DTE Energy 2008 Annual Report Download - page 29

Assumptions used in determining the projected benefit obligation and net pension costs are listed below:
At December 31, 2008, the benefits expected to be paid in each of the next five years and in the aggregate for the five fiscal years thereafter are
as follows:
The Company employs a formal process in determining the long-term rate of return for various asset classes. Management reviews historic
financial market risks and returns and long-term historic relationships between the asset classes of equities, fixed income and other assets,
consistent with the widely accepted capital market principle that asset classes with higher volatility generate a greater return over the long-term.
Current market factors such as inflation, interest rates, asset class risks and asset class returns are evaluated and considered before long-term
capital market assumptions are determined. The long-term portfolio return is also established employing a consistent formal process, with due
consideration of diversification, active investment management and rebalancing. Peer data is reviewed to check for reasonableness.
The Company employs a total return investment approach whereby a mix of equities, fixed income and other investments are used to maximize
the long-term return on plan assets consistent with prudent levels of risk. The intent of this strategy is to minimize plan expenses over the long
term. Risk tolerance is established through consideration of future plan cash flows, plan funded status, and corporate financial considerations.
The investment portfolio contains a diversified blend of equity, fixed income and other investments. Furthermore, equity investments are
diversified across U.S. and non-U.S. stocks, growth and value investment styles, and large and small market capitalizations. Other assets such
as private equity and hedge funds are used to enhance long-term returns while improving portfolio diversification. Derivatives may be utilized
in a risk controlled manner, to potentially increase the portfolio beyond the market value of invested assets and reduce portfolio investment
risk. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and
quarterly investment portfolio reviews.
Our plan’s weighted-average asset allocations and related targets by asset category at December 31 were as follows:
27
(in Millions) 2008 2007
Amounts reco
g
nized in Re
g
ulator
y
assets and Accumulated other com
p
rehensive loss
Net actuarial loss $379 $23
Prior service cost (4)2
$375 $25
Regulatory assets $373 $25
Other comprehensive loss 2 —
$375 $25
2008 2007 2006
Pro
j
ected benefit obli
g
ation
Discount rate 6.90% 6.50% 5.70%
Rate of compensation increase 4.00% 4.00% 4.00%
Net
p
ension costs
Discount rate 6.50% 5.70%5.90%
Rate of compensation increase 4.00% 4.00% 4.00%
Expected long-term rate of return on Plan assets 8.75% 8.75%8.75%
2014 &
(in Millions) 2009 2010 2011 2012 2013 thereafter Total
Amount to be paid $39 $40 $40 $40 $41 $209 $409
2008 2007 Target
U.S. Equity securities 31% 48%35%
Non U.S. Equity securities 16 18 20
Debt securities 24 19 20
Hedge Funds and Similar Investments 22 12 20
Private Equity and Other 7 3 5
100% 100% 100%