AIG 2012 Annual Report Download - page 341

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The following table presents the weighted average assumptions used to determine the net periodic benefit
costs:
2012
Discount rate
Rate of compensation increase
Expected return on assets
2011
Discount rate 5.50% 2.25% 5.25% 4.00%
Rate of compensation increase 4.00% 3.00% N/A 3.00%
Expected return on assets 7.50% 3.14% N/A N/A
2010
Discount rate 6.00% 2.75% 5.75% 3.75%
Rate of compensation increase 4.00% 3.50% N/A 3.75%
Expected return on assets 7.75% 3.75% 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.
Discount Rate Methodology
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The projected benefit cash flows under the U.S. AIG Retirement plan were discounted using the spot rates derived
from the Mercer Pension Discount Yield Curve at December 31, 2012 and December 31, 2011, which resulted in a
single discount rate that would produce the same liability at the respective measurement dates. The discount rates
were 3.94 percent at December 31, 2012 and 4.62 percent at December 31, 2011. The methodology was
consistently applied for the respective years in determining the discount rates for the other U.S. plans.
In general, the discount rates for non-U.S. pension plans were developed based on the duration of liabilities on a
plan by plan basis and were selected by reference to high quality corporate bonds in developed markets or local
government bonds where developed markets are not as robust or are nonexistent.
The projected benefit obligation for Japan represents approximately 57 and 62 percent of the total projected benefit
obligations for our non-U.S. pension plans at December 31, 2012 and 2011, respectively. The weighted average
discount rate of 1.54 and 1.70 percent at December 31, 2012 and 2011 respectively for Japan was selected by
reference to the AA rated corporate bonds reported by Rating and Investment Information, Inc. based on the duration
of the plans’ liabilities.
Plan Assets
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The investment strategy with respect to assets relating to our 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 the
risk of short-term funding shortfalls; and (c) maintain liquidity sufficient to address cash needs. Accordingly, the asset
allocation strategy is designed to maximize the investment rate of return while managing various risk factors,
including but not limited to, volatility relative to the benefit obligations, diversification and concentration, and the risk
and rewards profile indigenous to each asset class. The assessment of the expected rate of return for all our plans is
long-term and thus not expected to change annually; however, significant changes in investment strategy or
economic conditions may warrant such a change.
There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at
December 31, 2012 or 2011.
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AIG 2012 Form 10-K324
Pension Postretirement
At December 31, U.S. Plans Non-U.S. Plans(a) U.S. Plans Non-U.S. Plans(a)
4.62% 3.02% 4.51% 4.19%
4.00% 2.94% N/A 3.61%
7.25% 2.91% N/A N/A
ITEM 8 / NOTE 22. EMPLOYEE BENEFITS