Unum 2009 Annual Report Download - page 40

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Unum
2009
The fair value of plan assets in our OPEB plan was $11.9 million and $12.0 million at December 31, 2009 and 2008, respectively. These
assets represent life insurance contracts to fund the life insurance benefit portion of our OPEB plan. Our OPEB plan represents a non-vested,
non-guaranteed obligation, and current regulations do not require specific funding levels for these benefits, which are comprised of retiree
life, medical, and dental benefits. It is our practice to use general assets to pay medical and dental claims as they come due in lieu of
utilizing plan assets for the medical and dental benefit portions of our OPEB plan. We expect to continue to receive subsidies under the
Medicare Prescription Drug, Improvement and Modernization Act of 2003, based on current law, to partially offset these payments. The
expected subsidy included in our consolidated balance sheets is immaterial.
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 ERISA. We had no regulatory
contribution requirements for 2009 and 2008; however, we elected to make voluntary contributions of $70.0 million and $130.0 million,
respectively, to our U.S. qualified defined benefit pension plan. As noted above, we made a voluntary contribution of $67.0 million to our
U.S. qualified defined benefit pension plan in February 2010. We do not anticipate making any additional contributions during 2010.
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. 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 £99.5 million at December 31, 2009, compared to £82.1 million at
December 31, 2008. The U.K. pension plan has a deficit of £7.8 million at December 31, 2009, compared to £4.7 million at December 31,
2008. 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 15.0 percent of employee salaries, sufficient to meet the minimum funding requirement under U.K. legislation. During 2009 and
2008, we made required contributions of £3.5 million and £4.0 million, respectively. We anticipate that we will make contributions during
2010 of approximately £3.4 million.
See Note 9 of the “Notes to Consolidated Financial Statements” for further discussion.
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.
GAAP 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 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