GE 2014 Annual Report Download - page 198

178 GE 2014 FORM 10-K
FINANCIAL STATEMENTS POSTRETIREMENT BENEFIT PLANS
COST OF PRINCIPAL RETIREE BENEFIT PLANS
(In millions) 2014 2013 2012
Service cost for benefits earned $ 164 $ 229 $ 219
Prior service cost amortization 353 393 518
Expected return on plan assets (50) (60) (73)
Interest cost on benefit obligations 424 410 491
Net actuarial loss (gain) amortization (150) (45) 32
Net curtailment/settlement loss (gain) 48 (a) - (101)
Retiree benefit plans cost $ 789 $ 927 $ 1,086
(a) Loss resulting from our agreement with Electrolux to sell the GE Appliances business.
ACTUARIAL ASSUMPTIONS
The actuarial assumptions at December 31 are used to measure the year-end benefit obligations and the retiree benefit plan
costs for the subsequent year.
December 31 2014 2013 2012 2011
Discount rate 3.89 % 4.61 %(a) 3.74 %(a) 4.09 %(a)
Compensation increases 4.10 4.00 3.90 3.75
Expected return on assets 7.00 7.00 7.00 7.00
Initial healthcare trend rate(b) 6.00 6.00 6.50 7.00
(a) Weighted average discount rates of 4.47%, 3.77%, and 3.94% were used for determination of costs in 2014, 2013 and 2012, respectively.
(b) For 2014, 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 target asset allocations,
historical and expected returns on various categories of plan assets, as well as expected benefit payments and resulting asset
levels. In developing future return expectations for retiree benefit 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, inflation, valuations, yields and spreads, using
both internal and external sources. We also take into account expected volatility by asset class and diversification across
classes to determine expected overall portfolio results given current and target allocations. Based on our analysis of future
expectations of asset performance, past return results, our current and target asset allocations as well as a 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
2015. 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.
The Society of Actuaries recently issued new mortality tables projecting longer life expectancies that will result in higher
postretirement obligations for U.S. companies. We updated our mortality assumptions at December 31, 2014. The new
mortality assumptions increased our principal retiree benefit plans’ benefit obligations by $612 million at December 31, 2014.
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 benefits on a pay-as-you-go basis. We expect to contribute approximately $540 million in 2015 to fund
such benefits. We fund the retiree life insurance trust at our discretion.