Target 2010 Annual Report Download - page 83

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our most recent annualized rate of return on qualified plans’ assets has averaged 5.9 percent, 6.1 percent and
8.6 percent for the 5-year, 10-year and 15-year periods, respectively.
The expected Market-Related Value of Assets (MRV) is determined each year by adjusting the previous year’s
value by expected return, benefit payments and cash contributions. The expected MRV is adjusted for asset gains
and losses in equal 20 percent adjustments over a five-year period.
Our expected annualized long-term rate of return assumptions as of January 29, 2011 were 8.5 percent for
domestic and international equity securities, 5.5 percent for long-duration debt securities, 8.5 percent for balanced
funds and 10.0 percent for other investments. Balanced funds primarily invest in equities, nominal and inflation-
linked fixed income securities, commodities and public real estate. They seek to generate capital market returns
while reducing market risk by investing globally in highly diversified portfolios of public securities. These estimates
are a judgmental matter in which we consider the composition of our asset portfolio, our historical long-term
investment performance and current market conditions. We review the expected long-term rate of return on an
annual basis, and revise it accordingly. Additionally, we monitor the mix of investments in our portfolio to ensure
alignment with our long-term strategy to manage pension cost and reduce volatility in our assets.
An increase in the cost of covered health care benefits of 7.5 percent was assumed for 2010 and is assumed for
2011. The rate will be reduced to 5.0 percent in 2019 and thereafter.
Health Care Cost Trend Rates—1% Change
(millions) 1% Increase 1% Decrease
Effect on total of service and interest cost components of net periodic postretirement
health care benefit expense $1 $(1)
Effect on the health care component of the accumulated postretirement benefit
obligation 6(5)
Plan Assets
Our asset allocation policy is designed to reduce the long-term cost of funding our pension obligations. The
plan invests with both passive and active investment managers depending on the investment’s asset class. The
plan also seeks to reduce the risk associated with adverse movements in interest rates by employing an interest
rate hedging program, which may include the use of interest rate swaps, total return swaps and other instruments.
Actual allocation
Asset Category Current targeted
allocation 2010 2009
Domestic equity securities (a) 19% 18% 19%
International equity securities 12 10 10
Debt securities 25 25 28
Balanced funds 30 26 19
Other (b) 14 21 24
Total 100% 100% 100%
(a) Equity securities include our common stock in amounts substantially less than 1 percent of total plan assets as of January 29, 2011 and
January 30, 2010.
(b) Other assets include private equity, mezzanine and high-yield debt, natural resources and timberland funds, multi-strategy hedge funds,
derivative instruments, and a 3 percent allocation to real estate.
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PART II