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. Effective October 1, 2013, the U.S. defined benefit plan was frozen to new employees hired on or after October 1, 2013 and to employees rehired on or after October 1, 2013. During the fourth quarter of 2013, active participants in the U.S. defined benefit plan were given the option to exit the benefit plan and receive a nonelective 401(k) contribution. The active participants who selected this opt out election had an immaterial impact on our accumulated benefit obligation. For further information see the 401(k) plan section below.

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 (rule of 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.

On October 1, 2013, a change was made to postretirement medical benefits to limit the eligibility for the benefits beginning January 1, 2014 to include the following: (1) active employees who have met the rule of 80; (2) active employees who are age 55 or older and have met the 15 years of service requirement; (3) active employees who will meet the rule of 80 in the next five; (4) active employees who will be age 55 or older and who will meet the 15 years of service requirement with the next five; and (5) current retirees. Effective October 1, 2013, this change was accounted for as a negative plan amendment and resulted in a reduction to the postretirement benefit obligation of $51 million, with an offset to accumulated other comprehensive income (AOCI). This reduction will be amortized as a reduction to net periodic benefit cost over three years beginning in the fourth quarter of 2013. The postretirement plan obligation was remeasured using a discount rate of 4.75% as of October 1, 2013.

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)	2013				2012				2013				2012				2013					2012
Projected benefit obligation:
Benefit obligation, beginning of year		$	313			$	329			$	613			$	525			$	98				$	83
Service cost		16				18				22				18				5					6
Interest cost		10				7				23				24				3					4
Plan amendments		0				0				(4		)		0				(51		)			2
Actuarial (gain) loss		(3		)		3				(37		)		60				(7		)			5
Benefits and expenses paid		(8		)		(8		)		(16		)		(14		)		(2		)			(2		)
Effect of foreign exchange rate changes		(58		)		(36		)		0				0				0					0
Benefit obligation, end of year		270				313				601				613				46					98

Plan assets:
Fair value of plan assets, beginning of year		187				171				261				224				0					0
Actual return on plan assets		13				17				39				31				0					0
Employer contributions		26				27				29				20				2					2
Benefits and expenses paid		(8		)		(8		)		(16		)		(14		)		(2		)			(2		)
Effect of foreign exchange rate changes		(36		)		(20		)		0				0				0					0
Fair value of plan assets, end of year		182				187				313				261				0					0
Funded status of the plans⁽¹⁾		$	(88	)		$	(126	)		$	(288	)		$	(352	)		$	(46	)			$	(98	)

Amounts recognized in accumulated other comprehensive income:
Net actuarial (gain) loss		$	33			$	57			$	111			$	185			$	25				$	34
Prior service (credit) cost		(2		)		(3		)		(4		)		0				(45		)			2
Transition obligation		1				1				0				0				0					0
Total included in accumulated other comprehensive income		$	32			$	55			$	107			$	185			$	(20	)			$	36
Accumulated benefit obligation		$	239			$	276			$	514			$	516			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
	2013			2012			2011			2013			2012			2011			2013			2012			2011
Weighted-average actuarial assumptions:
Discount rate - net periodic benefit cost	2.25	%		2.25	%		2.25	%		4.25	%		4.75	%		5.50	%		4.25	%		4.75	%		5.50	%
Discount rate - benefit obligations	2.25			2.25			2.25			4.75			4.25			4.75			4.75			4.25			4.75
Expected long-term return on plan assets	2.00			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⁾	6.40		⁽²⁾	5.70		⁽²⁾	7.30		⁽²⁾

⁽¹⁾ Not applicable

⁽²⁾For the years 2013, 2012 and 2011, the health care cost trend rates are expected to trend down to 4.6% in 78 years, 4.7% in

79 years, and 4.2% 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, 2013:



(In millions)
One percentage point increase:
Increase in total service and interest costs	$	0
Increase in postretirement benefit obligation	3

One percentage point decrease:
Decrease in total service and interest costs	$	0
Decrease in postretirement benefit obligation	3

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)	2013				2012				2011				2013				2012				2011				2013				2012			2011
Service cost		$	16			$	18			$	17			$	22			$	18			$	14			$	5			$	6		$	4
Interest cost		10				7				12				23				24				28				3				4			3
Expected return on plan assets		(3		)		(4		)		(4		)		(17		)		(16		)		(14		)		0				0			0
Amortization of net actuarial loss		2				3				3				15				11				6				2				1			1
Amortization of prior service cost		0				0				0				0				0				0				(4		)		0			0
Net periodic (benefit) cost		$	25			$	24			$	28			$	43			$	37			$	34			$	6			$	11		$	8

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)	2013				2012				2011				2013				2012				2011				2013				2012				2011
Net actuarial loss (gain)		$	(14	)		$	(10	)		$	5			$	(59	)		$	45			$	57			$	(7	)		$	5			$	10
Amortization of net actuarial loss		(2		)		(3		)		(3		)		(15		)		(11		)		(6		)		(2		)		(1		)		(1		)
Prior service cost (credit)		0				0				0				(4		)		(1		)		0				(51		)		2				0
Amortization of prior service cost		0				0				0				0				0				0				4				0				0
Total		$	(16	)		$	(13	)		$	2			$	(78	)		$	33			$	51			$	(56	)		$	6			$	9

Prior service credits of $51 million were incurred in 2013 for the plan amendment related to the change in eligibility for postretirement medical benefits mentioned above. No transition obligations arose during 2013, and the transition obligations amortized to expense were immaterial for the years ended December 31, 2013, 2012 and 2011. Amortization of actuarial losses to expense in 2014 is estimated to be $1 million for the Japanese plans, $10 million for the U.S. plans and $3 million for the other postretirement benefits plan. Amortization of prior service credits in 2014 is estimated to be $17 million for the other postretirement benefits plan due to the negative plan amendment in 2013. The amortization of prior service costs and credits for other plans and transition obligations for all plans is 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
2014		$	10		$	21		$	2
2015		8			22			2
2016		7			23			3
2017		10			30			3
2018		8			31			4
2019-2023		66			184			22

Funding

We plan to make contributions of $22 million to the Japanese funded defined benefit plan and $10 million to the U.S. funded defined benefit plan in 2014. 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, 2013 were as follows:



	Japan Pension			U.S. Pension
Domestic equities		0	%		43	%
International equities		15			22
Fixed income securities		59			35
Mutual funds		11			0
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)	2013			2012
Japan pension plan assets:
Equities:
Japanese equity securities		$	0		$	15
International equity securities		34			42
Fixed income securities:
Japanese bonds		60			62
International bonds		43			44
Mutual funds		21			0
Insurance contracts		24			24
Total		$	182		$	187

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)	2013			2012
U.S. pension plan assets:
Mutual funds:
Large cap equity funds		$	110		$	87
Mid cap equity funds		19			16
Real estate equity funds		9			8
International equity funds		68			59
Fixed income bond funds		103			88
Aflac Incorporated common stock		4			3
Total		$	313		$	261

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 U.S. employees' contributions. The plan provides for salary reduction contributions by employees and, in 2013, 2012, and 2011, 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 2013, $5 million in 2012 and $4 million in 2011. The plan trustee held approximately two million shares of our common stock for plan participants at December 31, 2013.

Beginning on January 1, 2014, the Company will provide a nonelective contribution to the 401(k) plan of 2% of annual cash compensation for employees who elected to opt out of the future benefits of the U.S. defined benefit plan during the election period provided during the fourth quarter of 2013 and for new U.S. employees who started working for the Company after September 30, 2013.

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 2013 and 2012, compared with $35 million in 2011.