Download Annual Report PDF - Heinz

Deferred gains and losses result from actual experience differing from expected financial and
actuarial assumptions. The pension plans currently have a deferred loss amount of $910 million at
April 27, 2011. Deferred gains and losses are amortized through the actuarial calculation into annual
expense over the estimated average remaining service period of plan participants, which is currently
9 years. However, if all or almost all of a plan’s participants are inactive, deferred gains and losses are
amortized through the actuarial calculation into annual expense over the estimated average
remaining life expectancy of the inactive participants.
The Company’s investment policy specifies the type of investment vehicles appropriate for the
Plan, asset allocation guidelines, criteria for the selection of investment managers, procedures to
monitor overall investment performance as well as investment manager performance. It also
provides guidelines enabling Plan fiduciaries to fulfill their responsibilities.
The Company’s defined benefit pension plans’ weighted average asset allocation at April 27,
2011 and April 28, 2010 and weighted average target allocation were as follows:
Target
Plan Assets at Allocation at
Asset Category 2011 2010 2011 2010
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62% 58% 58% 63%
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32% 29% 32% 35%
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% 1% 9% 1%
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% 12% 1% 1%
100% 100% 100% 100%
(1) Plan assets at April 28, 2010 in the Other asset category include 11% of cash which reflects
significant cash contributions to the pension plans prior to the end of Fiscal 2010.
The Company also provides certain postretirement health care benefits. The postretirement
health care benefit expense and obligation are determined using the Company’s assumptions
regarding health care cost trend rates. The health care trend rates are developed based on
historical cost data, the near-term outlook on health care trends and the likely long-term trends.
The postretirement health care benefit obligation at April 27, 2011 as determined using an average
initial health care trend rate of 7.4% which gradually decreases to an average ultimate rate of 4.8% in
6 years. A one percentage point increase in the assumed health care cost trend rate would increase
the service and interest cost components of annual expense by $2 million and increase the benefit
obligation by $16 million. A one percentage point decrease in the assumed health care cost trend rates
would decrease the service and interest cost by $1 million and decrease the benefit obligation by
$14 million.
The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010,
and on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA) was
signed into law, which amends certain aspects of the PPACA. Among other things, the PPACA
reduces the tax benefits available to an employer that receives the Medicare Part D subsidy. As a
result of the PPACA, the Company was required to recognize in Fiscal 2010 tax expense of $4 million
(approximately $0.01 per share) related to reduced deductibility in future periods of the
postretirement prescription drug coverage. The PPACA and HCERA (collectively referred to as
the Act) will have both immediate and long-term ramifications for many employers that provide
retiree health benefits.
34