DTE Energy 2014 Annual Report Download - page 98

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Assumptions used in determining the projected benefit obligation and net pension costs are listed below:
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Discount rate 
4.95%
4.15%
Rate of compensation increase 
4.20%
4.20%
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Discount rate 
4.15%
5.00%
Rate of compensation increase 
4.20%
4.20%
Expected long-term rate of return on plan assets 
8.25%
8.25%
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. As a result of this process, the Company has long-term rate of return assumptions for its
pension plans of 7.75% and other postretirement benefit plans of 8.00%, for 2015. The Company believes these rates are a reasonable assumption for the
long-term rate of return on its plan assets for 2015 given its investment strategy.
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, with consideration given to the liquidity needs of the plan. 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
stocks, and large and small market capitalizations. Fixed income securities generally include market and long duration bonds of companies from diversified
industries, mortgage-backed securities, non-U.S. securities, bank loans and U.S. Treasuries. Other assets such as private markets 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/or 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.
Target allocations for pension plan assets as of December 31, 2014 are listed below:
U.S. Large Cap Equity Securities 
U.S. Small Cap and Mid Cap Equity Securities 
Non U.S. Equity Securities 
Fixed Income Securities 
Hedge Funds and Similar Investments 
Private Equity and Other 
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