trend rate increase n/a
1
Increase in expense resulting from:
Discount rate decrease 9
—
Expected return on plan assets decrease 5
n/a
Compensation rate increase 3
n/a
Health care cost trend rate increase n/a
—
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