ANNUAL REPORT 2007

 

 

NOTE 9
PENSION BENEFITS

 

 

The Company sponsors a number of U.S. and foreign pension plans to provide retirement benefits for its employees. The majority of these plans are funded or unfunded defined benefit plans, although the Company does participate in a limited number of multiemployer or other defined contribution plans for certain employee groups. Defined benefits for salaried employees are generally based on salary and years of service, while union employee benefits are generally a negotiated amount for each year of service. The Company uses its fiscal year end as the measurement date for its defined benefit plans.

 

Obligations and funded status

 

The aggregate change in projected benefit obligation, plan assets, and funded status is presented in the following tables. The Company adopted SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” as of the end of its 2006 fiscal year. The standard generally requires company plan sponsors to reflect the net over- or under-funded position of a defined postretirement benefit plan as an asset or liability on the balance sheet.

 

 

The accumulated benefit obligation for all defined benefit pension plans was $3.02 billion and $2.99 billion at December 29, 2007 and December 30, 2006, respectively. Information for pension plans with accumulated benefit obligations in excess of plan assets were:

 

 

Expense

 

The components of pension expense are presented in the following table. Pension expense for defined contribution plans relates principally to multiemployer plans in which the Company participates on behalf of certain unionized workforces in the United States. The amounts for 2007 and 2006 include charges of approximately $6 million and $4 million, respectively, for the Company’s current estimate of a multiemployer plan withdrawal liability, which is further described in Note 3.

 

 

 

 

Any arising obligation-related experience gain or loss is amortized using a straight-line method over the average remaining service period of active plan participants. Any asset-related experience gain or loss is recognized as described on page 49. The estimated net experience loss and prior service cost for defined benefit pension plans that will be amortized from accumulated other comprehensive income into pension expense over the next fiscal year are approximately $35 million and $13 million, respectively.

 

 

Net losses from curtailment and special termination benefits recognized in 2006 are related primarily to plant workforce reductions in the United States and United Kingdom, as further described in Note 3.

 

 

Certain of the Company’s subsidiaries sponsor 401(k) or similar savings plans for active employees. Expense related to these plans was (in millions): 2007–$36; 2006–$33; 2005–$30. Company contributions to these savings plans approximate annual expense. Company contributions to multiemployer and other defined contribution pension plans approximate the amount of annual expense presented in the preceding table.

 

Assumptions

 

The worldwide weighted-average actuarial assumptions used to determine benefit obligations were:

 

 

 

The worldwide weighted-average actuarial assumptions used to determine annual net periodic benefit cost were:

 

To determine the overall expected long-term rate of return on plan assets, the Company models expected returns over a 20-year investment horizon with respect to the specific investment mix of its major plans. The return assumptions used reflect a combination of rigorous historical performance analysis and forward-looking views of the financial markets including consideration of current yields on long-term bonds, price-earnings ratios of the major stock market indices, and long-term inflation. The U.S. model, which corresponds to approximately 70% of consolidated pension and other postretirement benefit plan assets, incorporates a long-term inflation assumption of 2.7% and an active management premium of 1% (net of fees) validated by historical analysis. Similar methods are used for various foreign plans with invested assets, reflecting local economic conditions. Although management reviews the Company’s expected long-term rates of return annually, the benefit trust investment performance for one particular year does not, by itself, significantly influence this evaluation. The expected rates of return are generally not revised, provided these rates continue to fall within a “more likely than not” corridor of between the 25th and 75th percentile of expected long-term returns, as determined by the Company’s modeling process. The expected rate of return for 2007 of 8.9% equated to approximately the 50th percentile expectation. Any future variance between the expected and actual rates of return on plan assets is recognized in the calculated value of plan assets over a five-year period and once recognized, experience gains and losses are amortized using a declining-balance method over the average remaining service period of active plan participants.

 

Plan assets

 

The Company’s year-end pension plan weighted-average asset allocations by asset category were:

 

 

The Company’s investment strategy for its major defined benefit plans is to maintain a diversified portfolio of asset classes with the primary goal of meeting long-term cash requirements as they become due. Assets are invested in a prudent manner to maintain the security of funds while maximizing returns within the Company’s guidelines. The current weighted-average target asset allocation reflected by this strategy is: equity securities–75%; debt securities–23%; other–2%. Investment in Company common stock represented 1.5% of consolidated plan assets at December 29, 2007 and December 30, 2006. Plan funding strategies are influenced by tax regulations. The Company currently expects to contribute approximately $50 million to its defined benefit pension plans during 2008.

 

Benefit payments

 

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions): 2008–$202; 2009–$210; 2010–$217; 2011–$229; 2012–$227; 2013 to 2017–$1,266.