Unum 2009 Annual Report Download - page 135

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Unum 2009 Annual Report
The fair value is represented by the actuarial present value of future cash flows of the contracts.
Changes in our OPEB plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the
year ended December 31, 2009 are as follows:
Year Ended December 31, 2009
Beginning of Actual Return Net Benefits and End of
(in millions of dollars) Year on Plan Assets Expenses Paid Year
Life Insurance Contracts $12.0 $0.7 $(0.8) $11.9
Measurement Assumptions
We use a December 31 measurement date for each of our plans. The weighted average assumptions used in the measurement of our
benefit obligations as of December 31 and our net periodic benefit costs for the years ended December 31 are as follows:
Pension Benefits
U.S. Plans Non U.S. Plans OPEB
2009 2008 2009 2008 2009 2008
Benefit Obligations
Discount Rate 6.40% 6.40% 5.70% 6.40% 5.90% 6.10%
Rate of Compensation Increase 4.00% 4.70% 4.50% 5.10% — —
Net Periodic Benefit Cost
Discount Rate 6.40% 6.50% 6.40% 5.80% 6.10% 6.30%
Expected Return on Plan Assets 7.50% 7.50% 7.20% 6.90% 5.75% 5.75%
Rate of Compensation Increase 4.00% 4.70% 5.10% 5.30% — —
We set the discount rate assumption annually for each of our retirement-related benefit plans at the measurement date to reflect the
yield of a portfolio of high quality fixed income debt instruments matched against the projected cash flows for future benefits.
Our long-term rate of return on plan assets assumption is an estimate, based on statistical analysis, of the average annual assumed
return that will be produced from the plan assets until current benefits are paid. Our expectations for the future investment returns of the
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 expected return assumption for the life insurance reserve for our OPEB plan was 5.75 percent, which was based on full investment
in fixed income securities with an average book yield of 6.21 percent and 6.30 percent for 2009 and 2008, respectively.
Our rate of compensation increase assumption is generally based on periodic studies of compensation trends.
For measurement purposes at December 31, 2009 and 2008, the annual rate of increase in the per capita cost of covered postretirement
health care benefits assumed for the next calendar year was 9.00 percent for benefits payable to retirees prior to Medicare eligibility and
9.80 percent for benefits payable to Medicare eligible retirees. The rate was assumed to change gradually to 5.00 percent by the end of
2018 and remain at that level thereafter.
The medical and dental premium used to determine the per retiree employer subsidy are capped. If the cap is not reached by the year
2015, the caps are then set equal to the year 2015 premium. Certain of the current retirees and all future retirees are subject to the cap.