Ameriprise 2006 Annual Report Download - page 95

The projected benefit obligation and fair value of plan assets
for pension plans with projected benefit obligations that
exceeded the fair value of plan assets were as follows:
September 30,
2006 2005
(in millions)
Projected benefit obligation $ 318 $ 325
Fair value of plan assets 233 244
The weighted average assumptions used to determine benefit
obligations for pension plans were as follows:
2006 2005
Discount rates 5.7% 5.5%
Rates of increase in compensation levels 4.1 4.4
The weighted average assumptions used to determine net
periodic benefit cost for pension plans were as follows:
2006 2005 2004(1)
Discount rates 5.5% 5.7% 5.7%
Rates of increase in compensation
levels 4.4 4.4 4.0
Expected long-term rates of return
on assets 8.2 8.2 7.9
(1) Assumptions were derived from averages of all American Express
plans and are not necessarily indicative of assumptions the Company
would have used for a stand-alone pension plan.
In developing the 2006 expected long-term rate of return
assumption, management evaluated input from an external
consulting firm, including their projection of asset class return
expectations, and long-term inflation assumptions. The Company
also considered the historical returns on the plans’ assets.
The asset allocation for the Company’s pension plans at
September 30, 2006 and 2005, and the target allocation for
2007, by asset category, are below. Actual allocations will
generally be within 5% of these targets.
Target Percentage of
Allocation Plan Assets
2007 2006 2005
Equity securities 73% 74% 71%
Debt securities 23 24 25
Other 4 24
Total 100% 100% 100%
The Company invests in an aggregate diversified portfolio to
minimize the impact of any adverse or unexpected results from
a security class on the entire portfolio. Diversification is
interpreted to include diversification by asset type, performance
and risk characteristics and number of investments. Asset
classes and ranges considered appropriate for investment of
the plans’ assets are determined by each plan’s investment
committee. The asset classes typically include domestic and
foreign equities, emerging market equities, domestic and foreign
investment grade and high-yield bonds and domestic real estate.
The Company’s retirement plans expect to make benefit
payments to retirees as follows:
(in millions)
2007 $ 22
2008 22
2009 23
2010 25
2011 29
2012-2016 139
The Company expects to contribute $14 million to its pension
plans in 2007.
Other Postretirement Benefits
The Company sponsors defined benefit postretirement plans
that provide health care and life insurance to retired U.S.
employees. Net periodic postretirement benefit costs were
$2 million in each of 2006, 2005 and 2004. Effective
January 1, 2004, American Express 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:
2006 2005
(in millions)
Benefit obligation, October 1 of prior year $32 $39
Service cost —1
Interest cost 22
Benefits paid (12) (11)
Participant contributions 66
Actuarial (gain) loss 2(5)
Benefit obligation at September 30 $30 $32
The recognized liabilities for the Company’s defined postretire-
ment benefit plans are unfunded. At December 31, 2006, the
recognized liabilities were $30 million, of which $3 million is
payable in the next year. At December 31, 2006, the funded
status of the Company’s postretirement benefit plans was
equal to the net amount recognized in the Consolidated
Balance Sheet. At December 31, 2005, the recognized
liabilities were as follows:
(in millions)
Funded status at September 30, 2005 $ (32)
Unrecognized net actuarial gain (3)
Unrecognized prior service cost (2)
Fourth quarter payments 2
Net amount recognized $ (35)
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Ameriprise Financial, Inc. 2006 Annual Report