The Hartford 2013 Annual Report Download - page 224

F-88
18. Employee Benefit Plans
The Company maintains The Hartford Retirement Plan for U.S. Employees, a U.S. qualified defined benefit pension plan (the “Plan”)
that covers substantially all U.S. employees hired prior to January 1, 2013. Effective for all employees who joined the Company on or
after January 1, 2001, a new component or formula was applied under the Plan referred to as the “cash balance formula”. The Company
began using the cash balance formula to calculate future pension benefits for services rendered on or after January 1, 2009 for all
employees hired before January 1, 2001. These amounts are in addition to amounts earned by those employees through December 31,
2008 under the traditional final average pay formula.
The Company also maintains non-qualified pension plans to provide retirement benefits previously accrued that are in excess of Internal
Revenue Code limitations.
Effective December 31, 2012, the Company amended the Plan to freeze participation and benefit accruals. As a result, employees do not
accrue further benefits under the cash balance formula of the plan after that date, although interest will continue to accrue to existing
account balances. Compensation earned by employees up to December 31, 2012 will be used for purposes of calculating benefits under
the Plan but there will be no future benefit accruals after that date. Participants as of December 31, 2012 will continue to earn vesting
credit with respect to their frozen accrued benefits as they continue to work. The freeze also applies to The Hartford Excess Pension Plan
II, the Company's non-qualified excess benefit plan for certain highly compensated employees.
The Company provides certain health care and life insurance benefits for eligible retired employees. The Company’s contribution for
health care benefits will depend upon the retiree’s date of retirement and years of service. In addition, the plan has a defined dollar cap
for certain retirees which limits average Company contributions. The Hartford has prefunded a portion of the health care obligations
through a trust fund where such prefunding can be accomplished on a tax effective basis. Effective January 1, 2002, Company-
subsidized retiree medical, retiree dental and retiree life insurance benefits were eliminated for employees with original hire dates with
the Company on or after January 1, 2002. The Company also amended its postretirement medical, dental and life insurance coverage
plans to no longer provide subsidized coverage for employees who retire on or after January 1, 2014.
Assumptions
Pursuant to accounting principles related to the Company’s pension and other postretirement obligations to employees under its various
benefit plans, the Company is required to make a significant number of assumptions in order to calculate the related liabilities and
expenses each period. The two economic assumptions that have the most impact on pension and other postretirement expense are the
discount rate and the expected long-term rate of return on plan assets. In determining the discount rate assumption, the Company utilizes
a discounted cash flow analysis of the Company’s pension and other postretirement obligations and currently available market and
industry data. The yield curve utilized in the cash flow analysis is comprised of bonds rated Aa or higher with maturities primarily
between zero and thirty years. Based on all available information, it was determined that 4.75% and 4.25% were the appropriate discount
rates as of December 31, 2013 to calculate the Company’s pension and other postretirement obligations, respectively. Accordingly, the
4.75% and 4.25% discount rates will also be used to determine the Company’s 2014 pension and other postretirement expense,
respectively.
The Company determines the expected long-term rate of return assumption based on an analysis of the Plan portfolio’s historical
compound rates of return since 1979 (the earliest date for which comparable portfolio data is available) and over 5 year and 10 year
periods. The Company selected these periods, as well as shorter durations, to assess the portfolio’s volatility, duration and total returns as
they relate to pension obligation characteristics, which are influenced by the Company’s workforce demographics. In addition, the
Company also applies long-term market return assumptions to an investment mix that generally anticipates 60% fixed income securities,
20% equity securities and 20% alternative assets to derive an expected long-term rate of return. Based upon these analyses, management
determined the long-term rate of return assumption to be 7.10%. This assumption will also be used to determine the Company's 2014
expense.
Weighted average assumptions used in calculating the benefit obligations and the net amount recognized as of December 31, 2013 and
2012 were as follows:
Pension Benefits Other Postretirement Benefits
2013 2012 2013 2012
Discount rate 4.75% 4.00% 4.25% 3.50%
Rate of increase in compensation levels —% 3.75% N/A N/A
Table of Contents THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)