GE 2011 Annual Report Download - page 107

GE 2011 ANNUAL REPORT 105
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Retiree Health and Life Benefits
We sponsor a number of retiree health and life insurance benefi t
plans (retiree benefi t plans). Principal retiree benefi t plans are
discussed below; other such plans are not signifi cant individually
or in the aggregate. We use a December 31 measurement date for
our plans.
PRINCIPAL RETIREE BENEFIT PLANS provide health and life insur-
ance benefi ts to certain eligible participants and these
participants share in the cost of healthcare benefi ts. These plans
cover approximately 210,000 retirees and dependents.
COST OF PRINCIPAL RETIREE BENEFIT PLANS
(In millions) 2011 2010 2009
Service cost for benefits earned $ 216 $ 241 $ 442
Prior service cost amortization (a) 647 631 836
Expected return on plan assets (97) (116) (129)
Interest cost on benefit obligations 604 699 709
Net actuarial gain amortization (a) (110) (22) (225)
Retiree benefit plans cost (a) $1,260 $1,433 $1,633
(a) In 2009, we recognized a $45 million loss as a result of our agreement with
Comcast Corporation to transfer the NBCU business to a newly formed entity in
which we own a 49% interest. Prior service cost amortization increased by
$164 million and net actuarial gain amortization increased by $119 million as a
result of this agreement.
ACTUARIAL ASSUMPTIONS are described below. The actuarial
assumptions at December 31 are used to measure the year-end
benefi t obligations and the retiree benefi t plan costs for the
subsequent year.
December 31 2011 2010 2009 2008
Discount rate 4.09% 5.15% 5.67% 6.15%
Compensation increases 3.75 4.25 4.20 4.20
Expected return on assets 7.00 8.00 8.50 8.50
Initial healthcare trend rate (a) 7.00 7.00 7.40 7.00
(a) For 2011, ultimately declining to 5% for 2030 and thereafter.
To determine the expected long-term rate of return on retiree life
plan assets, we consider current and expected asset allocations,
historical and expected returns on various categories of plan assets,
as well as expected benefi t payments and resulting asset levels. In
developing future return expectations for retiree benefi t plan
assets, we formulate views on the future economic environment,
both in the U.S. and abroad. We evaluate general market trends and
historical relationships among a number of key variables that
impact asset class returns such as expected earnings growth,
infl ation, valuations, yields and spreads, using both internal and
external sources. We also take into account expected volatility by
asset class and diversifi cation across classes to determine expected
overall portfolio results given current and expected allocations.
Based on our analysis of future expectations of asset performance,
past return results, anticipated changes in our asset allocations
and shorter time horizon for retiree life plan assets, we have
assumed a 7.0% long-term expected return on those assets for
cost recognition in 2012. This is a reduction from the 8.0% we
had assumed in 2011 and the 8.5% we had assumed in both 2010
and 2009. 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 $615 million
in 2012 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) 2011 2010
Balance at January 1 $12,010 $12,775
Service cost for benefits earned 216 241
Interest cost on benefit obligations 604 699
Participant contributions 55 55
Plan amendments 25 —
Actuarial loss (gain) 911 (a) (942) (b)
Benefits paid (765) (818)
Balance at December 31 (c) $13,056 $12,010
(a) Primarily associated with discount rate change.
(b) For 2010, included the effects of healthcare reform provisions on our Medicare-
approved prescription drug plan.
(c) The APBO for the retiree health plans was $10,286 million and $9,566 million at
year-end 2011 and 2010, respectively.
A one percentage point change in the assumed healthcare cost
trend rate would have the following effects.
(In millions) 1% increase 1% decrease
APBO at December 31, 2011 $1,135 $(958)
Service and interest cost in 2011 82 (68)
PLAN ASSETS
The fair value of the classes of retiree benefi t plans’ investments
is presented below. The inputs and valuation techniques used to
measure the fair value of assets are consistently applied and
described in Note 1.
FAIR VALUE OF PLAN ASSETS
(In millions) 2011 2010
Balance at January 1 $1,125 $1,138
Actual gain on plan assets 15 139
Employer contributions 574 611
Participant contributions 55 55
Benefits paid (765) (818)
Balance at December 31 $1,004 $1,125
ASSET ALLOCATION
December 31
2011 Target
allocation
2011 Actual
allocation
Equity securities 37–77% (a) 35% (b)
Debt securities (including cash equivalents) 11–41 39
Private equities 3–13 16
Real estate 2–12 7
Other 0–10 3
(a) Target allocations were 19–39% for U.S. equity securities and 18–38% for
non-U.S. equity securities.
(b) Actual allocations were 20% for U.S. equity securities and 15% for non-U.S.
equity securities.