Ameriprise 2005 Annual Report Download - page 91

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Ameriprise Financial, Inc. |
decided to no longer provide a subsidy for these benefits for
employees who were not at least age 40 with at least five
years of service as of that date.
The following table provides a reconciliation of the changes in
the defined postretirement benefit plan obligation:
Reconciliation of Change in Benefit Obligation
2005 2004
(in millions)
Benefit obligation, October 1 prior year $39 $46
Service cost 11
Interest cost 22
Benefits paid (11) (15)
Participant contributions 65
Plan amendments –2
Actuarial gain (5) (2)
Benefit obligation at September 30, $32 $39
The recognized liabilities for the Company’s defined postretire-
ment benefit plans are unfunded and are as follows:
Reconciliation of Accrued Benefit Cost and Total Amount
Recognized
2005 2004
(in millions)
Funded status at September 30, $(32) $(39)
Unrecognized net actuarial (gain) loss (3) 3
Unrecognized prior service cost (2) (2)
Fourth quarter payments 21
Net amount recognized at December 31, $(35) $(37)
The weighted average assumptions used to determine benefit
obligations were:
2005 2004
Discount rates 5.5% 5.75%
Healthcare cost increase rate:
Following year 10.0% 10.5%
Decreasing to the year 2016 5% 5%
A one percentage-point change in the assumed healthcare
cost trend rates would not have a material effect on the
Company’s postretirement benefit obligation or net periodic
postretirement benefit costs. The defined postretirement
benefit plans expect to make benefit payments to retirees as
follows: 2006, $3 million; 2007, $3 million; 2008, $3 million;
2009, $3 million; 2010, $3 million and 2011-2015, $13
million.
Profit Sharing Arrangements
On an annual basis, Threadneedle employees are eligible for
two profit sharing arrangements: (i) a profit sharing plan for all
employees based on individual performance criteria, and (ii) an
equity participation plan (EPP) for certain key personnel.
This employee profit sharing plan provides for profit sharing of
33% for 2004 and 30% for 2005 and thereafter based on an
internally defined recurring pretax operating income measure
for Threadneedle, which primarily includes pretax income
related to investment management services and investment
portfolio income excluding gains and losses on asset dispos-
als, certain reorganization expenses, equity participation plan
expenses and other non-recurring expenses. Compensation
expense related to the employee profit sharing plan was
$60 million and $50 million for the years ended December 31,
2005 and 2004, respectively. Compensation expense for the
period from October 1, 2003 through December 31, 2003 did
not relate to the employee profit sharing plan.
The EPP is a cash award program for certain key personnel
who are granted awards based on a formula tied to
Threadneedle’s financial performance. The EPP provides for
50% vesting after three years, 50% vesting after four years
and required cash out after 5 years. All awards are settled in
cash, based on a value as determined by an annual independ-
ent valuation of Threadneedle’s fair market value. The value of
the award is recognized as compensation expense evenly over
the four year vesting period. However, each year’s EPP expense
is adjusted to reflect Threadneedle’s current valuation.
Increases in value of vested awards are expensed immedi-
ately. Increases in the value of unvested shares are amortized
over the remaining vesting period. Compensation expense
related to the EPP was $47 million and $26 million for the
years ended December 31, 2005 and 2004, respectively.
Compensation expense for the period from October 1, 2003
through December 31, 2003 related to EPP was immaterial.
15. Derivatives and Hedging Activities
Derivative financial instruments enable the end users to man-
age exposure to credit and various market risks. The value of
such instruments is derived from an underlying variable or mul-
tiple variables, including commodity, equity, foreign exchange
and interest rate indices or prices. The Company enters into
various derivative financial instruments as part of its ongoing
risk management activities. The Company does not engage in
any derivative instrument trading activities. Credit risk associ-
ated with the Company’s derivatives is limited to the risk that
a derivative counterparty will not perform in accordance with
the terms of the contract. To mitigate such risk, counterparties
are all required to be preapproved. Additionally, the Company
may, from time to time, enter into master netting agreements
wherever practical. As of December 31, 2005 and 2004, the
total net fair values, excluding accruals, of derivative product
assets were $215 million and $214 million, respectively, and
derivative product liabilities were $38 million and $138 mil-
lion, respectively. The total notional amount of derivatives as
of December 31, 2005 was $3.4 billion. The following summa-
rizes the Company’s use of derivative financial instruments.