Unum 2013 Annual Report Download - page 37

UNUM 2013 ANNUAL REPORT / 35
The discount rate we used to determine our net periodic benefit costs for our U.S. pension plans for 2014 was 5.30 percent and for
2013 was 4.50 percent for the period January 1, 2013 through the date of remeasurement and 5.00 percent for the period from the date of
remeasurement through December 31, 2013. The discount rate used for the net periodic benefit costs for our U.K. pension plan for 2014
was 4.40 percent and for 2013 was 4.50 percent for the period January 1, 2013 through the date of remeasurement and 4.60 percent from
the date of remeasurement through December 31, 2013. The discount rate used in the net periodic benefit cost for our OPEB plan for 2014
and 2013 was 5.00 percent and 4.20 percent, respectively.
Regarding sensitivity analysis, reducing the discount rate assumptions by 50 basis points would have increased our 2013 pension
and OPEB expenses by approximately $16.4 million, before tax, and would have increased our pension and OPEB benefit obligations by
approximately $174.4 million as of December 31, 2013, resulting in an after-tax decrease in stockholders’ equity of approximately
$116.5 million as of December 31, 2013.
An increase in the discount rate assumptions of 50 basis points would have decreased our 2013 pension and OPEB expenses
by approximately $13.9 million, before tax, and would have decreased our pension and OPEB benefit obligations by approximately
$156.4 million as of December 31, 2013, resulting in an after-tax increase in stockholders’ equity of approximately $104.6 million
as of December 31, 2013.
The long-term rate of return assumption is the best estimate of the average annual assumed return that will be produced from the
pension trust assets until current benefits are paid. The U.S. pension plans use a compound interest method in computing the rate of return
on their pension plan assets. The investment portfolio for our U.S. qualified pension plan contains a diversified blend of domestic and
international large cap, mid cap, and small cap equity securities; U.S. government and agency, corporate, and state and municipal fixed
income securities; private equity direct investments, private equity funds of funds, hedge funds of funds, and cash equivalents. Assets for
our U.K. pension plan are invested in pooled funds, including diversified growth funds, which invest in assets such as global equities, hedge
funds, commodities, below-investment-grade fixed income securities, and currencies; as well as leveraged, interest rate, and inflation swap
funds intended to broadly match part of the interest rate and inflation sensitivities of the plan’s liabilities. Assets for our OPEB plan are
invested primarily in life insurance contracts. We believe our investment portfolios are well diversified by asset class and sector, with no
potential risk concentrations in any one category.
Our expectations for the future investment returns of the asset categories are based on a combination of historical market
performance, evaluations of investment forecasts obtained from external consultants and economists, and current market yields. For the
U.S. pension plans, 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 is calculated based on the plan’s current 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 long-term rate of return on asset assumption used in the net periodic pension costs for our U.S. qualified defined benefit pension
plan for 2014 and 2013 was 7.50 percent for both years. The long-term rate of return on asset assumption used for our U.K. pension plan for
2014 was 6.10 percent and for 2013 was 6.20 percent for the period from January 1, 2013 to the date of remeasurement and 6.35 percent
from the date of remeasurement through December 31, 2013. The long-term rate of return on asset assumption used for our OPEB plan was
5.75 percent for both years. The actual rate of return on plan assets is determined based on the fair value of the plan assets at the
beginning and the end of the period, adjusted for contributions and benefit payments.
A change in the long-term rate of return on asset assumptions on the pension plan assets of +/-50 basis points would have changed
our 2013 pension plan expense by approximately $7.9 million before tax, but would not have materially changed our OPEB plan expense.
A lower rate of return on plan assets increases our expense.