Wells Fargo 2010 Annual Report Download - page 206

Note 19: Employee Benefits and Other Expenses (continued)
Amounts recognized in accumulated OCI (pre tax) consist of:
December 31,
2010 2009
Pension benefits Pension benefits
Non- Other Non- Other
(in millions) Qualified qualified benefits Qualified qualified
benefits
Net actuarial loss $ 1,672 113 135 1,836 70 140
Net prior service credit - - (30) 1 - (34)
Net transition obligation - - 1 - - 2
Translation adjustments 1 - - 1 - -
Total $ 1,673 113 106 1,838 70 108
We generally amortize net actuarial gain or loss in excess of a
5% corridor from accumulated OCI into net periodic pension
cost over the next 13 years. The net actuarial loss for the defined
benefit pension plans that will be amortized from accumulated
OCI into net periodic benefit cost in 2011 is $92 million. The net
prior service credit for the other post retirement plans that will
be amortized from accumulated OCI into net periodic benefit
cost in 2011 is $3 million.
Plan Assumptions
The weighted-average discount rate used to determine the
projected benefit obligation for pension benefits (qualified and
nonqualified) and other postretirement benefits was 5.25% and
5.75% for year ended December 31, 2010 and 2009, respectively.
We use a consistent methodology to determine the discount rate
that is based on an established yield curve methodology. This
methodology incorporates a broad group of top quartile Aa or
higher rated bonds consisting of approximately 100-150 bonds.
The discount rate is determined by matching this yield curve
with the timing and amounts of the expected benefit payments
for our plans.
The weighted-average assumptions used to determine the net periodic benefit cost were:
December 31,
2010 2009 2008
Pension
Other Pension Other Pension Other
benefits (1) benefits benefits (1) benefits benefits (1)
benefits
Discount rate (2) 5.75 % 5.75 7.42 6.75 6.25 6.25
Expected return on plan assets 8.25 8.25 8.75 8.75 8.75 8.75
Rate of compensation increase - - 4.0 - 4.0 -
(1) Includes both qualified and nonqualified pension benefits.
(2) Due to the freeze of the Wells Fargo qualified and supplemental Cash Balance Plans and the Wachovia Corporation Pension Plan, the discount rate for the 2009 pension
benefits was the weighted average of 6.75% from January through April and 7.75% from May through December.
Our determination of the reasonableness of our expected
long-term rate of return on plan assets is highly quantitative by
nature. We evaluate the current asset allocations and expected
returns under two sets of conditions: projected returns using
several forward-looking capital market assumptions, and
historical returns for the main asset classes dating back to 1970,
the earliest period for which historical data was readily available
as of a common time frame for the asset classes included. Using
data dating back to 1970 allows us to capture multiple economic
environments, which we believe is relevant when using historical
returns. We place greater emphasis on the forward-looking
return and risk assumptions than on historical results. We use
the resulting projections to derive a base line expected rate of
return and risk level for the Cash Balance Plans' prescribed asset
mix. We then adjust the baseline projected returns for items not
already captured, including the anticipated return differential
from active over passive investment management and the
estimated impact of an asset allocation methodology that allows
for established deviations from the specified target allocations
when a compelling opportunity exists.
We evaluate the portfolio based on: (1) the established target
asset allocations over short term (one-year) and longer term
(ten-year) investment horizons, and (2) the range of potential
outcomes over these horizons within specific standard
deviations. We perform the above analyses to assess the
reasonableness of our expected long-term rate of return on plan
assets. We consider the expected rate of return to be a long-term
average view of expected returns. The expected rate of return
would be assessed for significant long-term changes in economic
conditions or in planned portfolio composition.
To account for postretirement health care plans we use
health care cost trend rates to recognize the effect of expected
changes in future health care costs due to medical inflation,
utilization changes, new technology, regulatory requirements
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