Aflac 2007 Annual Report Download - page 74

Equity securities held by our U.S. plan included $4 million
(2.5% of plan assets) of Aflac Incorporated common stock at
December 31, 2007, compared with $3 million (2.2% of plan
assets) at December 31, 2006. Target asset allocations for U.S.
plan assets are 60% to 65% equity securities, 35% to 40%
fixed-income securities and 0% to 3% cash and cash
equivalents. Target asset allocations for Japanese plan assets
are 34% equity securities and 66% fixed-income securities. As
discussed below, the investment strategy of our pension plans
is long-term in nature.
The investment objective of our U.S. and Japanese plans is to
preserve the purchasing power of the plan’s assets and earn a
reasonable inflation adjusted rate of return over the long
term. Furthermore, we seek to accomplish these objectives in
a manner that allows for the adequate funding of plan
benefits and expenses. In order to achieve these objectives,
our goal is to maintain a conservative, well-diversified and
balanced portfolio of high-quality equity, fixed-income and
money market securities. As a part of our strategy, we have
established strict policies covering quality, type and
concentration of investment securities. For our U.S. plan, these
policies prohibit investments in precious metals, limited
partnerships, venture capital, and direct investments in real
estate. We are also prohibited from trading on margin. For our
Japanese plan, these policies include limitations on
investments in derivatives including futures, options and
swaps, and low-liquidity investments such as real estate,
venture capital investments, and privately issued securities.
We monitor the U.S. plan’s performance over a three- to five-
year period utilizing shorter time frame performance
measures to identify trends. We review investment
performance and compliance with stated investment policies
and practices on a quarterly basis. The specific investment
objectives for the U.S. pension plan are: to exceed a composite
of asset class target returns, weighted according to the plan’s
target asset allocation; and to outperform the median fund
from a universe of similarly managed corporate pension funds.
Both objectives are measured over a rolling three- to five-year
period. We monitor the Japanese plan’s asset allocation and
compliance with stated investment policies and practices. The
Japanese plan’s performance is reviewed on a quarterly basis
by asset allocation. The specific investment objective for the
Japanese plan is to outperform the projected long-term rate
of return used to determine the Japanese plan’s pension
obligation.
Expected future benefit payments for the U.S. and Japanese
plans are as follows:
(In millions) Japan U.S.
2008 $ 3 $ 4
2009 3 4
2010 3 5
2011 4 5
2012 4 6
2013 - 2017 24 38
The components of retirement expense and actuarial
assumptions for the Japanese and U.S. pension plans for the
years ended December 31 were as follows:
2007 2006 2005
(In millions) Japan U.S. Japan U.S. Japan U.S.
Components of net periodic
benefit cost:
Service cost $9 $10 $8 $9 $9 $7
Interest cost 310 39 3 8
Expected return on
plan assets (2) (10) (1) (7) (1) (6)
Amortization of
net loss 1423 2 2
Net periodic benefit cost $11 $14 $ 12 $ 14 $ 13 $ 11
Weighted-average actuarial assumptions
used in the calculations:
Discount rate – net periodic
benefit cost 2.5% 5.5% 2.5% 5.5% 2.5% 6.0%
Discount rate – benefit
obligations 2.5 6.0 2.5 5.5 2.5 5.5
Expected long-term return
on plan assets 2.5 8.0 2.5 8.0 2.5 8.0
Rate of compensation
increase N/A* 4.0 N/A* 4.0 N/A* 4.0
*Not applicable
In Japan, participant salary and future salary increases are not
factors in determining pension benefit cost or the related
pension benefit obligation.
We base the long-term rate of return on U.S. plan assets on
the historical rates of return over the last 15 years and the
expectation of similar returns over the long-term investment
goals and objectives of U.S. plan assets. We base the long-term
rate of return on the Japanese plan assets on the historical
rates of return over the last 10 years.
In addition to the benefit obligations for funded employee
plans, we also maintain unfunded supplemental retirement
plans for certain officers and beneficiaries. Retirement expense
for these unfunded supplemental plans was $5 million in
2007, $16 million in 2006 and $20 million in 2005. The
accrued retirement liability for the unfunded supplemental
retirement plans was $204 million at December 31, 2007,
compared with $209 million a year ago. The assumptions used
in the valuation of these plans were the same as for the
funded plans.
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