Benefit Plans

12 Months Ended

Dec. 31, 2011

Benefit Plans

Benefit Plans

Note 25.  Benefit Plans

Between the closing of the FCFI Transaction and January 1, 2011, we continued to participate in various benefit plans sponsored by AIG in accordance with the terms of the FCFI Transaction. These plans included a noncontributory qualified defined benefit retirement plan, post retirement health and welfare and life insurance plans, various stock option, incentive and purchase plans, and a 401(k) plan.

On January 1, 2011, we established the Retirement Plan and a 401(k) plan in which most of our employees are eligible to participate. The Retirement Plan is based on substantially the same terms as the AIG plan it replaced. In addition, we sponsor unfunded defined benefit plans for certain employees. We also provide postretirement health and welfare and life insurance plans. The Company’s employees in Puerto Rico participate in a defined benefit pension plan sponsored by CommoLoCo, Inc., our Puerto Rican subsidiary.

PENSION PLANS

The Company and its subsidiaries offer various defined benefit plans to eligible employees based on completion of a specified period of continuous service, subject to age limitations.

The Company’s Retirement 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, have attained age 21, and completed twelve months of continuous service are eligible to participate in the plan. Employees generally vest after 5 years of service. Unreduced benefits are paid to retirees at normal retirement (age 65) and are based upon a percentage of final average compensation multiplied by years of credited service, up to 44 years. The CommoLoCo Retirement Plan is a noncontributory defined benefit plan which is subject to the provisions of the Puerto Rico tax code. Puerto Rican residents employed by CommoLoCo, Inc. who have attained age 21 and completed one year of service participate in the plan.

We also sponsor unfunded defined benefit plans for certain employees, including key executives, designed to supplement pension benefits provided by our other retirement plans. These include: (1) the Excess Retirement Income Plan, which provides a benefit equal to the reduction in benefits payable to certain employees under our qualified retirement plan as a result of federal tax limitations on compensation and benefits payable; and (2) the Supplemental Executive Retirement Plan (SERP), which provides additional retirement benefits to designated executives. Benefits under the SERP were frozen at the end of August 2004.

POSTRETIREMENT PLANS

The Company and its subsidiaries also provide postretirement medical care and life insurance benefits. Eligibility is based upon completion of 10 years of credited service and attainment of age 55. Life and dental benefits are closed to new participants.

Postretirement medical and life insurance benefits are based upon the employee electing immediate retirement and having a minimum of ten years of service. Medical benefits are contributory, while the life insurance benefits are non-contributory. Retiree medical contributions are based on the actual premium payments reduced by Company-provided credits. These retiree contributions are subject to adjustment annually. Other cost sharing features of the medical plan include deductibles, coinsurance, and Medicare coordination.

The following table presents the funded status of the plans, reconciled to the net amount included in other liabilities:

(dollars in thousands)	Pension (a)			Postretirement (b)
Successor Company
At or for the Year Ended December 31, 2011
Projected benefit obligation, beginning of period	$	310,089		$	5,821
Service cost	12,543			256
Interest cost	18,162			281
Actuarial loss	105,243			500
Benefits paid:
Company assets	—			(133		)
Plan assets	(10,816		)	—
Projected benefit obligation, end of period	435,221			6,725
Fair value of plan assets, beginning of period	281,308			—
Actual return on plan assets, net of expenses	68,109			—
Company contributions	11,773			133
Benefits paid:
Company assets	—			(133		)
Plan assets	(10,816		)	—
Fair value of plan assets, end of period	350,374			—
Funded status, end of period	$	(84,847	)	$	(6,725	)
Net amounts recognized in the consolidated balance sheet:
Assets	$	—		$	—
Liabilities	84,847			6,725
Total amounts recognized	$	(84,847	)	$	(6,725	)
Pretax amounts recognized in accumulated other comprehensive income or loss:
Net loss	$	(53,882	)	$	(416	)
Prior service (cost) credit	—			—
Total amounts recognized	$	(53,882	)	$	(416	)

(a)Includes non-qualified unfunded plans, for which the aggregate projected benefit obligation was $10.0 million at December 31, 2011.

(b)The Company does not currently fund postretirement benefits.

The accumulated benefit obligation for U.S. pension benefit plans at December 31, 2011 was $367.1 million.

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:

	Successor Company
	PBO Exceeds Fair Value of Plan Assets		ABO Exceeds Fair Value of Plan Assets
(dollars in thousands)	December 31, 2011		December 31, 2011
Projected benefit obligation	$	435,221	$	435,221
Accumulated benefit obligation	$	367,067	$	367,067
Fair value of plan assets	$	350,374	$	350,374

The following table presents the components of net periodic benefit cost recognized in income and other amounts recognized in accumulated other comprehensive income or loss with respect to the defined benefit pension plans and other postretirement benefit plans:

(dollars in thousands)	Pension			Postretirement
Successor Company
Year Ended December 31, 2011
Components of net periodic benefit cost:
Service cost	$	12,543		$	256
Interest cost	18,162			281
Expected return on assets	(17,421		)	—
Actuarial gain	—			(1		)
Settlement loss	68			—
Net periodic benefit cost	13,352			536
Total recognized in other comprehensive income or loss	54,487			501
Total recognized in net periodic benefit cost and other comprehensive income or loss	$	67,839		$	1,037

The estimated net loss that will be amortized from accumulated other comprehensive income or loss into net periodic benefit cost over the next fiscal year is $1.1 million for our combined defined benefit pension plans. We estimate that the prior service credit that will be amortized from accumulated other comprehensive income or loss into net periodic benefit cost over the next fiscal year will be zero for our combined defined benefit pension plans. We estimate that the estimated amortization from accumulated other comprehensive income or loss for net loss and prior service credit that will be amortized into net periodic benefit cost over the next fiscal year will be zero for our defined benefit postretirement plans.

Assumptions

The following table summarizes the weighted average assumptions used to determine the projected benefit obligations and the net periodic benefit costs:

	Pension		Postretirement
Successor Company
December 31, 2011
Projected benefit obligation:
Discount rate	4.42	%	4.32	%
Rate of compensation increase	3.78	%	N/A	*
Net periodic benefit costs:
Discount rate	5.56	%	5.31	%
Rate of compensation increase	3.78	%	N/A
Expected return on assets	6.04	%	N/A

*Not applicable

Discount Rate Methodology

The projected benefit cash flows were discounted using the spot rates derived from the unadjusted Citigroup Pension Discount Curve at December 31, 2011 and an equivalent single discount rate was derived that resulted in the same liability. This single discount rate for each plan was used.

Plan Assets

The investment strategy with respect to assets relating to our 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 indigenous to each asset class.

Pension Plans

The long-term strategic asset allocation is reviewed and revised annually. The plans’ assets are monitored by the Company’s Retirement Plans Committee and the investment managers, which can entail allocating the plans assets among approved asset classes within pre-approved ranges permitted by the strategic allocation.

At December 31, 2011, the actual asset allocation for the primary asset classes was 77% in fixed income securities, 17% representing the transfer due from the AIG Retirement Plan, and 6% in equity securities. The 2012 target asset allocation for the primary asset classes is 94% in fixed income securities and 6% in equity securities. The actual allocation may differ from the target allocation at any particular point in time.

The expected long-term rate of return for the plans was 6.0% for the Retirement Plan and 7% for the CommoLoCo Retirement Plan for 2011. The expected rate of return is an aggregation of expected returns within each asset class category. The expected asset return and any contributions made by the Company together are expected to maintain the plans’ ability to meet all required benefit obligations. The expected asset return with respect to each asset class was developed based on a building block approach that considers historical returns, current market conditions, asset volatility and the expectations for future market returns. While the assessment of the expected rate of return is long-term and thus not expected to change annually, significant changes in investment strategy or economic conditions may warrant such a change.

Assets Measured at Fair Value

The inputs and methodology used in determining the fair value of the plan assets are consistent with those used to measure our assets.

The following table presents information about our plan assets measured at fair value and indicates the fair value hierarchy based on the levels of inputs we utilized to determine such fair value:

(dollars in thousands)	Level 1		Level 2		Level 3		Total
Successor Company
December 31, 2011
Assets:
Cash and cash equivalents	$	1,587	$	—	$	—	$	1,587
Equity securities:
U.S. (a)	1,612		16,831		—		18,443
International (b)	917		—		—		917
Fixed income securities:
U.S. investment grade (c)	—		268,077		—		268,077
U.S. high yield (d)	—		1.425		—		1.425
Transfer due from AIG Retirement Plan (e)	—		—		59,925		59,925
Total	$	4,116	$	286,333	$	59,925	$	350,374

(a)Includes index funds that primarily track several indices including S&P 500 and S&P 600 in addition to other actively managed accounts, comprised of investments in large cap companies.

(b)Includes investment funds in companies in emerging and developed markets.

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

(d)Includes investment funds in securities or debt obligations that have a rating below investment grade.

(e)Represents the final settlement from the AIG Retirement Plan to the Retirement Plan to complete the transfer of plan assets, which will be complete by May 2012.

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 have no significant concentrations of risks.

Changes in Level 3 Fair Value Measurements

The following table presents changes in our Level 3 plan assets measured at fair value:

			Net gains (losses) included in:				Purchases,
(dollars in thousands)	Balance at beginning of period		Other revenues		Other comprehensive income (loss)		sales, issuances, settlements		Transfers into Level 3		Transfers out of Level 3		Balance at end of period
Successor Company
Year Ended December 31, 2011
Transfer due from AIG Retirement Plan	$	—	$	—	$	—	$	—	$	59,925	$	—	$	59,925

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. This range is generally not determined until the fourth quarter. 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. Supplemental and excess plans’ payments and postretirement plan payments are deductible when paid.

The annual pension contribution in 2012 is expected to be approximately $0.6 million for certain U.S. plans. These estimates are subject to change, since contribution decisions are affected by various factors including our liquidity, asset dispositions, market performance, and management’s discretion.

The expected future benefit payments, net of participants’ contributions, of our defined benefit pension plans and other postretirement benefit plans, at December 31, 2011 are as follows:

(dollars in thousands)	Pension		Postretirement
2012	$	10,300	$	174
2013	11,147		202
2014	11,978		229
2015	12,874		254
2016	13,874		282
2017-2021	86,431		1,818

Defined Contribution Plans

The Company sponsors a voluntary savings plan for U.S. employees, which provided for salary reduction contributions by employees and matching U.S. contributions by the Company of up to 6% of annual salary depending on the employees’ years of service. The salaries and benefit expense associated with this plan was $8.4 million in 2011. Effective January 1, 2012, the employees’ contribution of up to 6% will be matched by the Company by a percentage of the employees’ contribution of up to 6%, depending on the employees’ years of service.

SHARE-BASED COMPENSATION PLAN

We did not record any share-based compensation expense in 2011. We recorded share-based compensation expense of $15.3 million in 2010.