AIG 2005 Annual Report Download - page 176

Notes to Consolidated Financial Statements Continued
15. Employee Benefits
Continued
The weighted average assumptions used to determine the net periodic benefit costs for the years ended December 31, 2005,
2004, and 2003 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% 5.75% 4.50 - 6.00% 5.75%
Rate of compensation increase 1.50 - 10.00% 4.25% 3.00% 4.25%
Expected return on assets 2.15 - 13.50% 8.00% N/A N/A
2004
Discount rate 2.00 - 8.00% 6.00% 5.50 - 6.00% 6.00%
Rate of compensation increase 1.50 - 7.00% 4.25% 5.50% 4.25%
Expected return on assets 2.50 - 10.00% 8.25% N/A N/A
2003
Discount rate 2.00 - 8.00% 6.75% 5.50 - 6.00% 6.75%
Rate of compensation increase 1.50 - 7.00% 4.50% 5.50% 4.50%
Expected return on assets 3.00 - 10.00% 8.75% N/A N/A
* The benefit obligations outside the United States reflect those assumptions that were most appropriate for each local economic environment of the
subsidiaries providing such benefits.
AIG’s postretirement plans provide benefits primarily in the respect to such shares, and shares are subject to forfeiture under
form of defined employer contributions as opposed to defined certain conditions, including but not limited to the participant’s
employer benefits. As such, a change in the assumed health- voluntary termination of employment with AIG prior to normal
care cost trend rate has little effect on postretirement expense. retirement age. Under the SICO Plans, SICO’s Board of Directors
may elect to pay a participant cash in lieu of shares of AIG
common stock. Following notification from SICO to participants
16. Benefits Provided by Starr International
in the SICO Plans that it will settle specific future awards under
Company, Inc.
the SICO Plans with shares rather than cash, AIG modified its
SICO has provided a series of two-year Deferred Compensation accounting for the SICO Plans from variable to fixed measure-
Profit Participation Plans (SICO Plans) to certain AIG ment accounting. AIG gave effect to this change in settlement
employees. The SICO Plans came into being in 1975 when the method beginning on December 9, 2005, the date of SICO’s
voting shareholders and Board of Directors of SICO, a private notice to the SICO Plans’ participants. See also Note 12(f)
holding company whose principal asset is AIG common stock, herein.
decided that a portion of the capital value of SICO should be Prior to 2005, SICO also provided certain personal benefits
used to provide an incentive plan for the current and to AIG employees. The cost of such benefits, primarily
succeeding managements of all American International compa- attributable to personal use of corporate aircraft, has not been
nies, including AIG. included in compensation expense.
None of the costs of the various benefits provided under the Compensation expense with respect to the SICO Plans
SICO Plans has been paid by AIG, although AIG has recorded a aggregated $205 million, $62 million and $280 million for
charge to reported earnings for the deferred compensation 2005, 2004 and 2003, respectively.
amounts paid to AIG employees by SICO, with an offsetting As a result of its changing relationship with Starr and
entry to additional paid-in capital reflecting amounts deemed SICO, AIG is establishing new executive compensation plans
contributed by SICO. The SICO Plans provide that shares to replace the SICO plans and investment opportunities
currently owned by SICO may be set aside by SICO for the previously provided by Starr. The replacement plans include
benefit of the participant and distributed upon retirement. The both share-based plans and cash-based plans. In addition, these
SICO Board of Directors currently may permit an early payout of replacement plans generally include performance as well as
units under certain circumstances. Prior to payout, the participant service conditions.
is not entitled to vote, dispose of or receive dividends with
124 AIG m Form 10-K