Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Employee Benefit Plans

11. Employee Benefit Plans

(a) Alleghany Employee Defined Benefit Pension Plans

Alleghany has an unfunded, noncontributory defined benefit pension plan for executives and a smaller, funded, noncontributory defined benefit pension plan for employees.

The executive plan currently provides for designated employees (including all of Alleghany’s current executive officers) retirement benefits in the form of an annuity for the joint lives of the participant and his or her spouse or, alternatively, actuarially equivalent forms of benefits, including a lump sum. Under the executive plan, a participant must have completed five years of service with Alleghany before he or she is vested in, and thus has a right to receive, any retirement benefits following his or her termination of employment. The annual retirement benefit under the executive plan, if paid in the form of a joint and survivor life annuity to a participant who retires on reaching age 65 with 15 or more years of service, is equal to 67 percent of the participant’s highest average annual base salary award over a consecutive three-year period during the last ten years or, if shorter, the full calendar years of employment. The plan does not take other payments or benefits, such as payouts of long-term incentives, into account in computing retirement benefits. In December 2010, Alleghany’s Board of Directors approved an amendment to the executive plan, whereby only salary (and not the related annual incentive award) is to be taken into account in computing future retirement benefits. This amendment resulted in an increase in Alleghany’s other comprehensive income in 2010, and modestly reduced Alleghany’s pension expenses beginning in 2011. During 2004, the plan was amended and changed from a funded to an unfunded plan resulting in the distribution of all accrued benefits to vested participants.

With respect to the smaller, non-contributory defined benefit pension plan for employees, Alleghany’s policy is to contribute annually the amount necessary to satisfy the Internal Revenue Service’s funding requirements. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

The following tables set forth both defined benefit plans’ funded status as of December 31, 2011 and 2010 and total cost for the years ended December 31, 2011, 2010 and 2009 (in millions, except percentages):

	2011			2010
OBLIGATIONS AND FUNDING STATUS:
Change in benefit obligation
Benefit obligation at beginning of year	$	17.0		$	23.3
Service cost		0.3			3.1
Interest cost		0.9			1.4
Amendments		—			(3.0	)
Actuarial (gain)/loss		3.7			(7.7	)
Benefits paid		(0.3	)		(0.1	)
Projected benefit obligation at end of year	$	21.6		$	17.0
Change in plan assets
Fair value of plan assets at beginning of year	$	2.4		$	2.3
Actual return on plan assets, net of expenses		0.4			0.1
Company contributions		0.2			0.1
Benefits paid		(0.3	)		(0.1	)
Fair value of plan assets at end of year	$	2.7		$	2.4
Funded status	$	(18.9	)	$	(14.6	)
Amounts recognized in statement of financial position consist of:
Prepaid benefit cost		0.6			0.7
Accrued benefit liability		(21.3	)		(20.7	)
Accumulated other comprehensive income		1.8			5.4
Net amount recognized	$	(18.9	)	$	(14.6)
Weighted average asset allocations
Debt securities		100	%		100	%

	2011			2010			2009
COST AND OTHER COMPREHENSIVE INCOME:
Net pension cost included the following expense (income) components:
Service cost — benefits earned during the year	$	0.3		$	3.1		$	2.9
Interest cost on benefit obligation		0.9			1.4			1.1
Expected return on plan assets		(0.1	)		(0.1	)		(0.1	)
Net amortization and deferral		(0.3	)		0.2			0.2
Net periodic pension cost		0.8			4.6			4.1
Curtailment loss		—			—			—
Settlement charge		—			—			—
Total cost	$	0.8		$	4.6		$	4.1
Change in other comprehensive income (pension-related)		3.7			(10.9	)		1.4
Net periodic pension cost and other comprehensive income	$	4.5		$	(6.3	)	$	5.5

	2011			2010			2009
ASSUMPTIONS:
Assumptions used in computing the net periodic pension cost of the plans are as follows:
Rates for increases in compensation levels		3.00	%		4.00	%		4.00	%
Weighted average discount rates		5.50	%		6.00	%		6.00	%
Expected long-term rates of return		5.00	%		5.00	%		5.00	%
Assumptions used in computing the funded status of the plans are as follows:
Rates for increases in compensation levels		3.00	%		3.00	%		4.00	%
Weighted average discount rates		4.50	%		5.50	%		6.00	%

Discount rates were predicated primarily on the Citigroup Pension Discount Curve and Liability Index, rounded to the nearest 25 basis points. Alleghany’s investment policy with respect to its defined benefit plans is to provide long-term growth combined with a steady income stream. The target allocation is 100 percent in debt securities. The debt securities are highly liquid and highly rated. The overall long-term, rate-of-return-on-assets assumptions are based on historical investment returns.

Contributions of $0.3 million are expected to be made to Alleghany’s funded employee plan during 2012. The following benefit payments, which reflect expected future service, as appropriate, are expected to be made (in millions):

2012	$	0.3
2013		0.3
2014		0.3
2015		0.4
2016		0.4
2017-2021		3.1

The measurement date used to determine pension benefit plans is December 31, 2011.

(b) Other Employee Retirement Plans

Alleghany has two unfunded retiree health plans, one for executives and one for employees. To be eligible for benefits, participants must be age 55 or older. In addition, non-executive employees must have completed at least 10 years of service. Under both plans, participants must pay a portion of the premiums charged by the medical insurance provider. All benefits cease upon the death of the retiree. RSUI also has an unfunded retiree health plan for its employees. As of December 31, 2011 and December 31, 2010, the liability for all of these plans was $7.5 million and $5.5 million, respectively, representing the entire accumulated post-retirement benefit obligation as of that date. Assumptions used with respect to the accounting for these plans are comparable to those cited above for the Alleghany pension plans. Future benefit payments associated with these plans are not expected to be material to Alleghany.

Alleghany provides supplemental retirement benefits through deferred compensation programs and profit sharing plans for certain of its officers and employees. In addition, Alleghany’s subsidiaries sponsor both qualified, defined contribution retirement plans for substantially all employees, including executives, and non-qualified plans only for executives, both of which provide for voluntary salary reduction contributions by employees and matching contributions by each respective subsidiary, subject to specified limitations.

Alleghany has endorsement split-dollar life insurance policies for its officers that are effective during employment as well as retirement. Premiums are paid by Alleghany, and death benefits are split between Alleghany and the beneficiaries of the officers. Death benefits for current employees that inure to the beneficiaries are generally equal to four times the annual salary at the time of an officer’s death. After retirement, death benefits that inure to the beneficiaries are generally equal to the annual ending salary of the officer at the date of retirement.