Unum 2014 Annual Report Download - page 40

38 UNUM • 2014 ANNUAL REPORT
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
to the extent the loss is outside of a corridor established in accordance with GAAP. The corridor for the pension and OPEB plans is established
based on the greater of 10 percent of the plan assets or 10 percent of the benefit obligation. At December 31, 2014, $403.7 million of the
actuarial loss was outside of the corridor for the U.S. plans and £6.9 million was outside of the corridor for the U.K. plan. At December 31, 2014,
none of the actuarial loss was outside of the corridor for the OPEB plan.
The fair value of plan assets in our U.S. qualified defined benefit pension plan was $1,473.7 million at December 31, 2014, compared
to $1,590.7 million at December 31, 2013. The plan was in a $245.1 million underfunded position at December 31, 2014 compared to an
overfunded position of $13.4 million at December 31, 2013. This year-over-year change was due primarily to the decrease in the discount
rate and the adoption of updated mortality assumptions.
The fair value of plan assets in our U.K. pension plan was £158.1 million at December 31, 2014, compared to £136.4 million at
December 31, 2013. The U.K. pension plan was in an overfunded position of £12.4 million and £10.3 million at December 31, 2014
and 2013, respectively.
The fair value of plan assets in our OPEB plan was $11.3 million at December 31, 2014, compared to $11.4 million at December 31,
2013. These assets represent life insurance contracts to fund the life insurance benefit portion of our OPEB plan. Our OPEB plan represents
a non-vested, non-guaranteed obligation, and current regulations do not require specific funding levels for these benefits, which are
comprised of retiree life, medical, and dental benefits. It is our practice to use general assets to pay medical and dental claims as they
come due in lieu of utilizing plan assets for the medical and dental benefit portions of our OPEB plan.
See Executive Summary and Note 9 of the “Notes to Consolidated Financial Statements” contained herein for further discussion of
our plans.
Income Taxes
We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. In evaluating
the ability to recover deferred tax assets, we have considered all available positive and negative evidence including past operating results,
the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income, and prudent and feasible tax
planning strategies. In the event we determine that we most likely would not be able to realize all or part of our deferred tax assets in the
future, an increase to the valuation allowance would be charged to earnings in the period such determination is made. Likewise, if it is later
determined that it is more likely than not that those deferred tax assets would be realized, the previously provided valuation allowance
would be reversed. As of December 31, 2014 and 2013, we had no valuation allowance.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws in a multitude
of jurisdictions, both domestic and foreign. The amount of income taxes we pay is subject to ongoing audits in various jurisdictions,
and a material assessment by a governing tax authority could affect profitability.
GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in income tax returns. The evaluation of a tax position is a two step process. The first step is
to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of
the position. The second step is to measure a position that satisfies the recognition threshold at the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more likely than not
threshold but that now satisfy the recognition threshold are recognized in the first subsequent financial reporting period in which that
threshold is met. Previously recognized tax positions that no longer meet the more likely than not recognition threshold are derecognized
in the first subsequent financial reporting period in which that threshold is no longer met. If a previously recognized tax position is settled
for an amount that is different from the amount initially measured, the difference will be recognized as a tax benefit or expense in the
period the settlement is effective.
See Note 7 of the “Notes to Consolidated Financial Statements” contained herein.