Harley Davidson 2015 Annual Report Download - page 84

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Assumptions:
Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost at December 31 were
as follows:
Pension and
SERPA Benefits Postretirement Healthcare Benefits
2015 2014 2013 2015 2014 2013
Assumptions for benefit obligations:
Discount rate 4.53% 4.21% 5.08% 4.29% 3.99% 4.70%
Rate of compensation 3.50% 4.00% 4.00% n/a n/a n/a
Assumptions for net periodic benefit
cost:
Discount rate 4.21% 5.08% 4.23% 3.99% 4.70% 3.93%
Expected return on plan assets 7.75% 7.75% 7.75% 7.70% 7.70% 8.00%
Rate of compensation increase 4.00% 4.00% 4.00% n/a n/a n/a
Pension and SERPA Accumulated Benefit Obligation:
The Company’s pension and SERPA plans have a separately determined accumulated benefit obligation (ABO) and plan
asset value. The ABO is the actuarial present value of benefits based on service rendered and current and past compensation
levels. This differs from the projected benefit obligation (PBO) in that it includes no assumption about future compensation
levels. The total ABO for all the Company’s pension and SERPA plans combined was $1.92 billion and $1.92 billion as of
December 31, 2015 and 2014, respectively.
The following table summarizes information related to the Company pension plan with a PBO in excess of the fair value
of plan assets at December 31 (in millions):
2015 2014
Pension plan with PBOs in excess of fair value of plan assets:
PBO $ 1,964.0 $ 2,023.4
Fair value of plan assets $ 1,842.0 $ 1,992.6
The fair value of pension plan assets was greater than the plan's ABO at December 31, 2015 and 2014.
The Company’s SERPA plans, which can only be funded as claims are paid, had projected and accumulated benefit
obligations of $45.0 million and $35.8 million, respectively, as of December 31, 2015 and $46.6 million and $33.6 million,
respectively, as of December 31, 2014.
Plan Assets:
Pension Plan Assets - The Company’s investment objective is to ensure assets are sufficient to pay benefits while
mitigating the volatility of retirement plan assets or liabilities recorded in the balance sheet. The Company mitigates volatility
through asset diversification and partial asset/liability matching. The investment portfolio for the Company's pension plan
assets contains a diversified blend of equity and fixed-income investments. The Company’s current overall targeted asset
allocation as a percentage of total market value was approximately 63% equities and 37% fixed-income and cash. Assets are
rebalanced regularly to keep the actual allocation in line with targets. Equity holdings primarily include investments in small-,
medium- and large-cap companies in the U.S. (including Company stock), investments in developed and emerging foreign
markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and
agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign obligations. In addition,
cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment
risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews.
Postretirement Healthcare Plan Assets - The Company's investment objective is to maximize the return on assets to help
pay the benefits by prudently investing in equities, fixed income and alternative assets. The Company's current overall targeted
asset allocation as a percentage of total market value was approximately 69% equities and 31% fixed-income and cash. Equity
holdings primarily include investments in small-, medium-, and large-cap companies in the U.S., investments in developed and
emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S.
government and agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign