MetLife 2007 Annual Report Download - page 67

Pension and Other Postretirement Net Periodic Benefit Cost
Pension Cost
Net periodic pension cost is comprised of the following:
i) Service Cost — Service cost is the increase in the projected pension benefit obligation resulting from benefits payable to
employees of the Subsidiaries on service rendered during the current year.
ii) Interest Cost on the Liability — Interest cost is the time value adjustment on the projected pension benefit obligation at the end
of each year.
iii) Expected Return on Plan Assets — Expected return on plan assets is the assumed return earned by the accumulated pension
fund assets in a particular year.
iv) Amortization of Prior Service Cost — This cost relates to the increase or decrease to pension benefit cost for service provided
in prior years due to amendments in plans or initiation of new plans. As the economic benefits of these costs are realized in the
future periods, these costs are amortized to pension expense over the expected service years of the employees.
v) Amortization of Net Actuarial Gains or Losses — Actuarial gains and losses result from differences between the actual
experience and the expected experience on pension plan assets or projected pension benefit obligation during a particular
period. These gains and losses are accumulated and, to the extent they exceed 10% of the greater of the projected pension
benefit obligation or the market-related value of plan assets, they are amortized into pension expense over the expected
service years of the employees.
The Subsidiaries recognized pension expense of $98 million in 2007 as compared to $180 million in 2006 and $146 million in 2005. The
major components of net periodic pension cost described above were as follows:
2007 2006 2005
Years Ended December 31,
(In millions)
Servicecost ...................................................... $166 $163 $142
Interestcost ...................................................... 354 335 318
Expectedreturnonplanassets.......................................... (507) (454) (446)
Amortizationofnetactuarial(gains)losses................................... 68 125 116
Amortizationofpriorservicecost(credit).................................... 17 11 16
Netperiodicbenefitcost............................................. $ 98 $180 $146
The increase in expense from 2005 to 2006 was primarily a result of both increases in service and interest cost and amortization of net
actuarial losses resulting largely from lower discount rates, partially offset by the impact of an increase in the expected return on plan
assets due to a larger plan assets base.
The decrease in expense from 2006 to 2007 was primarily the result of an increase in the expected return on plan assets and a
decrease in amortization of net actuarial losses resulting from the $350 million contribution made in 2006. The increase in the interest cost
resulted from the increase in the discount rate.
The estimated net actuarial losses and prior service cost for the defined benefit pension plans that will be amortized from accumulated
other comprehensive income into net periodic benefit cost over the next year are both $14 million.
The weighted average discount rate used to calculate the net periodic pension cost was 6.00%, 5.82% and 5.83% for the years ended
December 31, 2007, 2006 and 2005, respectively.
The weighted average expected rate of return on pension plan assets used to calculate the net periodic pension cost for the years
ended December 31, 2007, 2006 and 2005 was 8.25%, 8.25% and 8.50%, 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 pension plan in 2007,
2006 and 2005.
Based on the December 31, 2007 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 $15 million for the pension plans.
Other Postretirement Benefit Cost
The net periodic other postretirement benefit cost consists of the following:
i) Service Cost — Service cost is the increase in the expected postretirement plan benefit obligation resulting from benefits
payable to employees of the Subsidiaries on service rendered during the current year.
ii) Interest Cost on the Liability — Interest cost is the time value adjustment on the expected postretirement benefit obligation at
the end of each year.
iii) Expected Return on Plan Assets — Expected return on plan assets is the assumed return earned by the accumulated other
postretirement fund assets in a particular year.
iv) Amortization of Prior Service Cost — This cost relates to the increase or decrease to other postretirement benefit cost for
service provided in prior years due to amendments in plans or initiation of new plans. As the economic benefits of these costs
are realized in the future periods these costs are amortized to other postretirement benefit expense over the expected service
years of the employees.
v) Amortization of Net Actuarial Gains or Losses — Actuarial gains and losses result from differences between the actual
experience and the expected experience on other postretirement benefit plan assets or expected postretirement plan benefit
obligation during a particular year. These gains and losses are accumulated and, to the extent they exceed 10% of the greater
63MetLife, Inc.