MetLife 2006 Annual Report Download - page 58

The increase in expense from 2004 to 2005 was primarily a result of increases in service and interest cost as well as increased
amortization of net actuarial losses resulting largely from lower discount rates. Despite a continued increase in amortization of net actuarial
losses due to lower discount rates in recent years, the other postretirement benefit expense decreased from 2005 to 2006 due to changes
in plan benefits that resulted in decreased service and interest cost and increases in amortization of prior service credits.
The estimated net actuarial losses and prior service credit for the other postretirement benefit plans that will be amortized from
accumulated other comprehensive income into net periodic benefit cost over the next year are $14 million and $36 million, respectively.
The weighted average discount rate used to calculate the net periodic postretirement cost was 5.82%, 5.98% and 6.20% for the years
ended December 31, 2006, 2005 and 2004, respectively.
The weighted average expected rate of return on plan assets used to calculate the net other postretirement benefit cost for the years
ended December 31, 2006, 2005 and 2004 was 7.42%, 7.51% and 7.91%, respectively. The expected rate of return on plan assets is
based on anticipated performance of the various asset sectors in which the plan invests, weighted by target allocation percentages.
Anticipated future performance is based on long-term historical returns of the plan assets by sector, adjusted for the Subsidiaries’ long-
term expectations on the performance of the markets. While the precise expected return derived using this approach will fluctuate from
year to year, the Subsidiaries’ policy is to hold this long-term assumption constant as long as it remains within reasonable tolerance from
the derived rate. The actual net return on the investments has been an approximation of the estimated return for the other postretirement
plans in 2006, 2005 and 2004.
Based on the December 31, 2006 asset balances, a 25 basis point increase (decrease) in the expected rate of return on plan assets
would result in a decrease (increase) in net periodic benefit cost of $3 million for the other postretirement plans.
Pension and Other Postretirement Benefit Plan Assets
Pension Plan Assets
Substantially all assets of the pension plans are invested within group annuity and life insurance contracts issued by the Subsidiaries.
The majority of assets are held in separate accounts established by the Subsidiaries. The account values of assets held with the
Subsidiaries were $6,205 million and $5,432 million as of December 31, 2006 and 2005, respectively. The terms of these contracts are
consistent in all material respects with those the Subsidiaries offer to unaffiliated parties that are similarly situated.
Net assets invested in separate accounts are stated at the aggregate fair value of units of participation. Such value reflects
accumulated contributions, dividends and realized and unrealized investment gains or losses apportioned to such contributions, less
withdrawals, distributions, allocable expenses relating to the purchase, sale and maintenance of the assets and an allocable part of such
separate accounts’ investment expenses.
Separate account investments in fixed income and equity securities are generally carried at published market value, or if published
market values are not readily available, at estimated market values. Investments in short-term fixed income securities are generally reflected
as cash equivalents and carried at fair value. Real estate investments are carried at estimated fair value based on appraisals performed by
third-party real estate appraisal firms, and generally, determined by discounting projected cash flows over periods of time and at interest
rates deemed appropriate for each investment. Information on the physical value of the property and the sales prices of comparable
properties is used to corroborate fair value estimates. Estimated fair value of hedge fund net assets is generally determined by third-party
pricing vendors using quoted market prices or through the use of pricing models which are affected by changes in interest rates, foreign
currency exchange rates, financial indices, credit spreads, market supply and demand, market volatility and liquidity.
The following table summarizes the actual and target weighted-average allocations of pension plan assets within the separate
accounts:
2006 2005 2007
Weighted
Average
Actual
Allocation
Weighted
Average
Target
Allocation
December 31,
Asset Category
Equitysecurities ....................................................... 42% 47% 30%-65%
Fixedmaturities........................................................ 42% 37% 20%-70%
Other .............................................................. 16% 16% 0%-25%
Total ............................................................. 100% 100%
Target allocations of assets are determined with the objective of maximizing returns and minimizing volatility of net assets through
adequate asset diversification. Adjustments are made to target allocations based on an assessment of the impact of economic factors and
market conditions
Other Postretirement Benefit Plan Assets
Substantially all assets of the other postretirement benefit plans are invested within life insurance and reserve contracts issued by the
Subsidiaries. The majority of assets are held in separate accounts established by the Subsidiaries. The account values of assets held with
the Subsidiaries were $1,116 million and $1,039 million as of December 31, 2006 and 2005, respectively. The terms of these contracts are
consistent in all material respects with those the Subsidiaries offer to unaffiliated parties that are similarly situated.
The valuation of separate accounts and the investments within such separate accounts invested in by the other postretirement plans
are similar to that described in the preceding section on pension plans.
55MetLife, Inc.