American Express 2012 Annual Report Download - page 105

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
폷Level 1 assets include investments in publicly traded equity
securities and mutual funds. These securities are actively
traded and valued using quoted prices for identical securities
from the market exchanges.
폷Level 2 assets include fixed-income securities and balanced
funds that are not actively traded or whose underlying
investments are valued using observable inputs. The fair value
of plan assets invested in fixed-income securities is generally
determined using valuation models that use observable inputs
such as benchmark yields, benchmark security prices, credit
spreads, prepayment speeds, reported trades and broker-dealer
quotes, all with reasonable levels of transparency. Plan assets
invested in balanced funds comprised primarily of equity and
fixed-income securities are valued using a unit price or net
asset value (NAV). When measuring the fair value of such
funds, the NAV, as provided by the fund sponsor, is
corroborated with observable inputs provided by pricing
services for the securities. In certain instances, NAVs may
require adjustments to more appropriately reflect the fair
value.
On an annual basis, the Company reaffirms its understanding of
the valuation techniques used by its pricing services and
corroborates the prices provided for reasonableness by
comparing the prices from the respective pricing services to
valuations obtained from different pricing sources. If pricing
discrepancies are identified between different pricing sources, the
Company evaluates such discrepancies to ensure that the prices
used for its valuation represent the fair value of the securities.
폷Level 3 assets include investments in private equity and real
estate funds valued using a NAV derived from significant un-
observable inputs. Where possible, private equity and real
estate investments are valued using a market approach based
on inputs such as trading multiples of comparable public
companies and current multiples for recent private
transactions in similar companies or properties. If appropriate
market data does not exist, investments are valued using an
income approach based on a discounted cash flow. Inputs are
derived from projected data based on the operating
performance of the underlying portfolio company or
investments, or by using third-party appraisals. On an annual
basis, the Company evaluates the inputs, assumptions and
valuation methodologies of the respective fund managers to
ensure that the NAVs are representative of fair value.
Refer to Note 3 for a discussion related to the three-level fair
value hierarchy.
The fair value of all defined benefit pension plan assets using
significant unobservable inputs (Level 3) changed during the
years ended December 31 as follows:
(Millions) 2012 2011
Beginning fair value, January 1 $ 106 $ 101
Actual net gains on plan assets:
Held at the end of the year 712
Sold during the year 52
Total net gains 12 14
Net purchases (sales and settlements) (42) (9)
Net (decrease) increase (30) 5
Ending fair value, December 31 $76$ 106
Benefit Payments
The Company’s defined benefit pension plans expect to make
benefit payments to retirees as follows:
(Millions) 2013 2014 2015 2016 2017
2018
– 2022
Expected payments $ 149 $ 162 $ 169 $ 174 $ 186 $ 954
In addition, the Company expects to contribute $46 million to its
defined benefit pension plans in 2013.
DEFINED CONTRIBUTION RETIREMENT PLANS
The Company sponsors defined contribution retirement plans,
the principal plan being the Retirement Savings Plan (RSP), a
401(k) savings plan with a profit-sharing component. The RSP is
a tax-qualified retirement plan subject to ERISA and covers most
employees in the United States. The RSP held 10 million and
11 million shares of American Express Common Stock as of
December 31, 2012 and 2011, respectively, beneficially for
employees. The Company matches employee before-tax and/or
Roth contributions to the plan up to a maximum of 5 percent of
total eligible compensation, subject to the limitations under the
Internal Revenue Code (IRC). Additional annual conversion
contributions of up to 8 percent of eligible compensation are
provided into the RSP for eligible employees. In its sole
discretion, the Company may make an annual profit-sharing
contribution equal to 0 percent to 5 percent of employees’
eligible compensation, and may vary the contribution amount
for different groups of employees. Employees need not
contribute to the RSP in order to receive a portion of any profit-
sharing contribution, but must be employed on the last working
day of the calendar year. Company contributions are subject to
employees meeting eligibility criteria. The Company also
sponsors the RRP, including RSP related accounts, which is an
unfunded non-qualified plan for employees whose RSP benefits
are limited by the IRC and its terms generally parallel those of
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