Bank of America 2005 Annual Report Download - page 178

BANK OF AMERICA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Net periodic postretirement health and life expense was determined using the “projected unit credit” actuarial
method. Gains and losses for all benefits except postretirement health care are recognized in accordance with the
standard amortization provisions of the applicable accounting standards. For the Postretirement Health Care Plans, 50
percent of the unrecognized gain or loss at the beginning of the fiscal year (or at subsequent remeasurement) is
recognized on a level basis during the year.
Assumed health care cost trend rates affect the postretirement benefit obligation and benefit cost reported for the
Postretirement Health Care Plans. The assumed health care cost trend rate used to measure the expected cost of
benefits covered by the Postretirement Health Care Plans was 10 percent for 2006, reducing in steps to 5 percent in 2011
and later years. A one-percentage-point increase in assumed health care cost trend rates would have increased the
service and interest costs and the benefit obligation by $3 million and $51 million in 2005, $4 million and $56 million in
2004, and $4 million and $52 million in 2003. A one-percentage-point decrease in assumed health care cost trend rates
would have lowered the service and interest costs and the benefit obligation by $3 million and $43 million in 2005, $3
million and $48 million in 2004, and $3 million and $48 million in 2003.
Plan Assets
The Qualified Pension Plans have been established as retirement vehicles for participants, and trusts have been
established to secure benefits promised under the Qualified Pension Plans. The Corporation’s policy is to invest the trust
assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable
expenses of administration. The Corporation’s investment strategy is designed to provide a total return that, over the
long-term, increases the ratio of assets to liabilities. The strategy attempts to maximize the investment return on assets
at a level of risk deemed appropriate by the Corporation while complying with ERISA and any subsequent applicable
regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the
risk/reward profile of the assets. Asset allocation ranges are established, periodically reviewed, and adjusted as funding
levels and liability characteristics change. Active and passive investment managers are employed to help enhance the
risk/return profile of the assets. An additional aspect of the investment strategy used to minimize risk (part of the asset
allocation plan) includes matching the equity exposure of participant-selected earnings measures. For example, the
common stock of the Corporation held in the trust is maintained as an offset to the exposure related to participants who
selected to receive an earnings measure based on the return performance of common stock of the Corporation.
The Expected Return on Asset Assumption (EROA assumption) was developed through analysis of historical market
returns, historical asset class volatility and correlations, current market conditions, anticipated future asset allocations,
the funds’ past experience, and expectations on potential future market returns. The EROA assumption represents a
long-term average view of the performance of the Qualified Pension Plans and Postretirement Health and Life Plan
assets, a return that may or may not be achieved during any one calendar year. In a simplistic analysis of the EROA
assumption, the building blocks used to arrive at the long-term return assumption would include an implied return from
equity securities of 8.75 percent, debt securities of 5.75 percent, and real estate of 8.75 percent for all pension plans and
postretirement health and life plans.
The Qualified Pension Plans’ asset allocation at December 31, 2005 and 2004 and target allocation for 2006 by asset
category are as follows:
2006
Target
Allocation
Percentage of Plan Assets at December 31
Asset Category 2005 2004
Equity securities ............................. 65 – 80% 71% 75%
Debt securities ............................... 20 – 35 27 23
Realestate .................................. 0–5 22
Total ................................... 100% 100%
Equity securities include common stock of the Corporation in the amounts of $798 million (6.10 percent of total plan
assets) and $871 million (7.17 percent of total plan assets) at December 31, 2005 and 2004.
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