Cigna 2011 Annual Report Download - page 110

88 CIGNA CORPORATION2011 Form10K
PART II
ITEM 8 Financial Statements and Supplementary Data
Components of net pension cost for the years ended December31 were as follows:
(In millions) 2011 2010 2009
Service cost $ 2 $ 2 $ 43
Interest cost 228 240 250
Expected long-term return on plan assets (267) (253) (239)
Amortization of:
Net loss from past experience 38 28 34
Prior service cost - - (4)
Curtailment - - (46)
NET PENSION COST $ 1 $ 17 $ 38
e Company expects to recognize pre-tax losses of $59million in
2012 from amortization of past experience. is estimate is based on a
weighted average amortization period for the frozen and inactive plans
of approximately 29 years, as this period is now based on the average
expected remaining life of plan participants.
Other postretirement benefits
Unfunded retiree health benet plans had accumulated benet
obligations of $302million at December31,2011, and $296million
at December31,2010. Retiree life insurance plans had accumulated
benet obligations of $150million as of December31,2011 and
$148million as of December31,2010.
Components of net other postretirement benet cost for the years
ended December31 were as follows:
(In millions) 2011 2010 2009
Service cost $ 2 $ 1 $ 1
Interest cost 20 22 24
Expected long-term return on plan assets (1) (1) (1)
Amortization of:
Net gain from past experience - - (5)
Prior service cost (16) (18) (18)
NET OTHER POSTRETIREMENT BENEFIT COST $ 5 $ 4 $ 1
e Company expects to recognize in 2012 pre-tax gains of $12million
related to amortization of prior service cost and no pre-tax losses from
amortization of past experience. e original amortization period is based
on an average remaining service period of active employees associated
with the other postretirement benet plans of approximately 9 years.
e weighted average remaining amortization period for prior service
cost is approximately 2.5 years.
e estimated rate of future increases in the per capita cost of health
care benets is 8% in 2012, decreasing by 0.5% per year to 5% in
2018 and beyond. is estimate reects the Company’s current claim
experience and management’s estimate that rates of growth will decline
in the future. A 1% increase or decrease in the estimated rate would
have changed 2011 reported amounts as follows:
(In millions) Increase Decrease
Eect on total service and interest cost $ 1 $ (1)
Eect on postretirement benet obligation $ 13 $ (11)
Plan assets
e Company’s current target investment allocation percentages (37%
equity securities, 30% xed income, 15% securities partnerships, 10%
hedge funds and 8% real estate) are developed by management as
guidelines, although the fair values of each asset category are expected
to vary as a result of changes in market conditions. e pension plan
asset portfolio has been most heavily weighted towards equity securities,
consisting of domestic and international investments, in an eort to
earn a higher rate of return on pension plan investments over the long-
term payout period of the pension benet obligations. During 2011,
the Company modied its target investment allocations, reducing the
target allocation to equity securities and increasing allocations to xed
income and other alternative investments, including hedge funds. e
further diversication of the pension plan assets from equity securities
into other investments is intended to mitigate the volatility in returns,
while also providing adequate liquidity to fund benet distributions.
As of December31,2011, pension plan assets included $3.0billion
invested in the separate accounts of Connecticut General Life Insurance
Company (“CGLIC”) and Life Insurance Company of North America,
which are subsidiaries of the Company, as well as an additional
$0.4billion invested directly in funds oered by the buyer of the
retirement benets business.
e fair values of plan assets by category and by the fair value hierarchy
as dened by GAAP are as follows. See Note10 for a description of
how fair value is determined, including the level within the fair value
hierarchy and the procedures the Company uses to validate fair value
measurements.
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