Aetna 2006 Annual Report Download - page 29

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measurement date using the corresponding rate from the yield curve. A lower discount rate increases the present
value of benefit obligations and increases costs. In 2006, we increased our assumed discount rate to 5.98% and
5.85% for our pension and OPEB plans, respectively, up from 5.77% and 5.59%, respectively, at the previous
measurement date in 2005. A one-percentage point decrease in the assumed discount rate would increase our
annual pension costs by approximately $42 million after tax and would increase our annual OPEB costs by
approximately $.2 million after tax.
As discussed in greater detail in Note 2 of Notes to Consolidated Financial Statements beginning on page 48, in
accordance with a recently adopted accounting standard, we have elected to change our measurement date to
December 31, effective December 31, 2007. In order to transition to this new measurement date, we will remeasure
the plan assets and benefit obligations of our pension and OPEB plans as of January 1, 2007 to determine the effect
of the measurement date change and to estimate our 2007 pension and OPEB expense, which we do not expect to
be material.
The declining interest rate environment and varying asset returns compared to expectations in 2002 through 2005
have resulted in an aggregate accumulated actuarial loss for our pension and OPEB plans of $954 million at
December 31, 2006. The accumulated actuarial loss is amortized over the remaining service life of pension plan
participants (estimated at 9 years at December 31, 2006) and the expected life of OPEB plan participants (estimated
at up to 17 years at December 31, 2006) to the extent the loss is outside of a corridor established in accordance with
GAAP. The corridor is established based on the greater of 10% of the plan assets or 10% of the projected benefit
obligation. At December 31, 2006, $328 million of the actuarial loss was outside of the corridor, resulting in an
increase of approximately $21 million after tax in our 2007 pension and OPEB expense.
Our expected return on plan assets and discount rate discussed above will not affect the cash contributions we are
required to make to our pension and OPEB plans because we have met all minimum funding requirements set forth
by the Employee Retirement Income Security Act of 1974 (“ERISA”). We will not have a minimum funding
requirement for our pension and OPEB plans in 2007. However, we currently intend to make a voluntary pension
contribution of approximately $45 million in 2007.
Other-Than-Temporary Impairment of Investment Securities
We periodically review our debt and equity securities to determine whether a decline in fair value below the
carrying value is other-than-temporary. If a decline in market value is considered other-than-temporary, the cost
basis/carrying amount of the security is written down, and the amount of the write-down is included in earnings.
This analysis requires significant diligence and involves judgment. We analyze all facts and circumstances we
believe are relevant for each investment when performing this analysis, in accordance with the guidance of FAS No.
115, FSP 115-1 and SAB 59.
Among the factors considered in evaluating whether a decline is other-than-temporary, we consider whether the
decline in fair value results from a change in the quality of the investment security itself, whether the decline results
from a downward movement in the market as a whole, the prospects for realizing the carrying value of the security
based on the investment’ s current and short-term prospects for recovery and other factors. For unrealized losses
deemed to be the result of market conditions (for example, increasing interest rates and volatility due to conditions
in the overall market) or industry-related events, we determine if sufficient market recovery can occur within a
reasonable period of time and whether we have the intent and ability to hold the investment until market recovery,
which may be until maturity. In such a case, an other-than-temporary impairment is not recognized. Securities in
an unrealized loss position for which we believe the decline is a result of the quality of the security or the credit
worthiness of the issuer, or which we do not have the intent and ability to hold until recovery in value, are
considered other-than-temporarily impaired, and we write down their carrying value to fair value.
In determining our ability to hold a security until full recovery of value, we consider the following factors, among
others:
• forecasted recovery period, based on our internal credit analysts’ expectations, as well as research
performed by external rating agencies;
• whether the expected investment return is sufficient relative to other funding sources;
• our projected cash flow and capital requirements.