Target 2004 Annual Report Download - page 38

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Assumptions
Weighted average assumptions used to determine benefit obligations
at October 31:
Postretirement
Pension Benefits Health Care Benefits
2004 2003 2004 2003
Discount rate 5.75% 6.25% 5.75% 6.25%
Average assumed rate
of compensation increase 2.75% 3.25% n/a n/a
Weighted average assumptions used to determine net periodic
benefit cost for years ended October 31:
Postretirement
Pension Benefits Health Care Benefits
2004 2003 2004 2003
Discount rate 6.25% 7.00% 6.25% 7.00%
Expected long-term rate
of return on plan assets 8.00% 8.50% n/a n/a
Average assumed rate
of compensation increase 3.25% 4.00% n/a n/a
Our rate of return on qualified plans’ assets has averaged 4.9
percent and 10.2 percent per year over the 5-year and 10-year periods,
respectively, ending October 31, 2004 (our measurement date).
An increase in the cost of covered health care benefits of 6
percent was assumed for 2004. The rate is assumed to be 10 percent
in 2005 and is reduced by 1 percent annually to 5 percent in 2010
and thereafter. The health care cost trend rate assumption may have
a significant effect on the amounts reported.
A one percent change in assumed health care cost trend rates
would have the following effects:
1% Increase 1% Decrease
Effect on total of service and interest cost
components of net periodic
postretirement health care benefit cost $— $—
Effect on the health care component
of the postretirement benefit obligation $ 4 $ (4)
Additional Information
Our pension plan weighted average asset allocations at October 31,
2004 and 2003 by asset category are as follows:
Asset Category
2004 2003
Equity securities 58% 56%
Debt securities 26 26
Other 16 18
Tot al 100% 100%
Our asset allocation strategy for 2005 targets 55 percent in equity
securities, 25 percent in debt securities and 20 percent in other assets.
Equity securities include our common stock in amounts substantially
less than 1 percent of total plan assets at October 31, 2004 and 2003.
Other assets include private equity, mezzanine and distressed debt
and timber and less than a 5 percent allocation to real estate. Our
expected long-term rate of return assumptions as of October 31, 2004
are 8.5 percent, 5 percent and 10 percent for equity securities, debt
securities and other assets, respectively.
Contributions
Given the qualified pension plans’ funded position, we are not required
to make any contributions in 2005. In similar situations in the past, we
have chosen to make discretionary contributions for various purposes,
including minimizing Pension Benefit Guaranty Corporation premium
payments and maintaining the fully-funded status of the plans. In 2005,
such discretionary contributions could range from $0 to $50 million.
We expect to make contributions in the range of $5 million to $15
million to our other postretirement benefit plans in 2005.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service,
as appropriate, are expected to be paid:
Pension Postretirement
(millions) Benefits Health Care Benefits
2005 $ 59 $ 8
2006 62 8
2007 66 8
2008 70 9
2009 75 9
2010– 2014 $476 $53