Aetna 2013 Annual Report Download - page 34

Annual Report- Page 28
AA based on ratings from Standard and Poor's and Fitch Ratings, and the equivalent ratings from Moody's Investors
Service). We project the benefits expected to be paid from each plan at each point in the future based on each
participant's current service (but reflecting expected future pay increases). These projected benefit payments are
then discounted to the measurement date using the corresponding rate from the yield curve. A lower discount rate
increases the present value of benefit obligations. In 2013, we increased our weighted average discount rate to
4.96% for our pension plans from 4.17% used at the measurement date in 2012. In 2013, we increased our
weighted average discount rate on OPEB plans to 4.73% from 3.94% used at the measurement date in 2012. A one-
percentage point decrease in the assumed discount rate would decrease our annual pension costs by approximately
$1 million after-tax and would have a negligible effect on our annual OPEB costs.
At December 31, 2013, our pension and OPEB plans had aggregate accumulated actuarial losses of $2.0 billion.
Accumulated actuarial losses are primarily due to investment losses in 2008 and higher liabilities caused by lower
discount rates used to determine the present value of future plan obligations. The accumulated actuarial loss is
amortized over the expected life of pension plan participants (estimated to be up to 31 years at December 31, 2013
for the Aetna Pension Plan) and the expected life of OPEB plan participants (estimated to be up to 15 years at
December 31, 2013) to the extent the loss is outside of a corridor established in accordance with GAAP. The
corridor is established based on the greater of 10% of the plan assets or 10% of the projected benefit obligation. At
December 31, 2013, $1.3 billion of the actuarial loss was outside of the corridor, which will result in amortization
of approximately $31 million after-tax in our 2014 pension and OPEB expense.
The expected return on plan assets and discount rate assumptions discussed above impacted the reported net
periodic benefit costs and benefit obligations of our pension and OPEB plans, but did not impact the required
contributions to these plans, if any. Minimum funding requirements for the Aetna Pension Plan were met in 2013
and 2012, and we were not required to make cash contributions for either of those years. However, in each of 2013
and 2012, we made voluntary cash contributions of $60 million to the Aetna Pension Plan. Our non-qualified
supplemental pension plan and OPEB plans do not have minimum funding requirements.
Refer to Note 11 of Notes to Consolidated Financial Statements beginning on page 114 for additional information
on our defined benefit pension and other postretirement benefit plans.
Other-Than-Temporary Impairment of Debt Securities
We regularly review our debt securities to determine whether a decline in fair value below the carrying value is
other than temporary. If a decline in fair value is considered other than temporary, the cost basis or carrying amount
of the debt security is written down. The write-down is then bifurcated into its credit and non-credit related
components. The amount of the credit-related component is included in our operating results, and the amount of the
non-credit related component is included in other comprehensive income, unless we intend to sell the security or it
is more likely than not that we will be required to sell the security prior to its anticipated recovery. We analyze all
facts and circumstances we believe are relevant for each investment when performing this analysis, in accordance
with applicable accounting guidance promulgated by the Financial Accounting Standards Board and the U.S.
Securities and Exchange Commission (the “SEC”).
Among the factors we consider in evaluating whether a decline is other-than-temporary are whether the decline in
fair value results from a change in the quality of the debt security itself, whether the decline results from a
downward movement in the market as a whole, and the prospects for realizing the carrying value of the debt
security based on the investment's current and short-term prospects for recovery. For unrealized losses determined
to be the result of market conditions (for example, increasing interest rates and volatility due to conditions in the
overall market) or industry-related events, we determine whether we intend to sell the debt security or if it is more
likely than not that we will be required to sell the debt security before recovery of its cost basis. If either case is
true, we recognize an other-than-temporary impairment, and the cost basis/carrying amount of the debt security is
written down to fair value.
Debt securities in an unrealized loss position for which we believe we will not recover the amortized cost due to the
quality of the debt security or the credit-worthiness of the issuer are categorized as credit-related OTTI.