The National Society of Institutional Investment Professionals 15th Annual Summit Panel Discussion: LDI- Should we Hedge All or a Portion of Liabilities? Mitch Stone, Fluor Corporation

Fluor Corporation Fluor is a FORTUNE 500 company that delivers engineering, procurement, construction, maintenance, and project management services to clients around the world Founded almost 100 years ago (1912) Today: 60 global office locations employing over 40,000 employees Fluor Business Segments: Energy & Chemicals, Industrial & Infrastructure, Government, Power and Global Services Revenue: $5.4B (Q3-2009); Market Cap: $7.9B

Plan Overview Retirement Plans Defined Contribution is Fluor’s prospective vehicle Defined Benefit is legacy All Plans are closed (freezing accruals is being considered) Risk mitigation Stick with our core business US, UK, Holland, Australia, Germany Total Assets = $1.2B Funded Status = all in excess of US GAAP ABO Investment Strategies are designed locally and confirmed by HQ LDI is actively implemented in the US and Holland Other countries are analyzing (UK - Triggers)

LDI – Can “all” be hedged? Hedging “all” risk is difficult due to the following: Liability Assumptions Mortality and Salary Growth – even though the assumption itself can be hedged, the actual outcome may vary significantly from the initial assumption Discount Rate – the liabilities will be valued on a pool of presumably high-grade bonds that never default; assets will be subject to defaults Funding Status – fully hedging underfunded plans’ liability results in leverage Benefit Accruals – frozen/closed plans are easier to hedge than open plans as the liabilities are somewhat easier to quantify

LDI – Optimal Level of Hedging Optimal Hedging Level: 50-80% depending on Plan being open or closed Funding Status Law of Diminishing Returns – benefits become spurious Interest Rate Risk is easiest to hedge Physical bond market and derivative markets are deep Mortality swaps are gaining popularity in UK

US LDI Implementation 2006-2008 2009 Asset Allocation: 60% Equity, 40% Fixed Income Hedged Plan’s duration via US Treasury Interest Rate Swaps, coupled with the natural duration provided by the physical Fixed Income securities 70% - 80% Target Hedge 2009 Liquidated Interest Rate Swaps – realized gains Treasuries AAA-rating mismatched to AA-rated discount rate New Asset Allocation: 30% Equity, 70% Fixed Income Hedged interest rate risk via physical Long Credit (AA portfolio)