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SYSCO CORPORATION-Form10-K62
PARTII
ITEM8Financial Statements and Supplementary Data
Assumptions
Weighted-average assumptions used to determine benefi t obligations as of year-end were:
June30,2012 July2,2011
Discount rate — Retirement Plan 4.81% 5.94%
Discount rate — SERP 4.89 5.93
Discount rate — Other Postretirement Plans 4.81 5.94
Rate of compensation increase — Retirement Plan 5.30 5.30
For determining the benefi t obligations as of June30,2012 and July2,2011, the SERP calculations utilized an age-graded salary growth assumption.
Weighted-average assumptions used to determine net company-sponsored pension costs and other postretirement benefi t costs for each fi scal year were:
2012 2011 2010
Discount rate — Retirement Plan 5.94% 6.15% 8.02%
Discount rate — SERP 5.93 6.35 7.14
Discount rate — Other Postretirement Plans 5.94 6.32 8.02
Expected rate of return — Retirement Plan 7.75 8.00 8.00
Rate of compensation increase — Retirement Plan 5.30 5.30 5.21
For determining the net pension costs related to the SERP for fi scal 2012 and 2011, the SERP calculations utilized an age-graded salary growth assumption.
The calculation for fi scal 2010 utilized an age-graded salary growth assumption with reductions taken for determining fi scal 2010 pay due to base salary
freezes in effect for fi scal 2010.
A healthcare cost trend rate is not used in the calculations of postretirement benefi t obligations because Sysco subsidizes the cost of postretirement
medical coverage by a fi xed dollar amount, with the retiree responsible for the cost of coverage in excess of the subsidy, including all future cost increases.
For guidance in determining the discount rate, Sysco calculates the implied rate of return on a hypothetical portfolio of high-quality fi xed-income investments for
which the timing and amount of cash outfl ows approximates the estimated payouts of the company-sponsored pension plans. The discount rate assumption
is reviewed annually and revised as deemed appropriate. The discount rate to be used for the calculation of fi scal 2013 net company-sponsored benefi t
costs for the Retirement Plan is 4.81%. The discount rate to be used for the calculation of fi scal 2013 net company-sponsored benefi t costs for the SERP
is 4.89%. The discount rate to be used for the calculation of fi scal 2013 net company-sponsored benefi t costs for the Other Postretirement Plans is 4.81%.
The expected long-term rate of return on plan assets assumption is net return on assets assumption, representing gross return on assets less plan expenses.
The expected return is derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, refl ecting a combination
of rigorous historical performance analysis and the forward-looking views of the fi nancial markets regarding the yield on bonds, the historical returns of
the major stock markets and returns on alternative investments. The rate of return assumption is reviewed annually and revised as deemed appropriate.
The expected long-term rate of return to be used in the calculation of fi scal 2013 net company-sponsored benefi t costs for the Retirement Plan is 7.75%.
Plan Assets
Investment Strategy
The company’s overall strategic investment objectives for the Retirement Plan are to preserve capital for future benefi t payments and to balance risk and
return commensurate with ongoing changes in the valuation of plan liabilities. In order to accomplish these objectives, the company oversees the Retirement
Plan’s investment objectives and policy design, decides proper plan asset class strategies and structures, monitors the performance of plan investment
managers and investment funds and determines the proper investment allocation of pension plan contributions and withdrawals. The company has created
an investment structure for the Retirement Plan that takes into account the nature of the Retirement Plan’s liabilities. This structure ensures the Retirement
Plan’s investment are diversifi ed within each asset class, in addition to being diversifi ed across asset classes with the intent to build asset class portfolios that
are structured without strategic bias for or against any subcategories within each asset class. The company has also created a set of investment guidelines
for the Retirement Plan’s investment managers to specify prohibited transactions, including borrowing of money except for real estate portfolios or private
equity portfolios where leverage is a key component of the investment strategy and permitted in the investments’ governing documents, the purchase of
securities on margin unless fully collateralized by cash or cash equivalents or short sales, pledging, mortgaging or hypothecating of any securities except
for loans of securities that are fully collateralized, market timing transactions and the direct purchase of the securities of Sysco or the investment manager.
The purchase or sale of derivatives for speculation or leverage is also prohibited; however, investment managers are allowed to use derivative securities
so long as they do not increase the risk profi le or leverage of the manager’s portfolio.