FORM 10-K IMPERIAL OIL LIMITED

Assumptions
Other post-retirement
Pension benefits
benefits
millions of dollars 2004 2003 2002 2004 2003 2002
Assumptions used to determine benefit obligations at December 31 ( p e rc e n t )
Discount rate 5.75 6.25 5.75 6.25
Long-term rate of compensation increase 3.50 3.50 3.50 3.50
Assumptions used to determine net benefit cost for years
ended December 31 ( p e rc e n t )
Discount rate 6.25 6.25 6.75 6.25 6.25 6.75
Long-term rate of compensation increase 3.50 3.50 3.50 3.50 3.50 3.50
Long-term rate of return on funded assets 8.25 8.25 8.25 – – –
(a) A summary of net benefit costs with elements of employee future benefit cost before and after adjustments to recognize the long-term nature of
employee benefit cost is shown in the table below:
Pension benefits
Other post-retirement benefits
millions of dollars 2004 2003 2002 2004 2003 2002
Components of net benefit cost:
Current service cost 76 71 64 6 5 4
Interest cost 237 219 222 24 22 21
Actual return on plan assets (315) (377) 107 – – –
Plan amendments for prior service 37 – 27 – – –
Actuarial loss/(gain) 405 171 196 47 19 25
Elements of employee future benefit costs before
adjustments to recognize the long-term nature of
employee future benefit costs 440 84 616 77 46 50
Adjustments to recognize the long-term natur e
of employee future benefit costs:
Difference between expected return and actual return
on plan assets for the year 92 198 (298) – – –
Difference between amortization of prior service costs
for the year and actual plan amendments for the year (10) 25 (2) – – –
Difference between actuarial (gain)/loss recognized
for the year and actuarial (gain)/loss on accrued benefit
obligation for the year (337) (102) (162) (43) (16) (24)
Net benefit cost 185 205 154 34 30 26
(b) U n re c o rded assets/(liabilities) are amortized over the average remaining service life of employees, which for 2005 and subsequent years is 13 years
(2004 – 13 years; 2003 – 13.5 years).
Plan assets
The company’s pension plan asset allocation at December 31, 2003 and 2004, and target allocation for 2005 are as follows:
Target Percentage of plan assets
allocation at December 31
Asset category ( p e rc e n t ) 2005 2004 2003
Equities 50 – 75 62 62
Bonds 25 – 50 38 38
Other 0 – 10 – –
Total 100 100
The company establishes the long-term expected rate of return by developing a forward-looking long-term return assumption for each
asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term
rate of return is then calculated as the weighted average of the target asset allocation and the long-term return assumption for each
asset class. The 2004 long-term expected return of 8.25 percent used in the calculations of pension expense compares to an actual rate
of return over the past decade of 10.7 percent.
The company’s investment strategy for benefit plan assets reflects a long-term view, a careful assessment of the risks inherent in various
asset classes and broad diversification to reduce the risk of the total portfolio. The company primarily invests in funds that follow an
index-based strategy to achieve its objectives of diversifying risk while minimizing costs. The fund holds Imperial Oil Limited common
s h a res only to the extent necessary to replicate the relevant equity index. Asset-liability studies, or simulations of the interaction of cash
flows associated with both assets and liabilities, are periodically used to establish the pre f e rred target asset allocation. The target asset
allocation for equity securities reflects the long-term nature of the liability. The balance of the fund is targeted to debt securities.
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