American Express 2012 Annual Report Download - page 104

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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The discount rate assumptions are determined using a model
consisting of bond portfolios that match the cash flows of the
plan’s projected benefit payments based on the plan participants’
service to date and their expected future compensation. Use of
the rate produced by this model generates a projected benefit
obligation that equals the current market value of a portfolio of
high-quality zero-coupon bonds whose maturity dates and
amounts match the timing and amount of expected future
benefit payments.
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. For
certain plans, the BPIC has delegated direct oversight to local
investment committees. The BPIC typically meets quarterly to
review the performance of the various investment managers and
advisers 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.
The Company’s retirement plan assets are reported at fair value. 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:
2012 (Millions, except percentages)
Target
Allocation
2013
Total
2012 Level 1 Level 2 Level 3
U.S. equity securities 15% $ 318 $ 318 $ — $ —
International equity securities(a) 30% 732 732 — —
U.S. fixed income securities 30% 639 — 639 —
International fixed income securities(a) 15% 447 — 447 —
Balanced funds 5% 72 — 72 —
Cash —2525——
Other(b) 5% 76 — — 76
Total 100% $ 2,309 $ 1,075 $ 1,158 $ 76
2011 (Millions, except percentages)
Target
Allocation
2012
Total
2011 Level 1 Level 2 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
(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.
102