Unum 2006 Annual Report Download - page 112

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expense by approximately $2.6 million. For 2007, lowering the assumption by 50 basis points would be expected to
increase pension expense by approximately $3.5 million.
The market related value equals the fair value of assets, determined as of the measurement date. The assets are not
smoothed for purposes of SFAS 87. The expected return on assets, therefore, fully recognizes all asset gains and
losses through the measurement date.
Our U.S. pension plans have an unrecognized net actuarial loss and an unrecognized prior service credit which
represent the cumulative liability and asset gains and losses and the portion of prior service credits that have not
been recognized in pension expense. As of December 31, 2006, the unrecognized net loss for these two items
combined was approximately $290.0 million compared to $352.5 million at December 31, 2005. The decrease is
due to the decline in the net actuarial loss resulting from an increase in the year end discount rate from 5.80 percent
at 2005 to 6.10 percent at 2006 as well as actual asset returns in excess of the 8.0 percent assumed rate of return.
Prior to the adoption of SFAS 158, unrecognized actuarial gains or losses and prior service costs or credits were
amortized as a component of pension expense but were not reported in companies’ balance sheets. SFAS 158
requires that actuarial gains or losses and prior service costs or credits that have not yet been included in net periodic
benefit cost as of the adoption date of SFAS 158 be recognized as components of accumulated other comprehensive
income, net of tax. The unrecognized gains or losses will be amortized out of accumulated other comprehensive
income and included as a component of the net benefit cost, as they were prior to the adoption of SFAS 158. Our
2006, 2005, and 2004 pension expense includes $19.3 million, $16.4 million, and $13.2 million, respectively, of
amortization of the unrecognized net actuarial loss and prior service credit.
We reported U.S. pension expense of $59.6 million, $54.8 million, and $43.6 million in 2006, 2005 and 2004,
respectively.
The fair value of plan assets in our U.S. qualified defined benefit pension plan was $658.5 million at December 31,
2006, compared to $515.4 million at year end 2005. In recent years, the moderate increase in assets, coupled with
the liability increase due to declining discount rates, has reduced the year end funding level in the plan such that it
has a deficit of $151.6 million as of December 31, 2006, compared to $246.1 million as of December 31, 2005. We
had no regulatory contribution requirements for 2006 and 2005; however, we elected to make voluntary
contributions of $92.0 million and $23.0 million, respectively, to our U.S. qualified defined benefit pension plan.
We expect to make a voluntary contribution of approximately $110.0 million in 2007, based on current tax law.
Non-U.S. Pension Plans
Our U.K. operation maintains a separate defined benefit plan for eligible employees. The U.K. defined benefit
pension plan (Scheme) was closed to new entrants on December 31, 2002.
The long-term rate of return on asset assumption used in the net periodic pension costs for 2007 and 2006 was 6.8
percent and 6.7 percent, respectively. We elected to set the discount rate assumption at the measurement date for the
Scheme to reflect the yield of a portfolio of high quality fixed income debt instruments matched against the timing
and amounts of projected future benefits. The discount rate assumptions were 5.10 percent and 4.80 percent as of
December 31, 2006 and 2005, respectively.
Pension expense was $7.8 million, $11.7 million, and $11.6 million in 2006, 2005, and 2004, respectively.
The fair value of plan assets in the Scheme was $168.9 million at December 31, 2006, compared to $92.1 million at
year end 2005. The Scheme has a deficit of $9.6 million at December 31, 2006, compared to $45.2 million at
December 31, 2005. We contribute to the Scheme in accordance with a schedule of contributions which requires
that we contribute to the Scheme at the rate of at least 18.20 percent of eligible salaries, sufficient to meet the
minimum funding requirement under U.K. legislation. During 2006, we made a voluntary contribution of $44.2
million to reduce the deficit and required contributions of $9.1 million. We anticipate that we will make
contributions during 2007 of approximately $9.5 million.
We previously maintained separate defined benefit plans for the employees of our Canadian branch operation. As a
result of the sale of the Canadian branch, we froze the Canadian defined benefit pension plans during 2004 and
recorded a curtailment loss of $0.7 million. We are currently in the process of terminating the Canadian plans.