Aetna 2006 Annual Report Download - page 70

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In 2005, we elected to pursue a direct contracting strategy with a PDP beginning in 2006 rather than file for the
direct federal subsidy, consistent with our strategy of offering a PDP as part of our overall product offerings to
consumers. The loss of the previously recognized savings from the federal subsidy was offset by the prescription
drug cost savings due to the direct contracting strategy and pursuant to FSP 106-2, the net impact was accounted for
as a negative prior service cost in 2005.
We used a September 30 measurement date for determining benefit obligations and the fair value of plan assets of
our pension and OPEB plans in 2006 and 2005. Beginning December 31, 2007, we will utilize an annual
measurement date of December 31 in accordance with FAS 158 (refer to Note 2 beginning on page 48 for
additional information).
The following table shows the changes in the benefit obligations during 2006 and 2005 for our pension and OPEB
plans. For the pension plans, the benefit obligation is the projected benefit obligation. For the OPEB plans, the
benefit obligation is the accumulated postretirement benefit obligation.
(Millions) 2006 2005 2006 2005
Benefit obligation, beginning of year 5,044.4$ 4,699.7$ 476.4$ 494.6$
Service cost 97.8 92.7 .3 .4
Interest cost 283.1 273.9 25.4 28.2
Actuarial (gain) loss (26.1) 240.1 (34.6) 16.9
Plan amendments - - (26.5) (1) (13.8)
Benefits paid (277.7) (262.0) (47.8) (49.9)
Benefit obligation, end of year 5,121.5$ 5,044.4$ 393.2$ 476.4$
Pension Plans OPEB Plans
(1) Represents a change in benefit plan offerings to current retirees participating in the retiree health plan. The reduction in the
benefit obligation will be recognized as a component of future net periodic benefit costs.
For 2006 and 2005, our pension plans had accumulated benefit obligations of approximately $5.1 billion and $5.0
billion, respectively.
We used the following weighted average assumptions to determine the benefit obligations of our pension and
OPEB plans at our measurement date (September 30) for 2006 and 2005:
2006 2005 2006 2005
Discount rate 5.98% 5.77% 5.85% 5.59%
Rate of increase in future compensation levels 4.51 4.51 - -
Pension Plans OPEB Plans
The discount rates used to determine the benefit obligation of our pension and OPEB plans at September 30, 2006
and 2005 were calculated using a yield curve at that date. The yield curve consisted of a series of individual
discount rates, with each discount rate corresponding to a single point-in-time, based on high quality bonds.
Projected benefit payments are discounted to the measurement date using the corresponding rate from the yield
curve. The discount rates differ for our pension and OPEB plans due to the nature of the projected benefit
payments for each plan.
The following table reconciles the beginning and ending balances of the fair value of plan assets during 2006 and
2005 for the pension and OPEB plans:
(Millions) 2006 2005 2006 2005
Fair value of plan assets, beginning of year 4,821.7$ 4,221.2$ 70.9$ 70.2$
Actual return of plan assets 523.4 597.6 3.3 2.7
Employer contributions 269.0 264.9 44.4 47.9
Benefits paid (277.7) (262.0) (47.8) (49.9)
Fair value of plan assets, end of yea
r
5,336.4$ 4,821.7$ 70.8$ 70.9$
Pension Plans OPEB Plans
Page 68