Unum 2006 Annual Report Download - page 156

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Unum Group and Subsidiaries
138
Note 10 - Pensions and Other Postretirement Benefits - Continued
Our funded pension plans’ weighted average asset allocations, by asset category, are as follows:
Target Actual Target Actual Target Actual Target Actual
55 - 65 % 61 % 55 - 65 % 63 % 60 % 50 % 60 % 64 %
Fixed Income
Securities 27 - 33 29 27 - 33 27 40 39 40 35
8 - 12 10 8 - 12 10 - 11 - 1
100 % 100 % 100 % 100 %
U.S. Plans Non U.S. Plans
Other
Total
Equity Securities
2005
2006 2005 2006
To determine the net periodic pension cost for our U.S. qualified defined benefit pension plan for the year 2006, an
8.0 percent long-term expected rate of return assumption was used. The long-term rate of return assumption is an
estimate, based on statistical analysis, of the average annual assumed return that will be produced from the pension
trust assets until current benefits are paid. The investment portfolio during 2006 contained a diversified blend of
large cap, mid cap, and small cap domestic equity securities, international equity securities, convertible securities,
and investment-grade and below-investment-grade fixed income securities. Our expectations for the future
investment returns of these asset categories were based on a combination of historical market performance and
evaluations of investment forecasts obtained from external consultants and economists. The methodology
underlying the return assumption included the various elements of the expected return for each asset class such as
long-term rates of return, volatility of returns, and the correlation of returns between various asset classes. The
expected return for the total portfolio was calculated based on the plan’s strategic asset allocation. Investment risk is
measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies,
and quarterly investment portfolio reviews. Risk tolerance is established through consideration of plan liabilities,
plan funded status, and corporate financial condition. The plan prohibits the use of derivative instruments.
The funding policy for our U.S. qualified defined benefit plan is to contribute annually an amount at least equal
to the minimum annual contribution required under the Employee Retirement Income Security Act and other
applicable laws, but generally not greater than the maximum amount that can be deducted for federal income tax
purposes. 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. We expect to make a voluntary
contribution of approximately $110.0 million to our U.S. qualified defined benefit pension plan in 2007, based
on current pension funding law. The funding policy for the U.S. non-qualified defined benefit pension plan and
postretirement plan is to contribute the amount of the benefit payments made during the year.
Our U.K. operation maintains a separate defined benefit plan (Scheme) for eligible employees. The Scheme assets
are invested in pooled funds, with a 54 percent global equity securities allocation. The remainder of the assets is
predominantly invested in fixed interest bonds and index linked bonds. The long-term rate of return assumption is
the best estimate of the average annual assumed return that will be produced from the Scheme assets until current
benefits are paid. We are required to 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. We made contributions of $53.3
million and $8.8 million in 2006 and 2005, respectively. We expect to make contributions of $9.5 million during
2007.
We also maintain a reserve for life insurance benefits payable to certain former retirees covered under the
postretirement welfare plan. The expected return assumption for this reserve was 5.75 percent, which was based on
full investment in fixed income securities with an average book yield of 6.39 percent and 6.56 percent for 2006 and
2005, respectively.