Financial statements - Notes to the consolidated financial statements
Note 24
2005 1
2005 1
2005 1
The assumed medical cost trend rates used in measuring the defined benefit obligations related to medical care plans were
11.25% and 9.0% in 2005 and 2004, respectively, declining to 5.0% and 5.0%, respectively.
The sensitivity for these plans is as follows:
A 1.0%-point increase in assumed medical cost trend rates would have increased the aggregate of current service cost and
interest cost components of net periodic post-employment medical cost by 11.6% in 2005 and 10.5% in 2004. The effect
of this change on the defined benefit obligations for medical care plans as of the end of 2005 and 2004 would have been an
increase of 8.3% and 9.4%, respectively.
A 1.0%-point decrease in assumed medical cost trend rates would have decreased the aggregate of current service cost and
interest cost components of net periodic post-employment medical cost by 10.5% in 2005 and 9.2% in 2004. The effect of
this change on the defined benefit obligations for medical care plans as of the end of 2005 and 2004 would have been a
decrease of 9.1% and 9.1%, respectively.
The assumptions required to calculate the actuarial present value of benefit obligations and net periodic benefit costs are
determined per plan. The key assumptions are as follows (expressed as weighted averages):
Pensions
Other benefit plans
In percentages
2004
2004
Discount rate for obligations
Expected return on plan assets
Future salary increases
5.75
7.94
4.83
6.00
8.24
4.00
5.55
N/A
5.00
6.00
N/A
4.00
Plan assets
The pension plan asset allocation can differ per plan. In the U.S., allocation on a weighted average basis was as follows:
ASSET CATEGORY (in percentages)
2004
Equity securities
62
55
Debt securities
34
32
Other
4
13
Total
100
100
The plan assets are generally managed by outside investment managers and rebalanced periodically. The committees for the
various U.S. plans establish investment policies and strategies and regularly monitor the performance of the assets, including
the selection of investment managers, setting long-term strategic targets and monitoring asset allocations. Target allocation
ranges are guidelines, not limitations, subject to variation from time to time, or as circumstances warrant. Occasionally, the
committees may approve allocations above or below a target range.
The investment strategy with respect to pension plan assets is to invest in accordance with the Employee Retirement Income
Security Act of 1974 ("ERISA") and fiduciary standards. The long-term primary objective for the plan assets is to protect the
assets from erosion of purchasing power, and to provide for a reasonable amount of long-term growth of capital, without undue
exposure to risk. Currently, the strategic targets are between 50-70% for equity securities, 30-45% for debt securities and
0-5% for other investments.
Medical cost trend rates
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