Verizon Wireless 2008 Annual Report Download - page 65

Notes to Consolidated Financial Statements continued
63
Assumptions
The weighted-average assumptions used in determining benefit obligations follow:
Pension Health Care and Life
At December 31, 2008 2007 2008 2007
Discount rate 6.75% 6.50% 6.75% 6.50%
Rate of compensation increases 4.00 4.00 N/A 4.00
The weighted-average assumptions used in determining net periodic cost follow:
Pension Health Care and Life
Years Ended December 31, 2008 2007 2006 2008 2007 2006
Discount rate 6.50% 6.00% 5.75% 6.50% 6.00% 5.75%
Expected return on plan assets 8.50 8.50 8.50 8.25 8.25 8.25
Rate of compensation increase 4.00 4.00 4.00 4.00 4.00 4.00
Plan Assets
Pension Plans
The weighted-average asset allocations for the pension plans by asset
category follow:
At December 31, 2008 2007
Asset Category
Equity securities 46% 59%
Debt securities 20 18
Real estate 96
Other 25 17
Total 100% 100%
Equity securities include Verizon common stock of $87 million and
$127 million at December 31, 2008 and 2007, respectively. Other assets
include cash and cash equivalents (primarily held for the payment of
benefits), private equity and investments in absolute return strategies.
Health Care and Life Plans
The weighted-average asset allocations for the other postretirement
benefit plans by asset category follow:
At December 31, 2008 2007
Asset Category
Equity securities 67% 74%
Debt securities 26 21
Other 75
Total 100% 100%
In our health care and life plans, there was not a significant amount of
Verizon common stock held at the end of 2008 and none in 2007.
Our portfolio strategy emphasizes a long-term equity orientation,
significant global diversification, the use of both public and private
investments and professional financial and operational risk controls.
Assets are allocated according to long-term risk and return estimates.
Both active and passive management approaches are used depending
on perceived market efficiencies and various other factors.
In order to project the long-term target investment return for the total
portfolio, estimates are prepared for the total return of each major asset
class over the subsequent 10-year period, or longer. Those estimates are
based on a combination of factors including the current market interest
rates and valuation levels, consensus earnings expectations, historical
long-term risk premiums and value-added. To determine the aggregate
return for the pension trust, the projected return of each individual asset
class is then weighted according to the allocation to that investment
area in the trust’s long-term asset allocation policy.
The assumed Health Care Cost Trend Rates follow:
Health Care and Life
At December 31, 2008 2007 2006
Health care cost trend rate assumed
for next year 9.00% 10.00% 10.00%
Rate to which cost trend rate
gradually declines 5.00 5.00 5.00
Year the rate reaches level it is assumed
to remain thereafter 2014 2013 2011
A one-percentage-point change in the assumed health care cost trend
rate would have the following effects:
(dollars in millions)
One-Percentage-Point Increase Decrease
Eect on 2008 service and interest cost $ 279 $ ( 224)
Eect on postretirement benet obligation as of
December 31, 2008 2,891 (2,399)