The Hartford 2014 Annual Report Download - page 223

Table of Contents
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
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. 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 plan after that date, although interest will continue to accrue to existing cash balance formula account balances. Compensation earned by
employees up to December 31, 2012 is used for purposes of calculating benefits under the Plan but there are 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.
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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 4.00% and 3.75% were the appropriate discount
rates as of December 31, 2014 to calculate the Company’s pension and other postretirement obligations, 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% as of December 31, 2014 and 2013. To determine the
Company's 2015 expense, the Company plans to apply an expected long-term rate of return on plan assets of 6.90%.
Weighted average assumptions used in calculating the Company's benefit obligations and the net amount recognized were as follows:
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
   
Discount rate 4.00% 4.75% 3.75% 4.25%
Weighted average assumptions used in calculating the net periodic benefit cost for the Company’s pension plans were as follows:

  
Discount rate 4.75% 4.00% 4.50%
Expected long-term rate of return on plan assets 7.10% 7.10% 7.30%
Rate of increase in compensation levels —% 3.75% 3.75%
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