Citigroup (C)

Expected Rate of Return

Citigroup determines its assumptions for the expected rate of return on plan assets for its U.S. pension and postretirement plans using a “building block” approach, which focuses on ranges of anticipated rates of return for each asset class. A weighted range of nominal rates is then determined based on target allocations to each asset class. Citigroup considers the expected rate of return to be a long-term assessment of return expectations and does not anticipate changing this assumption annually unless there are significant changes in investment strategy or economic conditions. This contrasts with the selection of the discount rate, future compensation increase rate, and certain other assumptions, which are reconsidered annually in accordance with generally accepted accounting principles.

The expected rate of return for the U.S. pension and post-retirement plans was 7.75% at December 31, 2008 and 8.0% at December 31, 2007 and 2006, reflecting the performance of the global capital markets. Actual returns in 2008 were less than the expected returns, while actual returns in 2007 and 2006 were more than the expected returns. This expected amount reflects the expected annual appreciation of the plan assets and reduces the annual pension expense of the Company. It is deducted from the sum of service cost, interest and other components of pension expense to arrive at the net pension (benefit) expense. Net pension (benefit) expense for the U.S. pension plans for 2008, 2007 and 2006 reflects deductions of $949, $889 million and $845 million of expected returns, respectively.

Expected Rate of Return

Citigroup determines its assumptions for the expected rate of return on plan assets for its U.S. pension and postretirement plans using a “building block” approach, which focuses on ranges of anticipated rates of return for each asset class. A weighted range of nominal rates is then determined based on target allocations to each asset class. Citigroup considers the expected rate of return to be a long-term assessment of return expectations and does not anticipate changing this assumption annually unless there are significant changes in investment strategy or economic conditions. This contrasts with the selection of the discount rate, future compensation increase rate, and certain other assumptions, which are reconsidered annually in accordance with generally accepted accounting principles.

The expected rate of return was 8.0% at December 31, 2007, 2006 and 2005, reflecting the performance of the global capital markets. Actual returns in 2007, 2006 and 2005 were more than the expected returns. The expected returns impacted pretax earnings by 52.3%, 2.9% and 2.7%, respectively. This expected amount reflects the expected annual appreciation of the plan assets and reduces the annual pension expense of the Company. It is deducted from the sum of service cost, interest and other components of pension expense to arrive at the net pension expense. Net pension expense for 2007, 2006 and

Expected Rate of Return

Upon the adoption of SFAS 158 at December 31, 2006, the Company recorded an after-tax charge to equity of $1.647 billion, which corresponds to the plans’ net pension liability and the write-off of the existing prepaid asset, which relates to unamortized actuarial gains and losses, prior service costs/benefits and transition assets/liabilities.

Citigroup determines its assumptions for the expected rate of return on plan assets for its U.S. pension and postretirement plans using a “building block” approach, which focuses on ranges of anticipated rates of return for each asset class. A weighted range of nominal rates is then determined based on target allocations to each asset class. Citigroup considers the expected rate of return to be a long-term assessment of return expectations and does not anticipate changing this assumption annually unless there are significant changes in investment strategy or economic conditions. This contrasts with the selection of the discount rate, future compensation increase rate, and certain other assumptions, which are reconsidered annually in accordance with generally accepted accounting principles.

Expected Rate of Return

        Citigroup determines its assumptions for the expected rate of return on plan assets for its U.S. pension and postretirement plans using a "building block" approach, which focuses on ranges of anticipated rates of return for each asset class. A weighted range of nominal rates is then determined based on target allocations to each asset class. Citigroup considers the expected rate of return to be a long-term assessment of return expectations and does not anticipate changing this assumption annually unless there are significant changes in economic conditions. This contrasts with the selection of the discount rate, future compensation increase rate, and certain other assumptions, which are reconsidered annually in accordance with generally accepted accounting principles.

        The expected rate of return was 8.0% at December 31, 2005, 2004 and 2003, reflecting the performance of the global capital markets. Actual returns in 2005, 2004 and 2003 were more than the expected returns. The expected returns impacted pretax earnings by 2.7%, 3.3% and 2.8%, respectively. This expected amount reflects the expected annual appreciation of the plan assets and reduces the obligation of the Company. It is deducted from the service cost, interest and other components of pension expense to arrive at the net pension expense. Net pension expense for 2005, 2004 and 2003 reflects deductions of $806 million, $750 million and $700 million of expected returns, respectively.

        The following table shows the expected versus actual rate of return on plan assets for the U.S. pension and postretirement plans:

        For the foreign plans, pension expense for 2005 was reduced by the expected return of $315 million, which impacted pretax earnings by 1.1%. Pension expense for 2004 and 2003 was reduced by expected returns of $251 million and $209 million, respectively. Actual returns were higher in 2005, 2004 and 2003 than the expected returns in those years.

        For additional information on the pension and postretirement plans, as well as the effects of a one percentage-point change in the expected rates of return, see Note 21 to the Company's Consolidated Financial Statements on page 147.

Expected Rate of Return

        Citigroup determines its assumptions for the expected rate of return on plan assets for its U.S. pension and postretirement plans using a "building block" approach, which focuses on ranges of anticipated rates of return for each asset class. A weighted range of nominal rates is then determined based on target allocations to each asset class. Citigroup considers the expected rate of return to be a longer-term assessment of return expectations and does not anticipate changing this assumption annually unless there are significant changes in economic conditions. This contrasts with the selection of the discount rate, future compensation increase rate, and certain other assumptions, which are reconsidered annually in accordance with generally accepted accounting principles. The expected rate of return was 8.0% at December 31, 2004 and 2003, reflecting the performance of the equity markets. The computation of pension expense for 2004 includes $750 million of expected returns, which represents the 8.0% expected return and is equivalent to 3% of pretax earnings. This expected amount is deducted from the service cost, interest and other components of pension expense to arrive at the net pension expense. Net pension expense for 2003 and 2002 reflects deductions of $700 million and $783 million of expected returns, respectively.

        The following table shows the expected versus actual rate of return on plan assets for the U.S. pension and postretirement plans:

(1)

The expected rate of return was changed from 9.5% to 8.0% in September 2002 when plan assets were revalued in connection with the TPC spin-off.

        In calculating pension expense for the U.S. plan and in determining the expected rate of return, the Company uses the calculated market-related value of plan assets. The year-end allocations are within the plans' target ranges.

        The following table shows the asset allocations for the U.S. plan:

        A similar approach has been taken in selecting the expected rates of return for Citigroup's foreign plans. The expected rate of return for each plan is based upon its expected asset allocation. Market performance over a number of earlier years is evaluated covering a wide range of economic conditions to determine whether there are sound reasons for projecting forward any past trends. The expected rates of return for the foreign plans ranged from 3.25% to 10% for 2004 compared with a range of 3.25% to 10.5% for 2003, and 3.0% to 12.0% in 2002. The wide variation in these rates is a result of differing asset allocations in the plans as well as varying local economic

17

conditions. For example, in certain countries, local law requires that all pension plan assets must be invested in fixed income investments, or in government funds, or in local country securities. Asset allocations for the foreign plans ranged from a combination of 97% fixed income to 3% equities and other investments to a combination of 78% equities and 12% fixed income and other investments at December 31, 2004, compared with an asset allocation range from 100% fixed income investments to a combination of 91% equities and 9% fixed income and other investments at December 31, 2003, and 100% fixed income to a combination of 75% equities and 25% fixed income and other investments at December 31, 2002. Pension expense for 2004 was reduced by $251 million due to the expected return, which impacted pretax earnings by 1%. Actual returns in 2004 were more than the expected returns. Pension expense for 2003 and 2002 was reduced by expected returns of $209 million and $188 million, respectively. Actual returns were higher in 2003 and were lower in 2002 than the expected returns in those years.

        A one percentage-point change in the expected rates of return would have the following effects on pension expense: