Aetna 2009 Annual Report Download - page 77

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Our pension plan invests in a diversified mix of assets intended to maximize long-term returns while recognizing the
need for adequate liquidity to meet ongoing benefit and administrative obligations. Risk of unexpected investment and
actuarial outcomes is regularly evaluated. This evaluation is performed through forecasting and assessing ranges of
investment outcomes over short- and long-term horizons, and by assessing the pension plan’ s liability characteristics,
our financial condition and our future potential obligations from both the pension and general corporate perspectives.
Complementary investment styles and techniques are utilized by multiple professional investment firms to further
improve portfolio and operational risk characteristics. Public and private equity investments are used primarily to
increase overall plan returns. Real estate investments are viewed favorably for their diversification benefits and above-
average dividend generation. Fixed income investments provide diversification benefits and liability hedging
attributes that are desirable, especially in falling interest rate environments.
Asset allocations and investment performance are formally reviewed quarterly by the plan’ s Benefit Finance
Committee. Forecasting of asset and liability growth is performed at least annually. More thorough analysis of assets
and liabilities are also performed periodically.
We have several benefit plans for retired employees currently supported by the OPEB plan assets. OPEB plan assets are
directly and indirectly invested in a diversified mix of traditional asset classes, primarily high-quality fixed income
securities.
Our expected return on plan assets assumption is based on many factors, including forecasted capital market real
returns over a long-term horizon, forecasted inflation rates, historical compounded asset returns and patterns and
correlations on those returns. Expectations for modest increases in interest rates, normal inflation trends and average
capital market real returns led us to an expected return on the Pension Assets assumption of 8.5% for both 2009 and
2008 and an expected return on OPEB plan assets assumption of 5.5% for both 2009 and 2008. We regularly review
actual asset allocations and periodically rebalance our investments to the mid-point of our targeted allocation ranges
when we consider it appropriate. At December 31, 2009, our actual asset allocations were consistent with our asset
allocation assumptions. Investment returns can be volatile. Although our return on plan assets is a long-term
assumption, shorter-term volatility in our annual pension costs can occur if investment returns differ from the assumed
rate. For example, a one-percent deviation from our long-term 8.50% return assumption would impact our annual
pension costs by approximately $5 million after tax and would have a negligible effect on our annual OPEB costs.
401(k) Plan
Substantially all of our employees are eligible to participate in a defined contribution retirement savings plan under
which designated contributions may be invested in our common stock or certain other investments. We provided for a
match of up to 50% of the first 6% of eligible pay contributed to the plan for the years ended December 31, 2009, 2008
and 2007. The matching contributions are made in cash and invested according to each participant’ s investment
elections. During 2009, 2008 and 2007, we made $49 million, $47 million and $42 million, respectively, in matching
contributions. The plan trustee held approximately 10 million shares of our common stock for plan participants at
December 31, 2009. At December 31, 2009, approximately 34 million shares of our common stock were reserved for
issuance under our 401(k) plan.
12. Stock-based Employee Incentive Plans
Our stock-based employee compensation plans (collectively, the “Plans”) provide for awards of stock options, SARs,
restricted stock units (“RSUs”), performance stock units (“PSUs”), deferred contingent common stock and the ability
for employees to purchase common stock at a discount. At December 31, 2009, approximately 83 million common
shares were available for issuance under the Plans.
Executive, middle management and non-management employees may be granted stock options, SARs, RSUs and
PSUs. Stock options are granted to purchase our common stock at or above the market price on the date of grant.
SARs granted will be settled in stock, net of taxes, based on the appreciation of our stock price on the exercise date
over the market price on the date of grant. SARs and stock options generally become 100% vested three years after the
grant is made, with one-third vesting each year. Vested SARs and stock options may be exercised at any time during
the 10 years after grant, except in certain circumstances, generally related to employment termination or retirement. At
the end of the 10-year period, any unexercised SARs and stock options expire. For each RSU granted, employees
receive one share of common stock, net of taxes, at the end of the vesting period. The RSUs will generally become
100% vested three years after the grant is made, with one-third vesting each year. The PSUs granted in 2008 and 2009