Citigroup Inc.

A one-percentage-point change in the discount rates would have the following effects on pension expense:One-percentage-point increaseOne-percentage-point decreaseIn millions of dollars 2010 2009 2008 2010 2009 2008Effect on pension expense for U.S. plans (1) $ 19 $ 14 $ 36 $(34) $(27) $(24)Effect on pension expense for non-U.S. plans (49) (40) (58) 56 62 94(1) Due to the freeze of the U.S. qualified pension plan commencing January 1, 2008, the majority of the prospective service cost has been eliminated and the gain/loss amortization period was changed to the lifeexpectancy for inactive participants. As a result, pension expense for the U.S. qualified pension plan is driven more by interest costs than service costs, and an increase in the discount rate would increase pensionexpense, while a decrease in the discount rate would decrease pension expense.Assumed health-care cost-trend rates were as follows:2010 2009Health-care cost increase rate U.S. plansFollowing year 9.50% 8.00%Ultimate rate to which cost increase is assumedto decline 5.00 5.00Year in which the ultimate rate is reached 2020 2016A one-percentage-point change in assumed health-care cost-trend rateswould have the following effects:One-percentagepointincreaseOne-percentagepointdecreaseIn millions of dollars 2010 2009 2010 2009Effect on benefits earned and interest costfor U.S. plans $ 3 $ 3 $ (2) $ (3)Effect on accumulated postretirementbenefit obligation for U.S. plans 49 60 (44) (49)Expected Rate of ReturnCitigroup determines its assumptions for the expected rate of return on planassets for its U.S. pension and postretirement plans using a “building block”approach, which focuses on ranges of anticipated rates of return for eachasset class. A weighted range of nominal rates is then determined based ontarget allocations to each asset class. Market performance over a number ofearlier years is evaluated covering a wide range of economic conditions todetermine whether there are sound reasons for projecting any past trends.Citigroup considers the expected rate of return to be a long-termassessment of return expectations and does not anticipate changing thisassumption annually unless there are significant changes in investmentstrategy or economic conditions. This contrasts with the selection ofthe discount rate, future compensation increase rate, and certain otherassumptions, which are reconsidered annually in accordance with generallyaccepted accounting principles.The expected rate of return for the U.S. pension and post-retirement planswas 7.5% at December 31, 2010, 7.75% at December 31, 2009 and 7.75% atDecember 31, 2008, reflecting a change in investment allocations. Actualreturns in 2010 were more than the expected returns, while actual returnsin 2009 and 2008 were less than the expected returns. This expected amountreflects the expected annual appreciation of the plan assets and reducesthe annual pension expense of Citigroup. It is deducted from the sum ofservice cost, interest and other components of pension expense to arrive atthe net pension (benefit) expense. Net pension (benefit) expense for the U.S.pension plans for 2010, 2009 and 2008 reflects deductions of $874 million,$912 million and $949 million of expected returns, respectively.The following table shows the expected versus actual rate of return onplan assets for the U.S. pension and postretirement plans:2010 2009 2008Expected rate of return (1) 7.75% 7.75% 7.75%Actual rate of return (2) 14.11% (2.77)% (5.42)%(1) As of December 31, 2010, the Company lowered its expected rate of return to 7.5%.(2) Actual rates of return are presented gross of fees.For the non-U.S. plans, pension expense for 2010 was reduced bythe expected return of $378 million, compared with the actual return of$432 million. Pension expense for 2009 and 2008 was reduced by expectedreturns of $336 million and $487 million, respectively. Actual returns werehigher in 2009, but lower in 2008, than the expected returns in those years.The expected long-term rates of return on assets used in determining theCompany’s pension expense are shown below:2010 2009Rate of return on assetsU.S. plans (1) 7.50% 7.75%Non-U.S. pension plansRange 1.75 to 13.00 2.50 to 13.00Weighted average 6.96 7.31(1) Weighted-average rates for the U.S. plans equal the stated rates. As of December 31, 2010, theCompany lowered its expected rate of return to 7.50%.194