Verizon Wireless 2013 Annual Report Download - page 62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
60
The assumed health care cost trend rates follow:
Health Care and Life
At December 31, 2013 2012 2011
Healthcare cost trend rate assumed for
next year 6.50 % 7.00 % 7.50 %
Rate to which cost trend rate gradually
declines 4.75 5.00 5.00
Year the rate reaches the level it is
assumed to remain thereafter 2020 2016 2016
A one-percentage point change in the assumed health care cost trend
rate would have the following eects:
(dollars in millions)
One-Percentage Point Increase Decrease
Eect on 2013 service and interest cost $ 184 $ (150)
Eect on postretirement benet obligation as of
December 31, 2013 2,539 (2,086)
Plan Assets
Historically, our portfolio strategy emphasized a long-term equity ori-
entation, signicant global diversication, and the use of both public
and private investments. In an eort to reduce the risk of our portfolio
strategy and better align assets with liabilities, we have shifted our
strategy to one that is more liability driven, where cash ows from invest-
ments better match projected benet payments but result in lower asset
returns. We intend to reduce the likelihood that assets will decline at a
time when liabilities increase (referred to as liability hedging), with the
goal to reduce the risk of underfunding to the plan and its participants
and beneciaries. Both active and passive management approaches are
used depending on perceived market eciencies and various other fac-
tors. Our diversication and risk control processes serve to minimize the
concentration of risk.
While target allocation percentages will vary over time, the company’s
overall investment strategy is to achieve a mix of assets, which allows
us to meet projected benets payments while taking into consideration
risk and return. The current target allocation for plan assets is designed
so that 70% of the assets have the objective of achieving a return in
excess of the growth in liabilities (comprised of public equities, private
equities, real estate, hedge funds and emerging debt) and 30% of the
assets are invested as liability hedging assets (typically longer duration
xed income). This allocation will shift as funded status improves to a
higher allocation to liability hedging assets. Target policies will be revis-
ited periodically to ensure they are in line with fund objectives. Due to
our diversication and risks control processes, there are no signicant
concentrations of risk, in terms of sector, industry, geography or com-
pany names.
Pension and healthcare and life plans assets do not include signicant
amounts of Verizon common stock.
Pension Plans
The fair values for the pension plans by asset category at December 31,
2013 are as follows:
(dollars in millions)
Asset Category Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 968 $ 881 $ 87 $ –
Equity securities 4,200 3,300 900 –
Fixed income securities
U.S. Treasuries and agencies 1,097 691 406 –
Corporate bonds 2,953 212 2,579 162
International bonds 364 51 313 –
Other 3 – 3 –
Real estate 1,784 – – 1,784
Other
Private equity 3,942 – – 3,942
Hedge funds 1,800 – 604 1,196
Total $ 17,111 $ 5,135 $ 4,892 $ 7,084
The fair values for the pension plans by asset category at December 31,
2012 are as follows:
(dollars in millions)
Asset Category Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 1,618 $ 1,586 $ 32 $ –
Equity securities 2,944 2,469 475 –
Fixed income securities
U.S. Treasuries and agencies 1,589 1,125 464 –
Corporate bonds 2,456 35 2,225 196
International bonds 601 140 461 –
Other 210 – 210 –
Real estate 2,018 – – 2,018
Other
Private equity 5,039 – – 5,039
Hedge funds 1,807 – 1,249 558
Total $ 18,282 $ 5,355 $ 5,116 $ 7,811