AIG 2014 Annual Report Download - page 327

ITEM 8 / NOTE 22. EMPLOYEE BENEFITS
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The following table presents the weighted average assumptions used to determine the net periodic benefit costs:
Pension Postretirement
At December 31, U.S. Plans Non-U.S. Plans*U.S. Plans Non-U.S. Plans*
2014
Discount rate 4.83 % 2.77 % 4.59 % 4.77 %
Rate of compensation increase 3.50 % 2.89 % N/A 3.34 %
Expected return on assets 7.25 % 2.93 % N/A N/A
2013
Discount rate 3.93 % 2.62 % 3.67 % 3.45 %
Rate of compensation increase 4.00 % 2.86 % N/A 3.55 %
Expected return on assets 7.25 % 2.60 % N/A N/A
2012
Discount rate 4.62 % 3.02 % 4.51 % 4.19 %
Rate of compensation increase 4.00 % 2.94 % N/A 3.61 %
Expected return on assets 7.25 % 2.91 % N/A N/A
* The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of the subsidiaries providing such benefits.
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, 2014 and 2013, which resulted in a single discount rate that would
produce the same liability at the respective measurement dates. The discount rates were 3.95 percent at December 31, 2014
and 4.84 percent at December 31, 2013. The 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 are nonexistent.
The projected benefit obligation for Japan represents approximately 47 percent and 51 percent of the total projected benefit
obligations for our non-U.S. pension plans at December 31, 2014 and 2013, respectively. The weighted average discount rate
of 1.22 percent and 1.39 percent at December 31, 2014 and 2013 respectively for Japan was selected by reference to the AA
rated corporate bonds reported by Rating and Investment Information, Inc. based on the duration of the plans’ liabilities.
Plan Assets
The investment strategy with respect to assets relating to our 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 applicable to each asset
class. The assessment of the expected rate of return for all our plans is long-term and thus is not expected to change
annually; however, significant changes in investment strategy or economic conditions may warrant such a change.
There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at December 31, 2014 or
2013.
U.S. Pension Plan
The long-term strategic asset allocation is reviewed and revised approximately every three years. The plan’s assets are
monitored by the investment committee and actively managed by the investment managers, which includes allocating the
plan’s assets among approved asset classes within pre-approved ranges permitted by the strategic allocation.