Motorola 2013 Annual Report Download - page 47

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January 1, 2002 are eligible to access postretirement medical benefits under this plan; however, these employees receive no
subsidy and pay full cost for their benefits. As of January 1, 2005, the Postretirement Health Care Benefits Plan was closed to
new participants.
During the year ended December 31, 2012, we announced an amendment to the Postretirement Health Care Benefits Plan.
Starting January 1, 2013, benefits under the plan to participants over age 65 are paid to a retiree health reimbursement account
instead of directly providing health insurance coverage to the participants. Covered retirees are able to use the annual subsidy
they receive through this account toward the purchase of their own health care coverage from private insurance companies and
for reimbursement of eligible health care expenses. The amendment to the Postretirement Health Care Benefits Plan effective
January 1, 2013 resulted in a remeasurement of the plan generating an $87 million decrease in accumulated other
comprehensive loss, net of taxes. The majority of that $87 million decrease will be recognized over approximately three years,
or the period in which the remaining employees eligible for the plan will quality for benefits under the plan. During the year
ended December 31, 2013, $43 million of prior service cost credit was recognized, including the amount associated with the
2012 amendment resulting in a net credit for periodic cost in 2013.
Accounting methodologies use an attribution approach that generally spreads the effects of individual events over the
service lives of the participants in the plan, or estimated average lifetime when almost all of the plan participants are considered
"inactive." Examples of “events” are plan amendments and changes in actuarial assumptions such as discount rate, expected
long-term rate of return on plan assets, and rate of compensation increases.
There are various assumptions used in calculating the net periodic benefit expense and related benefit obligations. One of
these assumptions is the expected long-term rate of return on plan assets. The required use of the expected long-term rate of
return on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets
in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns.
We use a five-year, market-related asset value method of recognizing asset related gains and losses.
We use long-term historical actual return experience with consideration of the expected investment mix of the plans’
assets, as well as future estimates of long-term investment returns, to develop our expected rate of return assumption used in
calculating the net periodic pension cost and the net retirement healthcare expense. Our investment return assumption for the
U.S. Pension Benefit Plans and Postretirement Healthcare Benefits Plan was 7.00% in 2013 and 8.25% in 2012. At
December 31, 2013, the pension plans and the Postretirement Health Care Benefits Plan investment portfolios were comprised
of approximately 55 percent and 58 percent equity investments, respectively.
A second key assumption is the discount rate. The discount rate assumptions used for pension benefits and postretirement
health care benefits reflect, at December 31 of each year, the prevailing market rates for high-quality, fixed-income debt
instruments that, if the obligation was settled at the measurement date, would provide the necessary future cash flows to pay the
benefit obligation when due. Our discount rates for measuring our U.S. pension obligations were 5.15% and 4.35% at
December 2013 and 2012, respectively. Our discount rates for measuring the Postretirement Health Care Benefits Plan
obligation were 4.65% and 3.80% at December 31, 2013 and 2012, respectively.
A final set of assumptions involves the cost drivers of the underlying benefits. The rate of compensation increase is a key
assumption used in the actuarial model for pension accounting and is determined by us based upon our long-term plans for such
increases. Our 2013 and 2012 rate for future compensation increase for the U.S. Pension Benefit Plans was 0%, as the salaries
to be utilized for calculation of benefits under these plans have been frozen. For the Postretirement Health Care Benefits Plan,
we review external data and our own historical trends for health care costs to determine the health care cost trend rates. The
health care cost trend rate used to determine the December 31, 2013, accumulated postretirement benefit obligation was 8.50%
for 2013, then grading down to a rate of 5% in 2020. The health care cost trend rate used to determine the December 31, 2012
accumulated postretirement benefit obligation was 7.25% for 2013, remaining flat at 7.25% through 2015, then grading down
to a rate of 5% in 2019.
Prior to 2013, unrecognized gains and losses were amortized over periods ranging from three to thirteen years. At the
close of fiscal 2012, we determined that the majority of the plan participants in our Regular and United Kingdom pension plans
were no longer actively employed due to significant employee exits as a result of our recent divestitures. Under relevant
accounting rules, when almost all of the plan participants are considered inactive, the amortization period for certain
unrecognized losses changes from the average remaining service period to the average remaining lifetime of the participant. As
such, beginning in 2013, and depending on the specific plan, we began amortizing gains and losses over periods ranging from
five to twenty-eight years. Prior service costs are being amortized over periods ranging from ten to twelve years. Benefits under
all pension plans are valued based on the projected unit credit cost method.
For the year ended December 31, 2013, we recognized net periodic pension expense of $118 million related to our U.S.
Pension Benefit Plans, compared to $188 million for the year ended December 31, 2012. Cash contributions of $150 million
were made to the U.S. Pension Benefit Plans during 2013 as compared to $340 million in 2012.