AIG 2011 Annual Report Download - page 363

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the weighted average assumptions used to determine the net periodic benefit costs:
Pension Postretirement
At December 31, Non-U.S. Plans(a) U.S. Plans Non-U.S. Plans(a) U.S. Plans
2011
Discount rate 2.25% 5.50(b)%4.00% 5.25(c)%
Rate of compensation increase 3.00% 4.00% 3.00% N/A
Expected return on assets 3.14% 7.50% N/A N/A
2010
Discount rate 2.75% 6.00% 3.75% 5.75%
Rate of compensation increase 3.50% 4.00% 3.75% N/A
Expected return on assets 3.75% 7.75% N/A N/A
2009
Discount rate 3.00% 6.00% 3.50% 6.00%
Rate of compensation increase 3.50% 4.25% 3.25% N/A
Expected return on assets 4.75% 7.75% N/A N/A
(a) The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of the subsidiaries providing such
benefits.
(b) As a result of plan amendments effective April 1, 2012, the AIG Retirement and AIG Excess Plans were remeasured utilizing a discount rate of
4.5 and 4.25 percent, respectively at September 30, 2011.
(c) As a result of a plan amendment effective April 1, 2012, the AIG Postretirement Plan was remeasured utilizing a discount rate of 4.5 percent at
September 30, 2011.
Discount Rate Methodology
The projected benefit cash flows under the U.S. AIG Retirement plan were discounted using the spot rates
derived from the Mercer Pension Discount Yield Curve at December 31, 2011 and the Citigroup Pension Discount
Curve rounded to the nearest 25 basis points at December 31, 2010, which resulted in a single discount rate that
would produce the same liability at the respective measurement dates. The discount rates were 4.62 percent at
December 31, 2011 and 5.5 percent at December 31, 2010. Each methodology was consistently applied for the
respective years in determining the discount rates for the other U.S. plans.
In general, the discount rates for non-U.S. pension plans were developed based on the duration of liabilities on
a plan by plan basis and were selected by reference to high quality corporate bonds in developed markets or local
government bonds where developed markets are not as robust or nonexistent.
The projected benefit obligation for Japan represents approximately 62 and 76 percent of the total projected
benefit obligations for AIG’s non-U.S. pension plans at December 31, 2011 and 2010, respectively. The weighted
average discount rate of 1.70 and 1.50 percent for Japan was selected by reference to the AA rated corporate
bonds reported by Rating and Investment Information, Inc. in 2011 and Moody’s/S&P in 2010 based on the
duration of the plans’ liabilities.
Plan Assets
The investment strategy with respect to assets relating to AIG’s U.S. and non-U.S. pension plans is designed to
achieve investment returns that will (a) provide for the benefit obligations of the plans over the long term;
(b) limit the risk of short-term funding shortfalls; and (c) maintain liquidity sufficient to address cash needs.
Accordingly, the asset allocation strategy is designed to maximize the investment rate of return while managing
various risk factors, including but not limited to, volatility relative to the benefit obligations, diversification and
concentration, and the risk and rewards profile indigenous to each asset class.
There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at
December 31, 2011 or 2010.
AIG 2011 Form 10-K 349