AIG 2005 Annual Report Download - page 171

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
15. Employee Benefits
Continued
The weighted average assumptions used to determine the benefit obligations at December 31, 2005 and 2004 were as follows:
Pension Postretirement
Non-U.S. U.S. Non-U.S. U.S.
Plans Plans Plans Plans
2005
Discount rate 1.75 - 12.00% 5.50% 4.50 - 5.50% 5.50%
Rate of compensation increase 1.50 - 10.00% 4.25% 2.50 - 3.00% 4.25%
2004
Discount rate 1.75 - 12.00% 5.75% 4.50 - 6.00% 5.75%
Rate of compensation increase 1.50 - 10.00% 4.25% 3.00% 4.25%
The benefit obligations outside the United States reflect derived from the Citigroup Pension Discount Curve as of
those assumptions that were most appropriate for the local December 31, 2005 and an equivalent single discount rate was
economic environments of each of the subsidiaries providing derived resulting in the same liability. This single discount rate
such benefits. was rounded to the nearest 25 basis points, namely 5.5 percent,
To measure the obligations at December 31, 2004, a and applied to all U.S. plans.
9.0 percent annual rate of increase in the per capita cost of Prior to using the Citigroup Pension Discount Curve in
covered healthcare benefits for AIG’s U.S. plans was used for 2005, the discount rate assumptions were based on the yield of
2005. This rate was assumed to decrease gradually to 5.0 per- the Moody’s Investor Service (Moody’s) Aa long-term corpo-
cent in 2009 and remain at that level thereafter. To measure rate bond index.
the obligations at December 31, 2005 for AIG’s U.S. plans, a
9.0 percent annual rate of increase in the per capita cost of Japan represents over 70 percent of the liabilities of the
covered medical benefits for pre-age-65 retirees, a 7.0 percent non-U.S. pension plans. The discount rate for Japan was
annual rate of increase in the per capita cost of covered selected by reference to the published Moody’s/S&P AA Cor-
medical benefits for post-age-65 retirees and an 11.0 percent porate Bond Universe at the measurement date having regard
annual rate of increase in the per capita cost of retiree to the duration of the plans’ liabilities.
prescription drug coverage was used for 2006. These rates were The mortality assumption for AIG’s U.S. plans has been
assumed to decrease gradually to 5.0 percent in 2013 and revised for the December 31, 2005 obligations. The 2004 and
remain at that level thereafter. 2005 expense and the obligations at December 31, 2004 were
The assumed range for 2006 with respect to the annual based on the 1983 Group Annuity Mortality Table. The
rates of increase in the per capita cost of covered healthcare December 31, 2005 obligations were based on the RP2000
benefits of AIG’s non-U.S. plans is 7.0 to 9.0 percent. These White Collar Combined Mortality Table projected to 2006.
rates are assumed to decrease gradually to 4.0 to 5.0 percent Due to continued improvements in life expectancy, the
after three to four years and remain at that level thereafter. updated table is expected to better represent AIG’s anticipated
A one percent point change in the assumed healthcare cost future experience under the plans. The mortality assumptions
for AIG’s non-U.S. plans vary by country. No changes have
trend rate would have the following effect on AIG’s postretire-
been made for the December 31, 2005 obligations. The
ment benefit obligations at December 31, 2005:
assumptions used are expected to reasonably anticipate future
One Percentage Point mortality experience.
(in millions) Increase Decrease (f) Funded Status: The funded status of the AIG defined
Non-U.S. plans $ 8 $(6) benefit plans is a comparison of the pension benefit obligations
U.S. plans $(2) $ 2 to the assets related to the respective plan, if any. The
difference between the two represents amounts that have been
Discount Rate Methodology appropriately recognized as expenses in prior periods or
represent amounts that will be recognized as expenses in the
The projected benefit cash flows under the AIG Retirement future.
Plan (the main US plan) were discounted using the spot rates
AIG m Form 10-K 119