AIG 2009 Annual Report Download - page 336

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A one percent point change in the assumed healthcare cost trend rate would have the following effect on AIG’s
postretirement benefit obligations:
At December 31, One Percent One Percent
Increase Decrease
(in millions) 2009 2008 2009 2008
Non-U.S. plans $13 $14 $ (10) $ (11)
U.S. plans $5 $6 $(4) $(5)
AIG’s postretirement plans provide benefits primarily in the form of defined employer contributions rather than
defined employer benefits. Changes in the assumed healthcare cost trend rate are subject to caps for U.S. plans. AIG’s
non-U.S. postretirement plans are not subject to caps.
The following table presents the weighted average assumptions used to determine the net periodic benefit costs:
Pension Postretirement
At December 31,
Non-U.S. Plans(a) U.S. Plans Non-U.S. Plans(a) U.S. Plans
2009
Discount rate 2.00 - 15.00% 6.00%/6.25%(b) 1.50 - 7.25% 6.00%/6.25%(b)
Rate of compensation increase 2.50 - 10.00% 4.25% 3.00 - 4.00% 4.25%
Expected return on assets 2.75 - 12.50% 7.75% N/A N/A
2008
Discount rate 2.00 - 11.00% 6.50% 2.75 - 6.50% 6.50%
Rate of compensation increase 1.50 - 9.00% 4.25% 3.00 - 3.50% 4.25%
Expected return on assets 2.75 - 9.75% 7.75% N/A N/A
2007
Discount rate 2.25 - 10.75% 6.00% 4.00 - 5.75% 6.00%
Rate of compensation increase 1.50 - 10.00% 4.25% 3.00% 4.25%
Expected return on assets 2.50 - 10.50% 8.00% N/A N/A
(a) The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of the subsidiaries providing such
benefits.
(b) As a result of the sale of 21st Century, certain U.S. plans were remeasured utilizing a 6.25 percent discount rate.
Discount Rate Methodology
The projected benefit cash flows under the U.S. AIG Retirement Plan were discounted using the spot rates derived
from the unadjusted Citigroup Pension Discount Curve at December 31, 2009 and 2008 and an equivalent single
discount rate was derived that resulted in the same liability. This single discount rate was rounded to the nearest 25
basis points, namely 6.0 percent at both December 31, 2009 and 2008. The rates applied to other U.S. plans were
consistent with those discussed above.
In general, the discount rate for non-U.S. pension plans are selected by reference to high quality corporate bonds in
developed markets or local government bonds where developed markets are not as robust or nonexistent. Both
funded and unfunded plans for Japan represent over 74 percent and 71 percent of the liabilities of AIG’s non-U.S.
pension plans at December 31, 2009 and 2008, respectively. The discount rate of 1.75 percent for Japan was selected
by reference to the published Moody’s/S&P AA Corporate Bond Universe at the measurement date based on the
duration of the plans’ liabilities.
Plan Assets
The investment strategy with respect to assets relating to AIG’s U.S. and non-U.S. pension plans is designed to
achieve investment returns that will (a) provide for the benefit obligations of the plans over the long term; (b) limit
AIG 2009 Form 10-K 328