BENEFIT PLANS

Pension and Other Postretirement Plans

We have funded defined benefit plans in Japan and the United States, which cover substantially all of our full-time employees. Additionally, we maintain non-qualified, unfunded supplemental retirement plans that provide defined pension benefits in excess of limits imposed by federal tax law for certain Japanese, U.S. and former employees.

We provide certain health care benefits for eligible U.S. retired employees, their beneficiaries and covered dependents ("other postretirement benefits"). The health care plan is contributory and unfunded. Substantially all of our U.S. employees may become eligible to receive other postretirement benefits if they retire at age 55 or older with at least 15 years of service or if they retire when their age plus service, in years, equals or exceeds 80. At retirement, an employee is given an opportunity to elect continuation of coverage under our medical plan until age 65. For certain employees and former employees, additional coverage is provided for all medical expenses for life.

Information with respect to our benefit plans' assets and obligations as of December 31 was as follows:



	Pension Benefits																Other
	Japan								U.S.								Postretirement Benefits
(In millions)	2012				2011				2012				2011				2012					2011
Projected benefit obligation:
Benefit obligation, beginning of year		$	329			$	297			$	525			$	454			$	83				$	67
Service cost		18				17				18				14				6					4
Interest cost		7				12				24				28				4					3
Plan amendments		0				0				0				0				2					0
Actuarial (gain) loss		3				0				60				42				5					10
Benefits and expenses paid		(8		)		(10		)		(14		)		(13		)		(2		)			(1		)
Effect of foreign exchange rate changes		(36		)		13				0				0				0					0
Benefit obligation, end of year		313				329				613				525				98					83

Plan assets:
Fair value of plan assets, beginning of year		171				147				224				209				0					0
Actual return on plan assets		17				(2		)		31				0				0					0
Employer contributions		27				29				20				28				2					1
Benefits and expenses paid		(8		)		(10		)		(14		)		(13		)		(2		)			(1		)
Effect of foreign exchange rate changes		(20		)		7				0				0				0					0
Fair value of plan assets, end of year		187				171				261				224				0					0
Funded status of the plans⁽¹⁾		$	(126	)		$	(158	)		$	(352	)		$	(301	)		$	(98	)			$	(83	)

Amounts recognized in accumulated other comprehensive income:
Net actuarial (gain) loss		$	57			$	77			$	185			$	151			$	34				$	30
Prior service (credit) cost		(3		)		(4		)		0				1				2					0
Transition obligation		1				1				0				0				0					0
Total included in accumulated other comprehensive income		$	55			$	74			$	185			$	152			$	36				$	30
Accumulated benefit obligation		$	276			$	295			$	516			$	448			N/A			⁽²⁾		N/A			⁽²⁾

⁽¹⁾ Recognized in other liabilities in the consolidated balance sheets

⁽²⁾Not applicable



	Pension Benefits																		Other
	Japan									U.S.									Postretirement Benefits
	2012			2011			2010			2012			2011			2010			2012			2011			2010
Weighted-average actuarial assumptions:
Discount rate - net periodic benefit cost	2.25	%		2.25	%		2.50	%		4.75	%		5.50	%		5.75	%		4.75	%		5.50	%		5.75	%
Discount rate - benefit obligations	2.25			2.25			2.25			4.25			4.75			5.50			4.25			4.75			5.50
Expected long-term return on plan assets	2.50			2.50			2.50			7.50			7.50			7.50			N/A		⁽¹⁾	N/A		⁽¹⁾	N/A		⁽¹⁾
Rate of compensation increase	N/A		⁽¹⁾	N/A		⁽¹⁾	N/A		⁽¹⁾	4.00			4.00			4.00			N/A		⁽¹⁾	N/A		⁽¹⁾	N/A		⁽¹⁾
Health care cost trend rates	N/A		⁽¹⁾	N/A		⁽¹⁾	N/A		⁽¹⁾	N/A		⁽¹⁾	N/A		⁽¹⁾	N/A		⁽¹⁾	5.70		⁽²⁾	7.30		⁽²⁾	7.50		⁽²⁾

⁽¹⁾ Not applicable

⁽²⁾For the years 2012, 2011 and 2010, the health care cost trend rates are expected to trend down to 4.7% in 79 years, 4.2% in

75 years, and 3.9% in 75 years, respectively.

We determine our discount rate assumption for our pension retirement obligations based on indices for AA corporate bonds with an average duration of approximately 20 years for the Japan pension plans and 17 years for the U.S. pension plans, and determination of the U.S. pension plans discount rate utilizes the 85-year extrapolated yield curve. In Japan, participant salary and future salary increases are not factors in determining pension benefit cost or the related pension benefit obligation.

We base our assumption for the long-term rate of return on assets on historical trends (10-year or longer historical rates of return for the Japanese plan assets and 15-year historical rates of return for the U.S. plan assets), expected future market movement, as well as the portfolio mix of securities in the asset portfolio including, but not limited to, style, class and equity and fixed income allocations. In addition, our consulting actuaries evaluate our assumptions for long-term rates of return under Actuarial Standards of Practice (ASOP). Under the ASOP, the actual portfolio type, mix and class is modeled to determine a range of long-term rates of return. We in turn use those results to further validate our own assumptions.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point increase and decrease in assumed health care cost trend rates would have the following effects as of December 31, 2012:



(In millions)
One percentage point increase
Increase in total service and interest costs	$	2
Increase in postretirement benefit obligation	14

One percentage point decrease
Decrease in total service and interest costs	$	2
Decrease in postretirement benefit obligation	12

Components of Net Periodic Benefit Cost

Pension and other postretirement benefit expenses, included in acquisition and operating expenses in the consolidated statements of earnings for the years ended December 31, included the following components:



	Pension Benefits																								Other
		Japan											U.S.												Postretirement Benefits
(In millions)	2012				2011				2010				2012				2011				2010				2012			2011			2010
Service cost		$	18			$	17			$	14			$	18			$	14			$	13			$	6		$	4		$	3
Interest cost		7				12				12				24				28				26				4			3			3
Expected return on plan assets		(4		)		(4		)		(4		)		(16		)		(14		)		(12		)		0			0			0
Amortization of net actuarial loss		3				3				3				11				6				5				1			1			1
Net periodic (benefit) cost		$	24			$	28			$	25			$	37			$	34			$	32			$	11		$	8		$	7

Changes in Accumulated Other Comprehensive Income

The following table summarizes the amounts recognized in other comprehensive loss (income) for the years ended December 31:



	Pension Benefits																								Other
	Japan												U.S.												Postretirement Benefits
(In millions)	2012				2011				2010				2012				2011				2010				2012				2011				2010
Net actuarial loss (gain)		$	(10	)		$	5			$	11			$	45			$	57			$	13			$	5			$	10			$	8
Amortization of net actuarial loss		(3		)		(3		)		(3		)		(11		)		(6		)		(5		)		(1		)		(1		)		(1		)
Prior service cost (credit)		0				0				0				(1		)		0				0				2				0				0
Total		$	(13	)		$	2			$	8			$	33			$	51			$	8			$	6			$	9			$	7

The increase in net actuarial loss in 2012 and 2011, compared with 2010, for the U.S. pension plans was primarily due to the decrease in the discount rate as disclosed in the actuarial assumptions table above. Prior service costs of $2 million were incurred in 2012 for a plan amendment to the other postretirement benefits plan related to prior service granted to Aflac Group employees. No transition obligations arose during 2012, and the amounts of prior service costs and credits and transition obligations amortized to expense were immaterial for the years ended December 31, 2012, 2011 and 2010. Amortization of actuarial losses to expense in 2013 is estimated to be $2 million for the Japanese plans, $15 million for the U.S. plans and $1 million for the other postretirement benefits plan, while the amortization of prior service costs and credits and transition obligations are expected to be negligible.

Benefit Payments

The following table provides expected benefit payments, which reflect expected future service, as appropriate.



	Pension Benefits						Other
(In millions)	Japan			U.S.			Postretirement Benefits
2013		$	10		$	19		$	2
2014		8			20			2
2015		9			21			3
2016		10			28			3
2017		10			29			4
2018-2022		68			171			25

Funding

We plan to make contributions of $22 million to the Japanese funded defined benefit plan and $20 million to the U.S. funded defined benefit plan in 2013. The funding policy for our non-qualified supplemental defined benefit pension plans and other postretirement benefits plan is to contribute the amount of the benefit payments made during the year.

Plan Assets

The investment objective of our Japanese and U.S. funded defined benefit plans is to preserve the purchasing power of the plan's assets and earn a reasonable inflation-adjusted rate of return over the long term. Furthermore, we seek to accomplish these objectives in a manner that allows for the adequate funding of plan benefits and expenses. In order to achieve these objectives, our goal is to maintain a conservative, well-diversified and balanced portfolio of high-quality equity, fixed-income and money market securities. As a part of our strategy, we have established strict policies covering quality, type and concentration of investment securities. For our Japanese plan, these policies include limitations on investments in derivatives including futures, options and swaps, and low-liquidity investments such as real estate, venture capital investments, and privately issued securities. For our U.S. plan, these policies prohibit investments in precious metals, limited partnerships, venture capital, and direct investments in real estate. We are also prohibited from trading on margin.

The plan fiduciaries for our funded defined benefit plans have developed guidelines for asset allocations reflecting a percentage of total assets by asset class, which are reviewed on an annual basis. Asset allocation targets as of December 31, 2012 were as follows:



	Japan Pension			U.S. Pension
Domestic equities		7	%		43	%
International equities		19			22
Fixed income securities		59			35
Other		15			0
Total		100	%		100	%

The following table presents the fair value of Aflac Japan's pension plan assets that are measured at fair value on a recurring basis as of December 31. All of these assets are classified as Level 2 in the fair value hierarchy.



(In millions)	2012			2011
Japan pension plan assets:
Equities:
Japanese equity securities		$	15		$	11
International equity securities		42			34
Fixed income securities:
Japanese bonds		62			60
International bonds		44			42
Insurance contracts		24			24
Total		$	187		$	171

The following table presents the fair value of Aflac U.S.'s pension plan assets that are measured at fair value on a recurring basis as of December 31. All of these assets are classified as Level 1 in the fair value hierarchy.



(In millions)	2012			2011
U.S. pension plan assets:
Mutual funds:
Large cap equity funds		$	87		$	77
Mid cap equity funds		16			13
Real estate equity funds		8			7
International equity funds		59			45
Fixed income bond funds		88			79
Aflac Incorporated common stock		3			3
Total		$	261		$	224

The fair values of our pension plan investments categorized as Level 1, consisting of mutual funds and common stock, are based on quoted market prices for identical securities traded in active markets that are readily and regularly available to us. The fair values of our pension plan investments classified as Level 2 are based on quoted prices for similar assets in markets that are not active, other inputs that are observable, such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates, or other market-corroborated inputs.

401(k) Plan

The Company sponsors a 401(k) plan in which we match a portion of employees' contributions. The plan provides for salary reduction contributions by employees and, in 2012, 2011, and 2010, provided matching contributions by the Company of 50% of each employee's contributions which were not in excess of 6% of the employee's annual cash compensation. The matching contributions by the Company, included in acquisition and operating expenses in the consolidated statements of earnings, were $5 million in 2012, and $4 million in 2011 and 2010. The plan trustee held approximately two million shares of our common stock for plan participants at December 31, 2012.

Stock Bonus Plan

Aflac U.S. maintains a stock bonus plan for eligible U.S. sales associates. Plan participants receive shares of Aflac Incorporated common stock based on their new annualized premium sales and their first-year persistency of substantially all new insurance policies. The cost of this plan, which was capitalized as deferred policy acquisition costs, amounted to $38 million in 2012, $35 million in 2011 and $34 million in 2010.