More plan sponsors are moving to reduce the risk attributable to their pension plans by adopting a liability-driven investment policy.

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1 Global Report Special Edition: June 2010 Global Survey of Retirement Plan Accounting Assumptions This report presents the results of Hewitt Associates global survey of accounting assumptions used for employee benefit plans at 2009 year-end. The survey was expanded to include assumptions for three new countries Australia, Thailand, and Turkey, and one country, Portugal, was dropped due to the small number of plans reported. The results of this survey may be useful to companies when setting preliminary assumptions for 2010 year-end and budgets for In addition, companies should consider the following: From 2009 year-end to May 31, 2010, yields on high-quality corporate bonds decreased slightly in the United States and United Kingdom but decreased approximately 75 basis points in the EuroZone. We are seeing more clients setting their discount rates by discounting their plans projected benefit payments using a yield curve. In the United Kingdom, we also are seeing clients use a yield curve to set their inflation assumption. According to U.S. GAAP, when setting the discount rate for certain EuroZone countries, companies may want to take into consideration the yields on government bonds for a specific country as well as those for high-quality corporate Euro bonds. For example, the iboxx yields on Euro denominated AA corporate bonds (Euro Bonds) with maturities of ten or more years declined about 75 basis points from December 31, 2009 to May 31, 2010, whereas the iboxx index for Greek government bonds increased almost 260 basis points. Over that same period, the comparable increase for Portuguese government bonds was about 60 basis points. We note that IAS 19 requirements for setting the discount rate for these countries generally mean that the yields on government bonds are not taken into account as a sufficiently deep market of Euro Bonds exists. Therefore, IAS 19 requires the discount rate be set only with reference to the yields on Euro Bonds. More plan sponsors are moving to reduce the risk attributable to their pension plans by adopting a liability-driven investment policy. In the United States, we have seen the allocation to fixed-income investments for the S&P 500 increase from about 30% in 2006 and 2007 to about 35% in 2008 and This trend is likely to continue as 38% of the participants in a recent Hewitt survey indicated they intend to decrease their allocation to equities. In the United Kingdom, the percentage of assets in fixed income has risen from 29% in 2005 to 38% in Copyright 2010 Hewitt Associates LLC June 2010

2 We expect this trend will accelerate if the proposed amendments to IAS 19, which effectively call for the discount rate to replace the expected return of the pension fund, are implemented in the final standard. (See our May 2010 Global Report on the Exposure Draft for IAS 19.) If you would like an update on current economic indices, please contact your local Hewitt consultant. Background Hewitt conducted this survey of fiscal 2009 year-end accounting assumptions by gathering information from our consultants and clients. Note that, similar to last year, the U.S. information is based on Hewitt s annual survey of U.S. GAAP accounting assumptions in use by our clients and not our survey of the Fortune 500 companies. As in previous surveys, we have focused on four economic assumptions that companies select under ASC 715 (formerly FAS 87 and 106), FRS 17, IAS 19, and other local accounting standards with similar requirements for assumption setting. The assumptions are: Discount rate; Expected long-term rate of return; Salary increase; and Pension increase assumptions (for certain countries only). The majority of the reported measurement dates are December 31, 2009, but also we included measurement dates from the end of September, October, and November. The tables on the following pages show the average rate for each assumption as of the end of 2008 and Copyright 2010 Hewitt Associates LLC 2 June 2010

3 Discount Rate at 2009 The following table shows the survey results for the discount rate assumption for the 2008 and 2009 fiscal year-ends Average 2009 Average Australia N/A 6.03% Brazil 11.98% 10.84% Canada 6.94% 6.09% Euro Zone 5.88% 5.13% Austria 5.74% 5.17% Belgium 5.89% 5.20% Cyprus 5.64% 5.16% France 6.05% 4.83% Germany 6.09% 5.28% Greece 5.74% 5.24% Ireland 5.86% 5.39% Italy 5.44% 4.79% Netherlands 5.84% 5.11% Spain 5.61% 4.70% India 7.79% 7.98% Indonesia 12.55% 10.85% Japan 1.96% 1.86% Mexico 8.31% 8.40% Norway 4.70% 4.82% Philippines 10.18% 8.89% Poland 5.87% 6.11% South Korea 7.54% 6.18% Sweden 3.18% 4.12% Switzerland 3.17% 3.20% Taiwan 2.26% 2.13% Thailand N/A 5.39% Turkey N/A 10.94% United Kingdom 6.30% 5.67% United States 6.47% 5.80% The general trend in the discount rate was a decline from 2008 year-end to 2009 year-end which, in many countries, reflected the lower yields on bonds issued by financial institutions. The values above represent an average discount rate for all post-employment plans (pension, retiree medical, and termination indemnities) as well as in-service benefits such as long-service leave or jubilee awards. In several countries, we noted that the average discount rate varied depending on the type of benefit being valued, very likely reflecting the shorter pay-out period for in-service benefits and termination indemnity plans. France The average discount rate for long-service leave plans is about 100 basis points lower than the discount rate for pension plans; the average discount rate for termination indemnity plans is about 35 basis points lower than for pension plans; Copyright 2010 Hewitt Associates LLC 3 June 2010

4 Germany The discount rate for long-service leave plans is only about 15 basis points lower than the discount rate for pension plans; and Netherlands The discount rate for long-service leave plans is only about 10 basis points lower than the discount rate for pension plans. A comparison of a company s discount rate to the rates shown above should consider that the maturity of a company s plan(s) may differ from the maturities of the plans included in this survey. Long-Term Rate of Return for 2009 The following table shows the survey results for the average expected long-term rate of return on plan assets used to determine expense for the 2008 and 2009 fiscal years Average 2009 Average Australia N/A 6.83% Brazil 9.61% 12.18% Canada 6.94% 6.98% Euro Zone 5.47% 5.46% Austria 5.26% 5.01% Belgium 5.12% 5.05% Cyprus 6.12% 5.59% France 4.98% 4.81% Germany 5.65% 5.72% Greece 4.95% 4.98% Ireland 6.66% 6.57% Netherlands 5.52% 5.44% Spain 4.17% 4.91% India 8.36% 8.49% Japan 2.78% 3.01% Mexico 7.89% 8.70% Norway 5.95% 5.94% Philippines 7.72% 8.48% South Korea 4.98% 5.01% Sweden 6.13% 4.64% Switzerland 4.52% 4.38% Taiwan 3.01% 2.68% United Kingdom 7.96%/5.42% 8.03%/5.54% United States 7.98% 7.85% For the United Kingdom, our survey results produced an average expected return by asset class 8.03% for equities and 5.54% for corporate bonds. In many countries, the expected return remained relatively unchanged or declined slightly from 2008 to Our survey shows that pattern continuing for The expected rates of return shown above reflect the asset allocations of the plans included in this survey. A comparison of a company s expected rate of return to the rates shown above should consider that the asset allocation for a company s plan(s) may differ from the asset allocations of the plans included in this survey. Copyright 2010 Hewitt Associates LLC 4 June 2010

5 Salary Increase at 2009 The following table shows the survey results for the salary increase assumption for 2008 and 2009 fiscal year-ends Average 2009 Average Australia N/A 3.90% Brazil 7.17% 7.27% Canada 3.65% 3.45% Euro Zone 3.16% 3.04% Austria 2.94% 2.83% Belgium 3.61% 3.37% Cyprus 5.75% 5.47% France 3.34% 2.65% Germany 2.67% 2.77% Greece 4.10% 3.88% Ireland 3.41% 3.37% Italy 3.15% 3.21% Netherlands 2.57% 2.64% Spain 3.22% 3.25% India 7.82% 8.24% Indonesia 5.28% 8.66% Japan 2.52% 2.56% Mexico 5.59% 5.47% Norway 3.93% 3.92% Philippines 8.12% 7.28% Poland 3.75% 3.49% South Korea 6.02% 5.42% Sweden 3.04% 3.10% Switzerland 2.24% 2.15% Taiwan 3.26% 3.20% Thailand N/A 5.71% Turkey N/A 5.87% United Kingdom 3.99% 4.31% United States 4.32% 3.96% In general, we saw a downward trend in salary increase assumptions, likely caused by current economic conditions which are leading to lower expected salary increases. The exception is the United Kingdom which saw an increase of about 30 basis points due to long-term expectations that inflation will increase. The salary increase assumptions shown above reflect the situation of each company included in this survey. A company s situation may differ from that of the companies included in the survey; hence, a different salary increase assumption may be appropriate for the company s employees. Copyright 2010 Hewitt Associates LLC 5 June 2010

6 Pension Increase for 2009 The following table shows the survey results for the pension increase assumption for 2008 and 2009 fiscal year-ends. Note that the results are shown for those plans where a portion of the benefits paid to pensioners is adjusted annually and is correlated with current inflationary expectations Average 2009 Average Euro Zone 1.93% 1.87% Germany 1.88% 1.83% Ireland 2.38% 2.47% Netherlands 1.61% 1.50% Norway 2.14% 2.31% Sweden 1.91% 2.05% Switzerland 0.57% 0.53% United Kingdom 2.96% 3.46% With the exception of the United Kingdom, pension increase assumptions selected by companies for 2009 year-end disclosures were not significantly different from those selected for 2008 year-end disclosures. As with the U.K. salary increase assumption, higher inflationary expectations are leading to the 50 basis point increase. * * * If you would like further information on accounting assumptions for defined benefit plans, contact your local Hewitt actuarial consultant, Chris Christiansen in Norwalk, Connecticut ( ), or Kirsten Miller in Glasgow, Scotland ( ). June 2010 Copyright 2010 Hewitt Associates LLC NL EN