American Express 2011 Annual Report Download - page 97

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Asset Allocation and Fair Value
The Benefit Plans Investment Committee (BPIC) is appointed by
the Company’s Chief Executive Officer and has the responsibility
of reviewing and approving the investment policies related to
plan assets for the Company’s defined benefit pension plans;
evaluating the performance of the investments in accordance
with the investment policy; reviewing the investment objectives,
risk characteristics, expenses and historical performance; and
selecting, removing and evaluating the investment managers.
The BPIC typically meets quarterly to review the performance of
the various investment managers and service providers as well as
other investment related matters. The Company’s significant
defined benefit pension plans have investment policies, which
prescribe targets for the amount of assets that can be invested in
a security class in order to mitigate the detrimental impact of
adverse or unexpected results with respect to any individual
security class on the overall portfolio. The portfolios are
diversified by asset type, risk characteristics and concentration of
investments. Refer to Note 3 for a discussion related to valuation
techniques used to measure fair value, including a description of
the three-level fair value hierarchy of inputs.
The following tables summarize the target allocation and categorization of all defined benefit pension plan assets measured at fair value
on a recurring basis by GAAP’s valuation hierarchy:
As of December 31, 2011:
(Millions, except percentages)
Target
Allocation
2012 Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
U.S. equity securities 15% $ 250 $ 250 $ – $ –
International equity securities(a) 30% 644 644 – –
U.S. fixed income securities 30% 582 – 582 –
International fixed income securities(a) 15% 406 – 406 –
Balanced funds 5% 69 – 69 –
Cash –1212 – –
Other(b) 5% 106 – – 106
Total 100% $ 2,069 $ 906 $ 1,057 $ 106
As of December 31, 2010:
(Millions, except percentages)
Target
Allocation
2011 Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
U.S. equity securities 15% $ 331 $ 331 $ – $ –
International equity securities(a) 30% 704 704 – –
U.S. fixed income securities 30% 522 – 522 –
International fixed income securities(a) 15% 318 – 318 –
Balanced funds 5% 65 – 65 –
Cash –1111 – –
Other(b) 5% 101 – – 101
Total 100% $ 2,052 $ 1,046 $ 905 $ 101
(a) A significant portion of international investments are in U.K. companies and U.K. government and agency securities.
(b) Consists of investments in private equity and real estate funds measured at reported net asset value.
The fair value measurement of all defined benefit pension plan
assets using significant unobservable inputs (Level 3) changed
during the years ended December 31:
(Millions) 2011 2010
Beginning fair value, January 1 $ 101 $98
Actual net gains on plan assets:
Held at the end of the year 12 11
Sold during the year 2–
Total net gains 14 11
Net purchases (sales and settlements) (9) (8)
Net increase 53
Ending fair value, December 31 $ 106 $ 101
Benefit Payments
The Company’s defined benefit pension plans expect to make
benefit payments to retirees as follows:
(Millions) 2012 2013 2014 2015 2016
2017
–2021
Expected payments $ 152 $ 155 $ 160 $ 168 $ 182 $ 931
In addition, the Company expects to contribute $26 million to its
defined benefit pension plans in 2012.
95