Unum 2014 Annual Report Download - page 37

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UNUM • 2014 ANNUAL REPORT 35
There are a number of significant risks inherent in the process of monitoring our investments for impairments and determining when
and if an impairment is other than temporary. These risks and uncertainties include the following possibilities:
• The assessment of a borrower’s ability to meet its contractual obligations will change.
• The economic outlook, either domestic or foreign, may be less favorable or may have a more signicant impact on the borrower
than anticipated, and as such, the investment may not recover in value.
• New information may become available concerning the security, such as disclosure of accounting irregularities, fraud, or corporate
governance issues.
• Signicant changes in credit spreads may occur in the related industry.
• Signicant increases in interest rates may occur and may not return to levels similar to when securities were initially purchased.
• Adverse rating agency actions may occur.
See Notes 1 and 3 of the “Notes to Consolidated Financial Statements” contained herein.
Pension and Postretirement Benefit Plans
We sponsor several defined benefit pension and other postretirement benefit (OPEB) plans for our employees, including non-qualified
pension plans. The U.S. qualified and non-qualified defined benefit pension plans comprise the majority of our total benefit obligation and
benefit cost. We have a separate defined benefit plan for eligible employees in our U.K. operation.
During 2013, our U.S. defined benefit pension plans were closed to new entrants and were amended to freeze participation
and benefit accruals as of December 31, 2013. In 2014, we further amended our U.S. qualified defined benefit pension plan to allow a
limited-time offer of benefit payouts to eligible former employees with a vested right to a pension benefit. The offer provided eligible
former employees, regardless of age, with an option to elect to receive a lump-sum settlement of his or her entire accrued pension
benefit in December 2014 or to elect receipt of monthly pension benefits commencing in January 2015. For those who elected to receive
lump-sum settlements, distributions from plan assets were made on or before December 31, 2014.
The U.K. defined benefit pension plan was closed to new entrants effective December 31, 2002 and was amended in 2013 to freeze
participation effective June 30, 2014 and to reduce the maximum rate of inflation indexation from 5.0 percent to 2.5 percent for pension
benefits which were earned prior to April 1997 effective at the date of adoption in 2013.
Assumptions
Our net periodic benefit costs and the value of our benefit obligations for these plans are determined based on a set of economic
and demographic assumptions that represent our best estimate of future expected experience. Major assumptions used in accounting for
these plans include the expected discount (interest) rate, the long-term rate of return on plan assets, and mortality rates. We also use, as
applicable, expected increases in compensation levels and a weighted average annual rate of increase in the per capita cost of covered
benefits, which reflects a health care cost trend rate, and the U.K. pension plan also uses expected cost of living increases to plan benefits.