AIG 2006 Annual Report Download - page 206

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
Discount Rate Methodology
15. Employee Benefits
Continued The projected benefit cash flows under the AIG Retirement Plan
were discounted using the spot rates derived from the Citigroup
The benefit obligations for non-U.S. plans reflect those assump- Pension Discount Curve as of December 31, 2006 and Decem-
tions that were most appropriate for the local economic environ- ber 31, 2005 and an equivalent single discount rate was derived
ments of each of the subsidiaries providing such benefits. resulting in the same liability. This single discount rate was
To measure the obligations at December 31, 2006 for AIG’s rounded to the nearest 25 basis points, namely 6.0 percent and
U.S. plans, an 8.0 percent annual rate of increase in the per 5.5 percent as of December 31, 2006 and December 31, 2005,
capita cost of covered medical benefits for pre-age-65 retirees, a respectively. The rates applied to other U.S. plans were not
6.7 percent annual rate of increase in the per capita cost of significantly different from those discussed above.
covered medical benefits for post-age-65 retirees and a 10.0 per- Japan represents over 62 percent of the liabilities of the
cent annual rate of increase in the per capita cost of retiree non-U.S. pension plans. The discount rate for Japan was selected
prescription drug coverage were used for 2007. These rates were by reference to the published Moody’s/S&P AA Corporate Bond
assumed to decrease gradually to 5.0 percent in 2013 and Universe at the measurement date having regard to the duration
remain at that level thereafter. of the plans’ liabilities.
To measure the obligations at December 31, 2005 for AIG’s The mortality assumption used to determine the obligations for
U.S. plans, a 9.0 percent annual rate of increase in the per capita the U.S. plans as of December 31, 2006 and December 31,
cost of covered medical benefit for pre-age-65 retirees, a 2005 was based on the RP2000 White Collar Combined Mortality
7.0 percent annual rate of increase in the per capita cost of Table projected to 2006. The mortality assumptions for AIG’s
covered medical benefits for post-age-65 retirees and an 11.0 per- non-U.S. plans vary by country. There was a change in the
cent annual rate of increase in the per capita cost of retiree mortality table assumption for Ireland, Japan, Taiwan and United
prescription drug coverage was used for 2006. Kingdom as of December 31, 2006 (November 30, 2006 for non-
The assumed range for 2007 with respect to the annual rates U.S. plans of sponsoring companies with a fiscal year-end date of
of increase in the per capita cost of covered healthcare benefits November 30, 2006). The assumptions used are expected to
of AIG’s non-U.S. plans is 6.0 to 8.0 percent. These rates are reasonably anticipate future mortality experience. No other signifi-
assumed to decrease gradually to 4.0 to 6.0 percent over the cant changes have been made for the December 31, 2006
next three years and remain at that level thereafter. obligations (November 30, 2006 obligations for non-U.S. plans of
A one percent point change in the assumed healthcare sponsoring companies with a fiscal year-end date of November 30,
cost trend rate would have the following effect on AIG’s 2006).
postretirement benefit obligations at December 31, (f) Funded Status: The funded status of the AIG defined benefit
2006* and 2005: plans is a comparison of the projected benefit obligations to the
One Percent One Percent assets related to the respective plan, if any. Effective Decem-
Increase Decrease ber 31, 2006, AIG has adopted FAS 158 ‘‘Employers’ Accounting
(in millions) 2006 2005 2006 2005 for Defined Benefit Pension and Other Postretirement Plans’’ — an
Non-U.S. plans $10 $8 $(7) $(6) amendment of FASB Statements No. 87, 88, 106 and 132(R). All
U.S. plans $3 $(2) $(3) $2 amounts shown are pre-tax, unless noted otherwise.
* At November 30, 2006, for non-U.S. plans with a fiscal year-end date of
November 30, 2006.
156 AIG 2006 Form 10-K