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|ALTRIA GROUP, INC. filed this Form 8-K on 02/01/2018|
Altria Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following assumptions were used to determine Altria Group, Inc.’s net periodic benefit cost for the years ended December 31:
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plans. A one-percentage-point change in assumed health care cost trend rates would have had the following effects as of December 31, 2017:
▪Defined Contribution Plans: Altria Group, Inc. sponsors deferred profit-sharing plans covering certain salaried, non-union and union employees. Contributions and costs are determined generally as a percentage of earnings, as defined by the plans. Amounts charged to expense for these defined contribution plans totaled $83 million, $93 million and $85 million in 2017, 2016 and 2015, respectively.
▪Pension Plan Assets: Altria Group, Inc.’s investment strategy for its pension plan assets is based on an expectation that equity securities will outperform debt securities over the long term. Altria Group, Inc. believes that it implements the investment strategy in a prudent and risk-controlled manner, consistent with the fiduciary requirements of the Employee Retirement Income Security Act of 1974, by investing retirement plan assets in a well-diversified mix of equities, fixed income and other securities that reflects the impact of the demographic mix of plan participants on the benefit obligation using a target asset allocation between equity securities and fixed income investments of 55%/45%. The composition of Altria Group, Inc.’s plan assets at December 31, 2017 was broadly characterized as an allocation between equity securities (59%), corporate bonds (30%) and U.S. Treasury and foreign government securities (11%). Virtually all pension assets can be used to make monthly benefit payments.
Altria Group, Inc.’s investment objective for its pension plan assets is accomplished by investing in U.S. and international equity index strategies that are intended to mirror indices such as the Standard & Poor’s 500 Index, Russell Small Cap Completeness Index, Research Affiliates Fundamental Index (“RAFI”) Low Volatility U.S. Index, and Morgan Stanley Capital International (“MSCI”) Europe, Australasia, and the Far East (“EAFE”) Index. Altria Group, Inc.’s pension plans also invest in actively managed international equity securities of large, mid and small cap companies located in developed and emerging markets, as well as long duration fixed income securities that primarily include corporate bonds of companies from diversified industries. The allocation to below investment grade securities represented 16% of the fixed income holdings or 7% of total plan assets at December 31, 2017. The allocation to emerging markets represented 4% of the equity holdings or 3% of total plan assets at December 31, 2017.
Altria Group, Inc.’s risk management practices for its pension plans include ongoing monitoring of asset allocation, investment performance and investment managers’ compliance with their investment guidelines, periodic rebalancing between equity and debt asset classes and annual actuarial re-measurement of plan liabilities.
Altria Group, Inc.’s expected rate of return on pension plan assets is determined by the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class. The forward-looking estimates are consistent with the overall long-term averages exhibited by returns on equity and fixed income securities. Altria Group, Inc. has reduced this assumption from 8.0% to 7.8% for determining its pension net periodic benefit cost for 2018.