Travelers 2005 Annual Report Download - page 206

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
194
14. PENSION PLANS,RETIREMENT BENEFITS AND SAVINGS PLANS
On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(2003 Medicare Act) was enacted. The 2003 Medicare Act introduces a prescription drug benefit under
Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a
benefit that is at least actuarially equivalent to Medicare Part D. The Company has concluded that
prescription drug benefits available under the SPC postretirement benefit plan are actuarially equivalent to
Medicare Part D and thus qualify for the federal subsidy under the 2003 Medicare Act. The Company also
expects that the Federal subsidy will offset or reduce the Company’s share of the cost of the underlying
postretirement prescription drug coverage on which the subsidy is based. As a result, the estimated effect
of the 2003 Medicare Act was reflected in the purchase accounting remeasurement of the SPC
postretirement benefit plan on April 1, 2004. The effect of this adjustment was a $29 million reduction
(with no tax effect) in the accumulated postretirement benefit obligation as of April 1, 2004 and a
reduction of $2 million in net periodic postretirement benefit cost for the year ended December 31, 2004.
See note 1.
Componentsof Net Periodic Benefit Cost
The following table summarizes the components of net benefit expense recognized in the consolidated
statement of income for the benefit plans for the years ended December 31, 2005, 2004 and 2003.
Pension Plans Postretirement Benefit Plans
(inmillions) 2005 2004 2003 2005 2004 2003
Service cost.................................... $ 61 $49 $28$ 4$ 2$ —
Interest cost onbenefit obligation................ 103 89 37 19 14 1
Expected return on plan assets ................... (139) (117) (39) (2 ) (1 )—
Amortization of unrecognized:
Prior service cost ............................. (6) (6) (6) — — —
Net actuarial loss. ............................ 1 9 5
— — —
Net benefit expense ........................ $ 20 $24 $25$ 21 $ 1 5$ 1
Plan Assets
The percentage of the fair value of pension plan assets held by asset category is as follows:
(at December 31,) 2005 2004
Equity securities ........................................... 62 %66 %
Debt securities............................................ 27 %30 %
Cash ..................................................... 8 %2 %
Other.................................................... 3 %2 %
Total................................................... 100 %100 %
Pension plan assets are invested for the exclusive benefit of the plan participants and beneficiaries and
are intended, over time, to satisfy the benefit obligations under the plan. Risk tolerance is established
through consideration of plan liabilities, plan funded status, and corporate financial condition. The asset
mix guidelines have been established and are reviewed quarterly. These guidelines are intended to serve as
tools to facilitate the investment of plan assets to maximize long-term total return and the ongoing
oversight of the plan’s investment performance. The investment portfolio contains a diversified mix of
(Continued)