Cleveland Clinic Health System Obligated Group - FMSbonds.com

Cleveland Clinic Health SystemNotes to Consolidated Financial Statements (continued)12. Pensions and Other Postretirement Benefits (continued)The System uses a direct cost approach to estimate its postretirement benefit obligation forinternally provided services. Externally provided service liabilities are based on the System’shistorical cost experience. The annual assumed health care cost trend rate for internally providedservices is 8.25% and is assumed to decrease by approximately 0.50% per year to an ultimaterate of 4.75% in 2013. The health care cost trend rate for externally provided services is 9.25%and is assumed to decrease by approximately 0.50% per year to an ultimate rate of 5.75% in2013 and thereafter. A one-percentage-point increase or decrease in the health care cost trend ratewould have increased or decreased the December 31, 2007 service and interest costs in total by$2.1 million and $1.5 million, respectively, and the December 31, 2006 accumulatedpostretirement benefit obligation by $2.0 million and $1.4 million, respectively.The System’s investment strategy for its pension asset balances the liquidity needs of the pensionplans with the long-term return goals necessary to satisfy future pension obligations. The targetasset allocation seeks to capture the equity premium granted by the capital markets over thelong-term while ensuring security of principal to meet near term expenses and obligationsthrough the fixed income allocation. The target allocation percentages of the investment pool tovarious sectors of the equity (40–80% target) and fixed income (20–45% target) markets oralternative investments (0–20% target) are designed to reduce volatility in the portfolio.The System’s pension portfolio return assumption of 8.5% is based on the targeted weightedaverage return of comparative market indices for the asset classes represented in the portfolioand discounted for pension expenses.The System expects to make contributions of $105.5 million to the defined benefit pension plansin 2008. Additional funding for other postretirement benefit plans is expected to be $2.3 millionin 2008. Pension and other postretirement benefit payments over the next five years, net of theaverage annual Medicare Part D subsidy of approximately $4.3 million, are estimated as follows:2008 – $54.2 million; 2009 – $54.0 million; 2010 – $55.7 million; 2011 – $59.3 million; 2012 –$70.0 million; and in the aggregate for the five years thereafter is $468.2 million.No plan assets are expected to be returned to the employer during 2008.33