Ameriprise 2005 Annual Report Download - page 88

86 |Ameriprise Financial, Inc.
using discounted cash flow analysis, based on current inter-
est rates for loans with similar terms to borrowers of similar
credit quality. For loans with significant credit deterioration,
fair values are based on estimates of future cash flows dis-
counted at rates commensurate with the risk inherent in the
revised cash flow projections or, for collateral dependent
loans, on collateral value.
Trading securities are carried at fair value in the Consolidated
Balance Sheets with changes in fair value recognized in cur-
rent period earnings.
Other investments include the Company’s interest in syndi-
cated loans, which are carried at amortized cost less
allowance for losses in the Consolidated Balance Sheets. Fair
values are based on quoted market prices.
Separate account assets are carried at fair value in the
Consolidated Balance Sheets.
Derivative financial instruments are carried at fair value within
other assets or other liabilities. The fair value of the
Company’s derivative financial instruments are determined
using either market quotes or valuation models that are based
upon the net present value of estimated future cash flows and
incorporate current market data inputs.
Financial Liabilities
Liabilities for which carrying values approximate fair values
primarily include customer deposits. The carrying value
approximates fair value due to the short-term nature of these
instruments.
Fair values of fixed annuities in deferral status are estimated
as the accumulated value less applicable surrender charges.
For annuities in payout status, fair value is estimated using
discounted cash flows based on current interest rates. The
fair value of these reserves excludes life insurance-related
elements of $1.5 billion as of both December 31, 2005 and
2004. If the fair value of the fixed annuities were realized,
the surrender charges received would be offset by the write
off of DAC and DSIC associated with fixed annuities of
$496 million and $534 million as of December 31, 2005
and 2004, respectively.
For variable rate investment certificates that reprice within a
year, fair values approximate carrying values. For other invest-
ment certificates, fair value is estimated using discounted
cash flows based on current interest rates. The valuations are
reduced by the amount of applicable surrender charges.
Long-term debt for which fair value has been estimated con-
sists of debt related to the senior notes due 2010 and 2015
and the CDO which was consolidated upon adoption of FIN 46
(see Notes 4 and 8 for more information). The fair value for
these instruments was estimated using quoted market prices.
It was not practicable to estimate the fair value of the
$510 million of long-term debt due to American Express at
December 31, 2004. The notes had stated maturities and
called for interest only payments on a semi-annual basis.
Interest rates charged were based on borrowing rates estab-
lished by American Express’ finance subsidiary. These notes
were carried at the amount of principal that was outstanding
and were repaid in full during 2005. As of December 31,
2005, due to the short-term nature of the $50 million medium-
term notes, carrying value approximates fair value. It was not
practicable to estimate the fair value of these notes at
December 31, 2004. The notes have stated maturities and
call for interest only payments at 6.625% through maturity in
February 2006.
Fair values of separate account liabilities, excluding life insur-
ance-related elements of $4.8 billion and $4.2 billion in 2005
and 2004, respectively, are estimated as the accumulated
value less applicable surrender charges. If the fair value of the
separate account liabilities were realized, the surrender
charges received would be offset by the write off of the DAC
and DSIC associated with separate account liabilities of
$2.0 billion and $1.7 billion as of December 31, 2005 and
2004, respectively.
14. Retirement Plans and Profit Sharing
Arrangements
On September 30, 2005, the Company entered into an
Employee Benefits Agreement (the EBA) with American Express
that allocates certain liabilities and responsibilities relating to
employee compensation and benefit plans and programs and
other related matters in connection with the Distribution
including the general treatment of outstanding American
Express equity awards, certain outstanding annual and long-
term incentive awards, existing deferred compensation
obligations, and certain retirement and welfare benefit obliga-
tions. The EBA provides that as of the date of the Distribution,
Ameriprise Financial generally will assume, retain and be liable
for all wages, salaries, welfare, incentive compensation and
employee-related obligations and liabilities for all of its current
and former employees. The EBA also provides for the transfer
of qualified plan assets and transfer of liabilities relating to
the pre-distribution participation of Ameriprise Financial’s
employees in American Express’ various retirement, welfare,
and employee benefit plans from such plans to the applicable
plans Ameriprise Financial has adopted for the benefit of its
employees.
Pension Plans
The Company’s employees in the United States are eligible to
participate in the Ameriprise Financial Retirement Plan (the
Plan), a noncontributory defined benefit plan which is a quali-
fied plan under the Employee Retirement Income Security Act
of 1974, as amended (ERISA), under which the cost of retire-
ment benefits for eligible employees in the United States is
measured by length of service, compensation and other fac-
tors and is currently being funded through a trust. Funding of
retirement costs for the Plan complies with the applicable min-
imum funding requirements specified by ERISA. The Plan is a
cash balance plan by which the employees’ accrued benefits