Unum 2007 Annual Report Download - page 43

Unum 2007 Annual Report 41
Our expected return on plan assets and discount rate discussed above will not affect the cash contributions we are required to make
to our U.S. pension and OPEB plans because we have met all minimum funding requirements set forth by the Employee Retirement
Income Security Act of 1974 (ERISA). We had no regulatory contribution requirements for 2007 and 2006; however, we elected to make
voluntary contributions of $110.0 million and $92.0 million, respectively, to our U.S. qualified defined benefit pension plan. We expect to
make a voluntary contribution of approximately $55.0 million in 2008, based on current tax law.
During 2006, the federal government enacted the Pension Protection Act of 2006 which requires companies to fully fund defined
benefit pension plans over a seven year period beginning in 2008. We have evaluated this requirement and have made estimates of
amounts to be funded in the future. Based on this assessment, we do not believe that the funding requirements of the Pension Protection
Act will cause a material adverse effect on our liquidity.
The fair value of plan assets for our U.K. pension plan was $186.2 million at December 31, 2007, compared to $168.9 million at year
end 2006. The U.K. pension plan has a deficit of $1.7 million at December 31, 2007, compared to $9.6 million at December 31, 2006. We
contribute to the plan in accordance with a schedule of contributions which requires that we contribute to the plan at the rate of at least
18.2 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. During 2007, we made a required
contribution of £5.3 million, or approximately $10.5 million. We anticipate that we will make contributions during 2008 of approximately
£5.4 million.
Income Taxes
We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. Our valuation
allowance relates primarily to assets for foreign net operating loss carryforwards and assets for our basis in certain of our foreign
subsidiaries that are not likely to be realized in the future based on our expectations using currently available evidence. In evaluating the
ability to recover deferred tax assets, we have considered all available positive and negative evidence including past operating results,
the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income, and prudent and feasible tax
planning strategies. In the event we determine that we most likely would not be able to realize all or part of our deferred tax assets in
the future, an increase to the valuation allowance would be charged to earnings in the period such determination is made. Likewise, if
it is later determined that it is more likely than not that those deferred tax assets would be realized, the previously provided valuation
allowance would be reversed.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws in a multitude of
jurisdictions, both domestic and foreign. The amount of income taxes we pay is subject to ongoing audits in various jurisdictions, and
a material assessment by a governing tax authority could affect profitability.
Effective January 1, 2007, we adopted FIN 48, which prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be taken in income tax returns. The evaluation of a tax
position under FIN 48 is a two step process. The first step is to determine whether it is more likely than not that a tax position will be
sustained upon examination based on the technical merits of the position. The second step is to measure a position that satisfies the
recognition threshold at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Tax positions that previously failed to meet the more likely than not threshold but that now satisfy the recognition threshold are recognized
in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet
the more likely than not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold
is no longer met. If a previously recognized tax position is settled for an amount that is different from the amount initially measured
under FIN 48, the difference will be recognized as a tax benefit or expense in the period the settlement is effective. We believe that tax
positions have been reflected in our financial statements at appropriate amounts in conformity with FIN 48.