Summary
The Hartford Financial Services Group, Inc. (HIG) filed an 8-K on September 10, 2003, to disclose significant changes to its defined benefit pension plan. Effective January 1, 2009, the company will transition the calculation of pension benefits for employees hired before January 1, 2001, from a "final average pay" formula to a "cash balance" formula. Employees hired on or after January 1, 2001, are already under the cash balance plan. This change is anticipated to materially reduce the rate of increase in annual pension expenses starting in 2004. As of December 31, 2002, the company's aggregate pension benefit obligation was $2.6 billion. The company estimates that the approved changes, if applied retrospectively, would have reduced this obligation by approximately 10%. However, the actual impact on the obligation as of December 31, 2003, will depend on various market factors like interest rates and stock market performance.
Key Highlights
- 1The Hartford Financial Services Group, Inc. is modifying its defined benefit pension plan.
- 2The "cash balance" formula will be applied to all employees hired before January 1, 2001, effective January 1, 2009.
- 3This transition from the "final average pay" formula aims to control the growth of annual pension expenses.
- 4The company projects a reduction in the rate of pension expense increases beginning in 2004.
- 5An estimated 10% reduction in the aggregate pension benefit obligation ($2.6 billion as of 12/31/2002) could be realized retrospectively due to these changes.
- 6The actual future pension benefit obligation will be influenced by prevailing interest rates and market conditions.