Sprint - Nextel 2005 Annual Report Download - page 151

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SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Weighted-average assumptions used to determine net periodic pension costs:
Year Ended December 31,
2005 2004 2003
Discount rate ....................................................... 6.00% 6.25% 6.75%
Expected long-term rate of return on plan assets ........................... 8.75% 8.75% 9.00%
Expected blended rate of future pay raises ................................ 4.25% 4.25% 4.25%
Weighted average assumptions used to determine benefit obligations:
As of December 31,
2005 2004
Discount rate ............................................................... 5.75% 6.00%
Expected blended rate of future pay raises ........................................ 4.25% 4.25%
In choosing the discount rate, our actuaries construct a hypothetical portfolio of bonds rated AA- or better that
produces a cash flow matching the projected benefit payments of the plan. The average yield of this portfolio is
used as the discount rate benchmark. For the December 31, 2005 measurement date, this exercise produced a
range of yields between 5.67% and 5.87%, and our discount rate was set at 5.75%. For the December 31, 2004
measurement date, the bond matching described above produced a range of yields between 5.86% and 6.04%,
guiding us to set the discount rate at 6.0%.
During 2005, the assumption regarding the expected long-term return on plan assets was 8.75%, unchanged from
the prior year. After revising the target asset allocation policy in the second half of 2003 to reduce the pension
trust’s exposure to equities, we obtained from two investment consulting firms forward-looking estimates of the
expected long-term returns for a portfolio invested according to the revised target policy. The average of the two
firms’ estimates was 8.77%, guiding a reduction in the assumed long-term return from the prior year’s 9.0% to
8.75%. We validate this assumption each year against estimates provided by our third party actuaries.
The plan’s asset allocations by asset category, are as follows:
As of December 31,
2005 2004
Equity securities ............................................................ 65% 66%
Debt securities .............................................................. 14% 17%
Real estate ................................................................. 11% 9%
Alternatives ................................................................ 10% 8%
Total ...................................................................... 100% 100%
The pension trust is invested in a well-diversified portfolio of securities. The Employee Benefits Committee has
established an investment policy that specifies asset allocation targets and ranges for the trust of: Equities 65%
(+/-10%), Debt 15% (+/-5%), Real Estate 10% (+/-5%), and Alternatives 10% (+/-5%). The pension trust holds
no Sprint Nextel securities.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in
millions):
2006 ............................................................................. $ 190
2007 ............................................................................. 194
2008 ............................................................................. 199
2009 ............................................................................. 206
2010 ............................................................................. 214
2011 – 2015 ....................................................................... 1,223
F-56