AMERICAN INTERNATIONAL GROUP INC | 2013 | FY | 3


21. EMPLOYEE BENEFITS

 

 

Pension Plans

 

We offer various defined benefit plans to eligible employees.

The U.S. AIG Retirement Plan (the qualified plan) is a noncontributory defined benefit plan, which is subject to the provisions of ERISA. U.S. salaried employees who are employed by a participating company and who have completed 12 months of continuous service are eligible to participate in the plan. Effective April 1, 2012, the qualified plan was converted to a cash balance formula comprised of pay credits based on six percent of a plan participant's annual compensation (subject to IRS limitations) and annual interest credits. In addition, employees can take their vested benefits when they leave AIG as a lump sum or an annuity option after completing at least three years of service. However, employees satisfying certain age and service requirements (i.e. grandfathered employees) remain covered under the old plan formula, which is based upon a percentage of final average compensation multiplied by years of credited service, up to 44 years. Grandfathered employees will receive the higher of the benefits under the cash balance or final average pay formula at retirement. Non-U.S. defined benefit plans are generally either based on the employee's years of credited service and compensation in the years preceding retirement or on points accumulated based on the employee's job grade and other factors during each year of service.

We also sponsor several non-qualified unfunded defined benefit plans for certain employees, including key executives, designed to supplement pension benefits provided by the qualified plan. These include the AIG Non-Qualified Retirement Income Plan (AIG NQRIP), which provides a benefit equal to the reduction in benefits under the qualified plan as a result of federal tax limitations on compensation and benefits payable, and the Supplemental Executive Retirement Plan (Supplemental), which provides additional retirement benefits to designated executives. Under the Supplemental Plan, an annual benefit accrues at a percentage of final average pay multiplied by each year of credited service, not greater than 60 percent of final average pay, reduced by any benefits from the current and any predecessor retirement plans (including the AIG NQRIP Plan), Social Security, and any benefits accrued under a Company sponsored foreign deferred compensation plan.

 

Postretirement Plans

 

We also provide postretirement medical care and life insurance benefits in the U.S. and in certain non-U.S. countries. Eligibility in the various plans is generally based upon completion of a specified period of eligible service and attaining a specified age. Overseas, benefits vary by geographic location.

U.S. postretirement medical and life insurance benefits are based upon the employee attaining the age of 55 and having a minimum of ten years of service. Eligible employees who have medical coverage can enroll in retiree medical upon termination. Medical benefits are contributory, while the life insurance benefits are generally non-contributory. Retiree medical contributions vary from none for pre-1989 retirees to actual premium payments reduced by certain subsidies for post-1992 retirees. These contributions are subject to adjustment annually. Other cost sharing features of the medical plan include deductibles, coinsurance and Medicare coordination. Effective April 1, 2012, the retiree medical employer subsidy for the AIG Postretirement plan was eliminated for employees who were not grandfathered. Additionally, new employees hired after December 31, 2012 are not eligible for retiree life insurance.

The following table presents the funded status of the plans reconciled to the amount reported in the Consolidated Balance Sheets. The measurement date for most of the non-U.S. defined benefit pension and postretirement plans is November 30, consistent with the fiscal year end of the sponsoring companies. For all other plans, measurement occurs as of December 31.

 

 
 


   
 


   
 


   
 


   
 
   
 
  Pension   Postretirement(a)  
 
  U.S. Plans(b)   Non-U.S. Plans(b)   U.S. Plans   Non-U.S. Plans  
As of or for the Years Ended December 31,
(in millions)
 
 

2013

  2012
 

2013

  2012
 

2013

  2012
 

2013

  2012
 
   

Change in projected benefit obligation:

 
 
 
 
     
 
 
 
     
 
 
 
     
 
 
 
     

Benefit obligation, beginning of year

 
$
5,161
 
$ 4,438  
$
1,205
 
$ 1,137  
$
255
 
$ 236  
$
66
 
$ 52  

Service cost

 
 
205
 
  154  
 
47
 
  53  
 
5
 
  5  
 
3
 
  3  

Interest cost

 
 
201
 
  200  
 
29
 
  34  
 
8
 
  11  
 
2
 
  2  

Actuarial (gain) loss

 
 
(454
)
  536  
 
13
 
  69  
 
(41
)
  22  
 
(15
)
  11  

Benefits paid:

 
 
 
 
     
 
 
 
     
 
 
 
     
 
 
 
     

AIG assets

 
 
(14
)
  (12 )
 
(13
)
  (7 )
 
(10
)
  (11 )
 
(1
)
  (1 )

Plan assets

 
 
(217
)
  (150 )
 
(27
)
  (35 )
 
 
   
 
 
   

Plan amendment

 
 
 
   
 
 
  4  
 
 
  (8 )
 
 
   

Curtailments

 
 
 
  (5 )
 
(1
)
  (3 )
 
 
   
 
(3
)
  (1 )

Settlements

 
 
 
   
 
(35
)
  (20 )
 
 
   
 
 
   

Foreign exchange effect

 
 
 
   
 
(126
)
  (32 )
 
 
   
 
(1
)
   

Other

 
 
 
   
 
(20
)
  5  
 
 
   
 
1
 
 
   

Projected benefit obligation, end of year

 
$
4,882
 
$ 5,161  
$
1,072
 
$ 1,205  
$
217
 
$ 255  
$
52
 
$ 66
   

Change in plan assets:

 
 
 
 
     
 
 
 
     
 
 
 
     
 
 
 
     

Fair value of plan assets, beginning of year

 
$
3,720
 
$ 3,432  
$
727
 
$ 683  
$
 
$  
$
 
$  

Actual return on plan assets, net of expenses

 
 
520
 
  438  
 
92
 
  34  
 
 
   
 
 
   

AIG contributions

 
 
15
 
  12  
 
87
 
  86  
 
10
 
  11  
 
1
 
  1  

Benefits paid:

 
 
 
 
     
 
 
 
     
 
 
 
     
 
 
 
     

AIG assets

 
 
(14
)
  (12 )
 
(13
)
  (7 )
 
(10
)
  (11 )
 
(1
)
  (1 )

Plan assets

 
 
(217
)
  (150 )
 
(27
)
  (35 )
 
 
   
 
 
   

Settlements

 
 
 
   
 
(35
)
  (20 )
 
 
   
 
 
   

Foreign exchange effect

 
 
 
   
 
(93
)
  (15 )
 
 
   
 
 
   

Other

 
 
 
   
 
 
  1  
 
 
   
 
 
 
   

Fair value of plan assets, end of year

 
$
4,024
 
$ 3,720  
$
738
 
$ 727  
$
 
$  
$
 
$
   

Funded status, end of year

 
$
(858
)
$ (1,441 )
$
(334
)
$ (478 )
$
(217
)
$ (255 )
$
(52
)
$ (66 )
   

Amounts recognized in the consolidated balance sheet:

 
 
 
 
     
 
 
 
     
 
 
 
     
 
 
 
   
   

Assets

 
$
 
$  
$
91
 
$ 65  
$
 
$  
$
 
$
   

Liabilities

 
 
(858
)
  (1,441 )
 
(425
)
  (543 )
 
(217
)
  (255 )
 
(52
)
  (66 )
   

Total amounts recognized

 
$
(858
)
$ (1,441 )
$
(334
)
$ (478 )
$
(217
)
$ (255 )
$
(52
)
$ (66 )
   

Pre-tax amounts recognized in Accumulated other comprehensive income:

 
 
 
 
     
 
 
 
     
 
 
 
     
 
 
 
   
   

Net gain (loss)

 
$
(908
)
  (1,764 )
$
(204
)
$ (302 )
$
1
 
$ (40 )
$
3
 
$ (13 )
   

Prior service (cost) credit

 
 
234
 
  267  
 
14
 
  21  
 
35
 
  46  
 
1
 
  1
   

Total amounts recognized

 
$
(674
)
$ (1,497 )
$
(190
)
$ (281 )
$
36
 
$ 6  
$
4
 
$ (12 )
   

(a)  We do not currently fund postretirement benefits.

(b)  Includes non-qualified unfunded plans of which the aggregate projected benefit obligation was $276 million and $238 million for the U.S. and $265 million and $299 million for the non-U.S. at December 31, 2013 and 2012, respectively.

The following table presents the accumulated benefit obligations for U.S. and non-U.S. pension benefit plans:

 

 
 


   
 
   
At December 31,
(in millions)
 

2013

  2012
 
   

U.S. pension benefit plans

 
$
4,683
$ 4,827  

Non-U.S. pension benefit plans

 
$
1,000
$ 1,125
   

Defined benefit pension plan obligations in which the projected benefit obligation was in excess of the related plan assets and the accumulated benefit obligation was in excess of the related plan assets were as follows:

 

 
 


   
   
   
   
   
   
   
 
   
 
  PBO Exceeds Fair Value of Plan Assets   ABO Exceeds Fair Value of Plan Assets  
 
  U.S. Plans   Non-U.S. Plans   U.S. Plans   Non-U.S. Plans  
At December 31,
(in millions)
 
 

2013

  2012
 

2013

  2012
 

2013

  2012
 

2013

  2012
 
   

Projected benefit obligation

 
$
4,882
 
$ 5,161  
$
806
 
$ 1,028  
$
4,882
 
$ 5,161  
$
752
 
$ 1,018  

Accumulated benefit obligation

 
 
4,683
 
  4,827  
 
704
 
  964  
 
4,683
 
  4,827  
 
703
 
  959  

Fair value of plan assets

 
 
4,024
 
  3,720  
 
330
 
  485  
 
4,024
 
  3,720  
 
327
 
  478
   

The following table presents the components of net periodic benefit cost with respect to pensions and other postretirement benefits:

 

 
 


   
   
 


   
   
 


   
   
 


   
   
 
   
 
  Pension   Postretirement  
 
  U.S. Plans   Non-U.S. Plans   U.S. Plans   Non-U.S. Plans  
(in millions)
 

2013

  2012
  2011
 

2013

  2012
  2011
 

2013

  2012
  2011
 

2013

  2012
  2011
 
   

Components of net periodic benefit cost:

 
 
 
 
           
 
 
 
           
 
 
 
           
 
 
 
           

Service cost

 
$
205
 
$ 154   $ 150  
$
47
 
$ 53   $ 66  
$
5
 
$ 5   $ 8  
$
3
 
$ 3   $ 4  

Interest cost

 
 
201
 
  200     207  
 
29
 
  34     37  
 
8
 
  11     13  
 
2
 
  2     2  

Expected return on assets

 
 
(257
)
  (240 )   (250 )
 
(19
)
  (20 )   (25 )
 
 
       
 
 
       

Amortization of prior service credit

 
 
(33
)
  (33 )   (7 )
 
(3
)
  (4 )   (4 )
 
(11
)
  (10 )   (2 )
 
 
       

Amortization of net loss

 
 
138
 
  118     65  
 
13
 
  13     15  
 
1
 
       
 
 
       

Curtailment (gain) loss

 
 
 
  (2 )    
 
(1
)
  1      
 
 
       
 
(2
)
  (1 )    

Settlement loss

 
 
 
       
 
5
 
  4     8  
 
 
       
 
 
       

Other

 
 
 
       
 
1
 
       
 
 
       
 
 
     
   

Net periodic benefit cost

 
$
254
 
$ 197   $ 165  
$
72
 
$ 81   $ 97  
$
3
 
$ 6   $ 19  
$
3
 
$ 4   $ 6
   

Total recognized in Accumulated other comprehensive income (loss)

 
$
823
 
$ (250 ) $ (396 )
$
103
 
$ (36 ) $ 261  
$
30
 
$ (23 ) $ 56  
$
16
 
$ (11 ) $ (6 )
   

Total recognized in net periodic benefit cost and other comprehensive income (loss)

 
$
569
 
$ (447 ) $ (561 )
$
31
 
$ (117 ) $ 164  
$
27
 
$ (29 ) $ 37  
$
13
 
$ (15 ) $ (12 )
   

The estimated net loss and prior service credit that will be amortized from Accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $51 million and $36 million, respectively, for our combined defined benefit pension plans. For the defined benefit postretirement plans, the estimated amortization from Accumulated other comprehensive income for net gain and prior service credit that will be amortized into net periodic benefit cost over the next fiscal year will be less than $11 million in the aggregate.

The annual pension expense in 2014 for the AIG U.S. and non-U.S. defined benefit pension plans is expected to be approximately $194 million. A 100 basis point increase in the discount rate or expected long-term rate of return would decrease the 2014 expense by approximately $60 million and $46 million, respectively, with all other items remaining the same. Conversely, a 100 basis point decrease in the discount rate or expected long-term rate of return would increase the 2014 expense by approximately $92 million and $46 million, respectively, with all other items remaining the same.

 

Assumptions

 

The following table summarizes the weighted average assumptions used to determine the benefit obligations:

 

   
 
  Pension   Postretirement  
 
  U.S. Plans
  Non-U.S. Plans*
  U.S. Plans
  Non-U.S. Plans*
 
   

December 31, 2013

                         

Discount rate

    4.83 %   2.77 %   4.59 %   4.77 %

Rate of compensation increase

    3.50 %   2.89 %   N/A     3.34 %
   

December 31, 2012

                         

Discount rate

    3.93 %   2.62 %   3.67 %   3.45 %

Rate of compensation increase

    4.00 %   2.86 %   N/A     3.55 %
   

*     The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of each of the subsidiaries providing such benefits.

The following table summarizes assumed health care cost trend rates for the U.S. plans:

 

 
 


   
 
   
At December 31,
 

2013

  2012
 
   

Following year:

 
 
 
 
     

Medical (before age 65)

 
 
7.21
%
  7.39 %

Medical (age 65 and older)

 
 
6.80
%
  6.82 %
   

Ultimate rate to which cost increase is assumed to decline

 
 
4.50
%
  4.50 %
   

Year in which the ultimate trend rate is reached:

 
 
 
 
     

Medical (before age 65)

 
 
2027
 
  2027  

Medical (age 65 and older)

 
 
2027
 
  2027
   

A one percent point change in the assumed healthcare cost trend rate would have the following effect on our postretirement benefit obligations:

 

 
 


   
 


   
 
   
 
  One Percent
Increase
  One Percent
Decrease
 
At December 31,
(in millions)
 
 

2013

  2012
 

2013

  2012
 
   

U.S. plans

 
$
6
 
$ 5  
$
(3
)
$ (4 )

Non-U.S. plans

 
$
11
 
$ 15  
$
(7
)
$ (11 )
   

Our postretirement plans provide benefits primarily in the form of defined employer contributions rather than defined employer benefits. Changes in the assumed healthcare cost trend rate have a minimal impact for U.S. plans because for post-1992 retirees, benefits are fixed dollar amounts based on service at retirement. Our non-U.S. postretirement plans are not subject to caps.

The following table presents the weighted average assumptions used to determine the net periodic benefit costs:

 

   
 
  Pension   Postretirement  
At December 31,
  U.S. Plans
  Non-U.S. Plans*
  U.S. Plans
  Non-U.S. Plans*
 
   

2013

                         

Discount rate

    3.93 %   2.62 %   3.67 %   3.45 %

Rate of compensation increase

    4.00 %   2.86 %   N/A     3.55 %

Expected return on assets

    7.25 %   2.60 %   N/A     N/A
   

2012

                         

Discount rate

    4.62 %   3.02 %   4.51 %   4.19 %

Rate of compensation increase

    4.00 %   2.94 %   N/A     3.61 %

Expected return on assets

    7.25 %   2.91 %   N/A     N/A
   

2011

                         

Discount rate

    5.50 %   2.25 %   5.25 %   4.00 %

Rate of compensation increase

    4.00 %   3.00 %   N/A     3.00 %

Expected return on assets

    7.50 %   3.14 %   N/A     N/A
   

*     The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of the subsidiaries providing such benefits.

Discount Rate Methodology

 

The projected benefit cash flows under the U.S. AIG Retirement plan were discounted using the spot rates derived from the Mercer Pension Discount Yield Curve at December 31, 2013 and 2012, which resulted in a single discount rate that would produce the same liability at the respective measurement dates. The discount rates were 4.84 percent at December 31, 2013 and 3.94 percent at December 31, 2012. The methodology was consistently applied for the respective years in determining the discount rates for the other U.S. plans.

In general, the discount rates for non-U.S. pension plans were developed based on the duration of liabilities on a plan by plan basis and were selected by reference to high quality corporate bonds in developed markets or local government bonds where developed markets are not as robust or are nonexistent.

The projected benefit obligation for Japan represents approximately 51 percent and 57 percent of the total projected benefit obligations for our non-U.S. pension plans at December 31, 2013 and 2012, respectively. The weighted average discount rate of 1.39 percent and 1.54 percent at December 31, 2013 and 2012 respectively for Japan was selected by reference to the AA rated corporate bonds reported by Rating and Investment Information, Inc. based on the duration of the plans' liabilities.

Plan Assets

 

The investment strategy with respect to assets relating to our U.S. and non-U.S. pension plans is designed to achieve investment returns that will (a) provide for the benefit obligations of the plans over the long term (b) limit the risk of short-term funding shortfalls and (c) maintain liquidity sufficient to address cash needs. Accordingly, the asset allocation strategy is designed to maximize the investment rate of return while managing various risk factors, including but not limited to, volatility relative to the benefit obligations, diversification and concentration, and the risk and rewards profile applicable to each asset class. The assessment of the expected rate of return for all our plans is long-term and thus is not expected to change annually; however, significant changes in investment strategy or economic conditions may warrant such a change.

There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at December 31, 2013 or 2012.

U.S. Pension Plan

 

The long-term strategic asset allocation is reviewed and revised approximately every three years. The plan's assets are monitored by the investment committee of our Retirement Board and the investment managers, which includes allocating the plan's assets among approved asset classes within pre-approved ranges permitted by the strategic allocation.

The following table presents the asset allocation percentage by major asset class for the U.S. qualified plan and the target allocation:

 

 
   
 


   
 
   
At December 31,
  Target
2014

 

Actual
2013

  Actual
2012

 
   

Asset class:

       
 
 
 
     

Equity securities

    43 %
 
56
%
  52 %

Fixed maturity securities

    28 %
 
25
%
  26 %

Other investments

    29 %
 
19
%
  22 %
   

Total

    100 %
 
100
%
  100 %
   

The expected long-term rate of return for the plan was 7.25 percent for both 2013 and 2012. The expected rate of return is an aggregation of expected returns within each asset class category and incorporates the current and target asset allocations. The combination of the expected asset return and any contributions made by us are expected to maintain the plan's ability to meet all required benefit obligations. The expected asset return for each asset class was developed based on an approach that considers key fundamental drivers of the asset class returns in addition to historical returns, current market conditions, asset volatility and the expectations for future market returns.

Non-U.S. Pension Plans

 

The assets of the non-U.S. pension plans are held in various trusts in multiple countries and are invested primarily in equities and fixed maturity securities to maximize the long-term return on assets for a given level of risk.

The following table presents the asset allocation percentage by major asset class for Non-U.S. pension plans and the target allocation:

 

 
   
 


   
 
   
At December 31,
  Target
2014

 

Actual
2013

  Actual
2012

 
   

Asset class:

       
 
 
 
     

Equity securities

    34 %
 
45
%
  36 %

Fixed maturity securities

    44 %
 
37
%
  43 %

Other investments

    11 %
 
6
%
  6 %

Cash and cash equivalents

    11 %
 
12
%
  15 %
   

Total

    100 %
 
100
%
  100 %
   

The assets of AIG's Japan pension plans represent approximately 60 percent and 66 percent of total non-U.S. assets at December 31, 2013 and 2012 respectively. The expected long term rate of return was 1.15 percent and 1.76 percent, for 2013 and 2012, respectively, and is evaluated by the Japanese Pension Investment Committee on a quarterly and annually basis along with various investment managers, and is revised to achieve the optimal allocation to meet targeted funding levels if necessary. In addition, the funding policy is revised in accordance with local regulation every five years.

The expected weighted average long-term rate of return for all our non-U.S. pension plans was 2.60 percent and 2.91 percent for the years ended December 31, 2013 and 2012, respectively. It is an aggregation of expected returns within each asset class that was generally developed based on the building block approach that considers historical returns, current market conditions, asset volatility and the expectations for future market returns.

 

Assets Measured at Fair Value

 

The following table presents information about our plan assets and indicates the level of the fair value measurement based on the observability of the inputs used. The inputs and methodology used in determining the fair value of these assets are consistent with those used to measure our assets as noted in Note 5 herein.

 

   
 
  U.S. Plans   Non-U.S. Plans  
(in millions)
  Level 1
  Level 2
  Level 3
  Total
  Level 1
  Level 2
  Level 3
  Total
 
   

At December 31, 2013

                                                 

Assets:

                                                 

Cash and cash equivalents

  $ 137   $   $   $ 137   $ 92   $   $   $ 92  

Equity securities:

                                                 

U.S.(a)

    1,840     220         2,060     26             26  

International(b)

    189     18         207     254     47         301  

Fixed maturity securities:

                                                 

U.S. investment grade(c)

        702     9     711                  

International investment grade(c)

                    1     163         164  

U.S. and international high yield(d)

        281         281         82         82  

Mortgage and other asset-backed securities(e)

        7         7                  

Other fixed maturity securities

                        10     19     29  

Other investment types:

                                                 

Hedge funds(f)

        297     35     332                  

Futures

    14             14                  

Private equity(g)

            248     248                  

Insurance contracts

        27         27             44     44
   

Total

  $ 2,180   $ 1,552   $ 292   $ 4,024   $ 373   $ 302   $ 63   $ 738
   

At December 31, 2012

                                                 

Assets:

                                                 

Cash and cash equivalents

  $ 229   $   $   $ 229   $ 113   $   $   $ 113  

Equity securities:

                                                 

U.S.(a)

    1,597     31         1,628     21     1         22  

International(b)

    290     18         308     240             240  

Fixed maturity securities:

                                                 

U.S. investment grade(c)

        763     11     774                  

International investment grade(c)

                        169         169  

U.S. and international high yield(d)

        134         134         96         96  

Mortgage and other asset-backed securities(e)

        59         59                  

Other fixed maturity securities

                        17     27     44  

Other investment types:

                                                 

Hedge funds(f)

        334         334                  

Private equity(g)

            225     225                  

Insurance contracts

        29         29             43     43
   

Total

  $ 2,116   $ 1,368   $ 236   $ 3,720   $ 374   $ 283   $ 70   $ 727
   

(a)  Includes index funds that primarily track several indices including S&P 500 and S&P Small Cap 600 as well as other actively managed accounts composed of investments in large cap companies.

(b)  Includes investments in companies in emerging and developed markets.

(c)  Represents investments in U.S. and non-U.S. government issued bonds, U.S. government agency or sponsored agency bonds, and investment grade corporate bonds.

(d)  Consists primarily of investments in securities or debt obligations that have a rating below investment grade.

(e)  Comprised primarily of investments in U.S. government agency or U.S. government sponsored agency bonds.

(f)   Includes funds composed of macro, event driven, long/short equity, and controlled risk hedge fund strategies and a separately managed controlled risk strategy.

(g)  Includes funds that are diverse by geography, investment strategy, sector and vintage year.

The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Based on our investment strategy, we had no significant concentrations of risks at December 31, 2013.

The U.S. pension plan holds a group annuity contract with U.S. Life, one of our subsidiaries, which totaled $27 million and $29 million at December 31, 2013 and 2012, respectively.

Changes in Level 3 fair value measurements

 

The following table presents changes in our U.S. and non-U.S. Level 3 plan assets measured at fair value:

 

   
At December 31, 2013
(in millions)
  Balance
Beginning
of year

  Net
Realized and
Unrealized
Gains
(Losses)

  Purchases
  Sales
  Issuances
  Settlements
  Transfers
In

  Transfers
Out

  Balance
at End
of year

  Changes in
Unrealized
Gains
(Losses) on
Instruments
Held at
End of year

 
   

U.S. Plan Assets:

                                                             

Fixed maturity securities

                                                             

U.S. investment grade

  $ 11   $ (2 ) $ 2   $ (2 ) $   $   $   $   $ 9   $ (3 )

Hedge funds

                            35         35      

Private equity

    225     7     44     (26 )       (2 )           248     (14 )
   

Total

  $ 236   $ 5   $ 46   $ (28 ) $   $ (2 ) $ 35   $   $ 292   $ (17 )
   

Non-U.S. Plan Assets:

                                                             

Other fixed maturity securities

  $ 27   $ 1   $   $ (8 ) $   $   $   $ (1 ) $ 19   $  

Insurance contracts

    43     3     1     (1 )               (2 )   44    
   

Total

  $ 70   $ 4   $ 1   $ (9 ) $   $   $   $ (3 ) $ 63   $
   


 

 

   
At December 31, 2012
(in millions)
  Balance
Beginning
of year

  Net
Realized and
Unrealized
Gains
(Losses)

  Purchases
  Sales
  Issuances
  Settlements
  Transfers
In

  Transfers
Out

  Balance
at End
of year

  Changes in
Unrealized
Gains
(Losses) on
Instruments
Held at
End of year

 
   

U.S. Plan Assets:

                                                             

Fixed maturity securities

                                                             

U.S. investment grade

  $ 1   $ 5   $ 9   $ (29 ) $   $ (10 ) $ 36   $ (1 ) $ 11   $ 1  

Mortgage and other asset-

                                                             

backed securities

    36                             (36 )        

Private equity

    223     9     23     (26 )           4     (8 )   225     (14 )
   

Total

  $ 260   $ 14   $ 32   $ (55 ) $   $ (10 ) $ 40   $ (45 ) $ 236   $ (13 )
   

Non-U.S. Plan Assets:

                                                             

Other fixed maturity securities

  $ 1   $   $   $ (1 ) $   $   $ 27   $   $ 27   $  

Insurance contracts

    39     2     2                         43    
   

Total

  $ 40   $ 2   $ 2   $ (1 ) $   $   $ 27   $   $ 70   $
   

Transfers of Level 1 and Level 2 Assets

 

Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. We had no material transfers between Level 1 and Level 2 during the years ended December 31, 2013 and 2012.

Transfers of Level 3 Assets

 

We record transfers of assets into or out of Level 3 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. During the year ended December 31, 2013, we transferred certain investments in hedge funds into Level 3 as a result of limited market activity due to fund-imposed redemption restrictions. During the year ended December 31, 2012, transfers of assets into Level 3 included certain other fixed maturity securities. These transfers were due to a decrease in market transparency, downward credit migration and an overall increase in price disparity.

 

Expected Cash Flows

 

Funding for the U.S. pension plan ranges from the minimum amount required by ERISA to the maximum amount that would be deductible for U.S. tax purposes. Contributed amounts in excess of the minimum amounts are deemed voluntary. Amounts in excess of the maximum amount would be subject to an excise tax and may not be deductible under the Internal Revenue Code. There are no minimum required cash contributions for the AIG Retirement Plan in 2014. Supplemental Plan, or AIG NQRIP, and postretirement plan payments are deductible when paid.

Our annual pension contribution in 2014 is expected to be approximately $177 million for our U.S. and non-U.S. plans. Included in this amount is $100 million in contributions to the AIG Retirement Plan. These estimates are subject to change, since contribution decisions are affected by various factors including our liquidity, market performance and management's discretion.

The expected future benefit payments, net of participants' contributions, with respect to the defined benefit pension plans and other postretirement benefit plans, are as follows:

 

   
 
  Pension   Postretirement  
(in millions)
  U.S.
Plans

  Non-U.S.
Plans

  U.S.
Plans

  Non-U.S.
Plans

 
   

2014

  $ 311   $ 41   $ 15   $ 1  

2015

    320     40     16     1  

2016

    330     40     16     1  

2017

    348     44     17     2  

2018

    350     49     18     2  

2019 – 2023

    1,871     260     99     11
   

 

Defined Contribution Plans

 

We sponsor several defined contribution plans for U.S. employees that provide for pre-tax salary reduction contributions by employees. The most significant plan is the AIG Incentive Savings Plan, for which the Company's matching contribution is 100 percent of the first six percent of a participant's contributions, subject to the IRS-imposed limitations. In 2011, company contributions of up to seven percent of annual salary were made depending on the employee's years of service subject to certain compensation limits. Our pre-tax expenses associated with these plans were $155 million, $133 million and $99 million in 2013, 2012 and 2011 respectively.


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