GE 2007 Annual Report Download - page 79

    
ge 2007 annual report 77
ACTUARIAL ASSUMPTIONS are described below. The discount rates
at December 31 measured the year-end benefi t obligations and
the earnings effects for the subsequent year.
December 31 2007 2006 2005 2004
Discount rate
(a) 6.31% 5.75% 5.25% 5.75%
Compensation increases 5.00 5.00 5.00 5.00
Expected return on assets 8.50 8.50 8.50 8.50
Initial healthcare trend rate
(b) 9.10 9.20 10.00 10.30
(a) Weighted average discount rate of 6.05% was used for determination of costs in 2007.
(b) For 2007, gradually declining to 6% for 2025 and thereafter.
To determine the expected long-term rate of return on retiree
life plan assets, we consider the current and expected asset
allocations, as well as historical and expected returns on various
categories of plan assets. We apply our expected rate of return
to a market-related value of assets, which stabilizes variability in
the amounts to which we apply that expected return.
We amortize experience gains and losses as well as the effects
of changes in actuarial assumptions and plan provisions over a
period no longer than the average future service of employees.
FUNDING POLICY. We fund retiree health benefi ts on a pay-as-
you-go basis. We expect to contribute approximately $700 million
in 2008 to fund such benefi ts. We fund retiree life insurance
benefi ts at our discretion.
Changes in the accumulated postretirement benefi t obligation
for retiree benefi t plans follow.
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION (APBO)
(In millions) 2007 2006
Balance at January 1 $ 8,262 $9,084
Service cost for benefi ts earned 286 229
Interest cost on benefi t obligation 577 455
Participant contributions 47 43
Plan amendments 4,257 —
Actuarial loss (gain) 320 (707)
Benefi ts paid (a) (796) (810)
Other 30 (32)
Balance at December 31
(b)
$12,983 $8,262
(a) Net of Medicare Part D subsidy of $73 million and $75 million in 2007 and 2006,
respectively.
(b) The APBO for the retiree health plans was $10,847 million and $6,001 million at
year-end 2007 and 2006, respectively.
In July 2007, we approved new four-year labor agreements that
were negotiated with and ratifi ed by most of our U.S. unions. The
agreements amended our retiree health plans in several ways,
including eliminating provisions limiting our future contributions,
increasing participants’ lifetime maximum coverage, increasing
participant contributions and co-pays, and improving various
other benefi ts.
A one percentage point change in the assumed healthcare
cost trend rate would have the following effects.
1% 1%
(In millions) increase decrease
APBO at December 31, 2007 $1,157 $(986)
Service and interest cost in 2007 102 (85)
FAIR VALUE OF PLAN ASSETS
(In millions) 2007 2006
Balance at January 1 $1,710 $1,619
Actual gain on plan assets 221 222
Employer contributions 622 636
Participant contributions 47 43
Benefi ts paid (a) (796) (810)
Balance at December 31
$1,804 $1,710
(a) Net of Medicare Part D subsidy.
PLAN ASSET ALLOCATION
2007 2006
Target Actual Actual
December 31 allocation allocation allocation
U.S. equity securities 30 – 45% 33% 40%
Non-U.S. equity securities 15 – 25 20 21
Debt securities 20 – 38 31 30
Real estate 1 – 10 6 3
Private equities 1 – 11 5 3
Other 1 – 11 5 3
Plan fi duciaries set investment policies and strategies for the
trust and oversee its investment allocation, which includes
selecting investment managers and setting long-term strategic
targets. Long-term strategic investment objectives include pre-
serving the funded status of the plan and balancing risk and
return. Target allocation ranges are guidelines, not limitations,
and occasionally plan fi duciaries will approve allocations above
or below a target range.
Trust assets invested in short-term securities must generally
be invested in securities rated A1/P1 or better, except for 15%
of such securities that may be rated A2/P2. GE common stock
represented 5.9% and 6.1% of trust assets at year-end 2007 and
2006, respectively, and is subject to a statutory limit at 10% of
total trust assets.