Unum 2014 Annual Report Download - page 147

UNUM • 2014 ANNUAL REPORT 145
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. The market-related value equals the fair value of assets,
determined as of the measurement date. 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. The methodology underlying the return assumption includes 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 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.
Our mortality rate assumption reflects our best estimate, as of the measurement date, of the life expectancies of plan participants in
order to determine the expected length of time for benefit payments. We derive our assumptions from industry mortality tables. The
Society of Actuaries released updated mortality tables during the fourth quarter of 2014 which show that longevity in the United States is
increasing, thereby establishing a new benchmark for mortality rates of private pension plan participants in the United States. Our mortality
assumptions for our U.S. plans reflect the updated mortality tables. These updated tables did not impact the calculation of the benefit
obligation for our U.K. defined benefit pension plan.
The expected return assumption for the life insurance reserve for our OPEB plan at December 31, 2014 and 2013 is 5.75 percent,
which is based on full investment in fixed income securities with an average book yield of 5.46 percent and 5.58 percent in 2014
and 2013, respectively.
Our rate of compensation increase assumption is generally based on periodic studies of compensation trends.
At December 31, 2014 and 2013, the annual rate of increase in the per capita cost of covered postretirement health care benefits
assumed for the next calendar year is 7.50 percent for each year for benefits payable to both retirees prior to Medicare eligibility as well
as Medicare eligible retirees. The rate is assumed to change gradually to 5.00 percent by 2020 for measurement at December 31, 2014
and remain at that level thereafter.
The medical and dental premiums used to determine the per retiree employer subsidy are capped. Certain of the current retirees
and all future retirees are subject to the cap.
Net Periodic Benefit Cost
The following table provides the components of the net periodic benefit cost for the plans described above for the years ended
December 31.
Pension Benefits
U.S. Plans U.K. Plan OPEB
(in millions of dollars) 2014 2013 2012 2014 2013 2012 2014 2013 2012
Service Cost $ 3.7 $ 59.4 $ 48.8 $ 2.3 $ 4.3 $ 4.2 $ 0.3 $ 0.7 $ 1.6
Interest Cost 89.9 86.3 84.4 9.1 8.6 8.5 7.9 8.0 9.6
Expected Return on Plan Assets (117.8) (105.5) (88.8) (13.7) (12.5) (11.1) (0.7) (0.6) (0.7)
Amortization of:
Net Actuarial Loss 5.2 31.7 45.9 0.4 1.2 0.5 — — —
Prior Service Credit — (0.1) (0.4) — — — (1.7) (4.9) (2.6)
Curtailment — 0.7 — — (3.7) — — — —
Settlement 64.4 — — — — — — — —
Total Net Periodic Benefit Cost $ 45.4 $ 72.5 $ 89.9 $ (1.9) $ (2.1) $ 2.1 $ 5.8 $ 3.2 $ 7.9