Medtronic 2008 Annual Report Download - page 86

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The actuarial assumptions were as follows:
U.S. Pension Benefits Non-U.S. Pension Benefits Post-Retirement Benefits
Fiscal Year Fiscal Year Fiscal Year
2008 2007 2006 2008 2007 2006 2008 2007 2006
Weighted average assumptions — projected benefit obligation:
Discount rate 6.75
%
6.00
%
6.00
%
5.37
%
4.42
%
4.34
%
6.75
%
6.00
%
6.00
%
Rate of compensation increase 4.24
%
4.24
%
4.24
%
3.10
%
3.09
%
3.07
%
N/A N/A N/A
Healthcare cost trend rate N/A N/A N/A N/A N/A N/A 9.00
%
10.00
%
9.00
%
Weighted average assumptions — net periodic benefit cost:
Discount rate 6.00
%
6.00
%
6.00
%
4.42
%
4.34
%
4.39
%
6.00
%
6.00
%
6.00
%
Expected return on plan assets 8.75
%
8.75
%
8.75
%
5.76
%
5.59
%
5.46
%
8.75
%
8.75
%
8.75
%
Rate of compensation increase 4.24
%
4.24
%
4.00
%
3.09
%
3.07
%
2.99
%
N/A N/A N/A
Healthcare cost trend rate N/A N/A N/A N/A N/A N/A
10.00
%
9.00
%
10.00
%
The Company’s discount rates are determined by considering current
yield curves representing high quality, long-term fixed income
instruments. The resulting discount rates are consistent with the
duration of plan liabilities.
The expected long-term rate of return on plan assets assumptions is
determined using a building block approach, considering historical
averages and real returns of each asset class. In certain countries, where
historical returns are not meaningful, consideration is given to local
market expectations of long-term returns.
Retirement Benefit Plan Investment Strategy The Company has an
account that holds the assets for both the U.S. pension plan and other
post-retirement benefits, primarily retiree medical. For investment
purposes, the plans are managed in an identical way, as their objectives
are similar.
The Company has a Qualified Plan Committee (the Plan Committee)
that sets investment guidelines with the assistance of an external
consultant. These guidelines are established based on market conditions,
risk tolerance, funding requirements and expected benefit payments.
The Plan Committee also oversees the investment allocation process,
selects the investment managers and monitors asset performance. As
pension liabilities are long-term in nature, the Company employs a
long-term total return approach to maximize the long-term rate of
return on plan assets for a prudent level of risk. An annual analysis on
the risk versus the return of the investment portfolio is conducted to
justify the expected long-term rate of return assumption.
The investment portfolio contains a diversified portfolio of investment
categories, including equities, fixed income securities, hedge funds and
private equity. Securities are also diversified in terms of domestic and
international securities, short- and long-term securities, growth and value
styles, large cap and small cap stocks, active and passive management
and derivative-based styles. The Plan Committee believes with prudent
risk tolerance and asset diversification, the account should be able to
meet its pension and other post-retirement obligations in the future.
Plan assets also include investments in the Company’s common stock
of $62 and $68 at April 25, 2008 and April 27, 2007, respectively.
The Company’s pension plan weighted average asset allocations and
the target allocations at April 25, 2008 and April 27, 2007, by asset
category, are as follows:
U.S. Plans
Pension
Benefits
Allocation
Target
Allocation
2008 2007 2008 2007
Asset Category
Equity securities 53
%
64
%
60
%
60
%
Debt securities 11 11 10 15
Other 36 25 30 25
Total
100
%
100
%
100
%
100
%
Non-U.S. Plans
Pension
Benefits
Allocation
Target
Allocation
2008 2007 2008 2007
Asset Category
Equity securities 41
%
41
%
41
%
42
%
Debt securities 12 10 14 13
Cash 14——
Other 46 45 45 45
Total
100
%
100
%
100
%
100
%
It is the Company’s policy to fund retirement costs within the limits
of allowable tax deductions. During fiscal year 2008, the Company
made discretionary contributions of approximately $85 to the U.S.
pension plan and approximately $19 to fund post-retirement benefits.
Internationally, the Company contributed approximately $51 for pension
benefits during fiscal year 2008. During fiscal year 2009, the Company
anticipates that its contribution for pension benefits and post-retirement
benefits will be in the range of $125 and $160. Based on the
guidelines under the U.S. Employee Retirement Income Security Act
Notes to Consolidated Financial Statements
(continued)
(dollars in millions, except per share data)
82 Medtronic, Inc.