FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from:____________ to ____________
Commission file number: 1-13754
THE ALLMERICA FINANCIAL EMPLOYEES'
401(k) MATCHED SAVINGS PLAN
---------------------------
(Full title of the plan)
ALLMERICA FINANCIAL CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3263626
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
440 Lincoln Street, Worcester, Massachusetts 01653
--------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(508) 855-1000
--------------
(Registrant's telephone number, including area code)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
The Allmerica Financial
Employees' 401(k) Matched
Savings Plan
Financial Statements
and Additional Information
December 31, 2004 and 2003
The Allmerica Employees' 401(k) Matched Savings Plan
December 31, 2004 and 2003
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm.................... 1
Statements of Net Assets Available for Benefits............................ 2
Statements of Changes in Net Assets Available for Benefits................. 3
Notes to Financial Statements.............................................. 4-9
Additional Information*
Schedule H, line 4i - Schedule of Assets (Held at End of Year)............ 10-11
* Other schedules required by the Department of Labor Rules and Regulations
on reporting and disclosure under the Employee Retirement Income Security
Act of 1974, as amended, have been omitted because they are not applicable.
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of
The Allmerica Financial Employees'
401(k) Matched Savings Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of The Allmerica Financial Employees' 401(k) Matched Savings Plan (the "Plan")
at December 31, 2004 and 2003, and the changes in net assets available for
benefits for the years then ended in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Assets (Held
at End of Year) as of December 31, 2004 is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Boston, Massachusetts
June 22, 2005
The Allmerica Financial Employees' 401 (k) Matched Savings Plan
Statements of Net Assets Available for Benefits
At December 31,
--------------------------------------------------------------------------------
2004 2003
----------------- -----------------
Assets
Investments, at fair value:
Non-affiliated mutual funds:
Fidelity Equity-Income Fund $ 62,048,913 * $ -
Spartan U.S. Equity Index Fund 45,549,038 * -
PIMCO Total Return Fund - Administrative Class 35,388,301 * -
Fidelity Retirement Money Market Portfolio 28,732,869 * -
Fidelity Low-Priced Stock Fund 23,450,102 * -
Artisan Mid Cap Fund 17,825,430 -
American Funds Growth Fund of America- Class R4 13,301,556 -
Fidelity Small Cap Stock Fund 8,359,116 -
Fidelity Diversified International Fund 5,109,834 -
Fidelity Freedom 2020 Fund 3,359,025 -
Fidelity Freedom 2010 Fund 3,111,413 -
Fidelity Freedom 2030 Fund 1,505,727 -
Fidelity Freedom 2040 Fund 792,377 -
Fidelity Freedom 2000 Fund 626,780 -
Fidelity Freedom Income Fund 616,675 -
Fidelity Advisor Equity Income Fund - 60,495,628
SSgA S&P 500 Index Fund - 44,039,499
Dreyfus Premier Core Bond Fund - 33,467,190
Dreyfus Cash Management Plus Fund - 33,328,427
CRM Small Cap Value Fund - 15,903,590
Putnam Vista Fund - 12,828,137
Alliance Bernstein Premier Growth Institutional Fund - 9,642,704
TCW Galileo Small Cap Growth Fund - 4,308,779
MFS High-Income Fund - 1,947,065
----------------- -----------------
249,777,156 215,961,019
Commingled Pool:
Fidelity Managed Income Portfolio II - Class 2 99,128,241 * -
Allmerica Financial Corporation Stock Fund:
Allmerica Financial Corporation Stock 22,525,263 * 23,848,138
Cash and equivalents 727,444 1,058,553
----------------- -----------------
23,252,707 * 24,906,691
Investment with First Allmerica Financial Life
Insurance Company, at contract value:
Fixed Fund - 116,772,652
Participant loans 6,876,871 7,311,395
----------------- -----------------
Net assets available for benefits $ 379,034,975 $ 364,951,757
================= =================
* Amount represents 5% or more of net assets available for benefits at
December 31, 2004.
The accompanying notes are an integral part of these financial statements.
2
The Allmerica Financial Employees' 401(k) Matched Savings Plan
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31,
--------------------------------------------------------------------------------
2004 2003
--------------------- -------------------
Net investment gains:
Net appreciation of:
Non-affiliated mutual funds $ 14,830,696 $ 33,992,888
Allmerica Financial Corporation Stock Fund 1,357,455 16,783,197
Interest and dividend income 13,519,104 7,747,968
Other gains - 96,778
------------------ ------------------
Total net investment gains 29,707,255 58,620,831
Contributions:
Employer contributions 5,185,445 5,320,009
Employee contributions 19,021,436 18,210,228
------------------ ------------------
24,206,881 23,530,237
------------------ ------------------
Total investment gains and contributions 53,914,136 82,151,068
------------------ ------------------
Benefit payments (39,830,918) (31,642,880)
------------------ ------------------
Net increase during year 14,083,218 50,508,188
Net assets available for benefits, beginning of year 364,951,757 314,443,569
------------------ ------------------
Net assets available for benefits, end of year $ 379,034,975 $ 364,951,757
================== ==================
The accompanying notes are an integral part of these financial statements.
3
The Allmerica Financial Employees' 401(k) Matched Savings Plan
Notes to Financial Statements
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NOTE 1 - Description of plan
The following description of The Allmerica Financial Employees' 401(k)
Matched Savings Plan ("the Plan") is provided for general informational
purposes only. More complete information is provided in the Summary Plan
Description, which is available from the Plan Administrator.
General
The Plan is a defined contribution plan for eligible employees of First
Allmerica Financial Life Insurance Company ("FAFLIC," "the Sponsor" or "the
Company"), a wholly-owned subsidiary of Allmerica Financial Corporation
("AFC").
The Plan is administered by the Sponsor ("the Plan Administrator") and is
subject to the provisions of the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
On October 13, 2003, the Board of Directors of First Allmerica Financial
Life Insurance Company voted to change its recordkeeper from Hewitt
Associates LLC to Fidelity Management Trust Company, effective January 1,
2004. Additionally, the Board of Directors voted to appoint Fidelity
Management Trust Company as Trustee of the Plan and the AFC Stock Fund,
effective January 1, 2004. The Fixed Fund, which had been held by the
Sponsor, was liquidated at fair value effective January 1, 2004 upon the
appointment of Fidelity Management Trust Company as the recordkeeper and
Trustee. These funds were reinvested in other investment vehicles offered
by the Plan. Prior to January 1, 2004, the Plan's recordkeeper was Hewitt
Associates, LLC and the Trustee of the Plan and the AFC Stock Fund was
State Street Bank and Trust Company.
Eligibility
Active employees are eligible for participation in the Plan on the first
day of employment with the Company, as defined by the Plan document.
Employer contributions
The Plan has a 401(k) match provision. Employees are eligible to receive
matching contributions in the Plan on the first day of the calendar month
coincident with or next following completion of one year of service, as
defined by the Plan document. Under this provision, the amount of the match
is determined by the Sponsor's Board of Directors and is announced at the
beginning of each year. Employer contributions are 100% vested to the
participant immediately upon receipt. In addition, the Board of Directors
may require that all matching contributions be made to the AFC Stock Fund.
However, this restriction was not imposed during the 2004 or 2003 plan
year.
In 2004 and 2003, the matching contribution rate was 50% of the first 6% of
participants' 401(k) contributions made to the Plan in each pay period. The
matching contribution rate was not applied to any 2004 or 2003 401(k)
"Catch-up Contributions"
4
NOTE 1 - Description of plan (continued)
made by participants (see "Participant accounts"). These employer
contributions were allocated to the same investment vehicles as the
employee contributions.
Forfeitures
Forfeited amounts are used to offset the employer contributions and are
allocated to the Plan's investment vehicles based upon the investment
elections of each eligible participant. Forfeitures of employer
contributions related to nonvested terminated participants were transferred
to the Fidelity Retirement Money Market Fund in 2004 and the Dreyfus Cash
Management Plus Fund in 2003. Forfeitures in the amount of $3,021 and
$69,589 were used to reduce employer contributions in 2004 and 2003,
respectively.
Participant accounts
In accordance with the Internal Revenue Service ("IRS") limits, active
participants are eligible to make 401(k) deferral contributions through the
use of a salary reduction plan up to a maximum of $13,000 for 2004 and
$12,000 for 2003.
As a result of the Tax Relief Reconciliation Act of 2001, a "Catch-up
Contribution" provision was established to allow employees, who reach at
least 50 years of age during the year, to accelerate the amount they defer,
up to a maximum of $16,000 for 2004 and $14,000 for 2003. The amount
deferred in excess of the annual limit is not eligible to receive the
Company match. In 2004, 146 employees accelerated their deferrals, which
amounted to $350,178 in additional contributions. During 2003, 99 employees
accelerated their deferrals resulting in additional contributions of
$180,440.
As directed by participant election, contributions can be invested in the
non-affiliated mutual funds or the Allmerica Financial Corporation Stock
Fund. All investment income is reinvested in the same investment vehicle
and is credited to the respective participant account. Certain of the
non-affiliated mutual funds assess fees on participant accounts based upon
the value of shares sold should the participant engage in the sale of
shares during a pre-determined time period. These fees currently range
between 1% and 2% of the value of shares sold.
Participant loans
Loans made to active participants are secured by the vested portion of the
participant's account up to the limit as defined in the Plan document.
Loans vary in duration, depending upon purpose, and are at an interest rate
determined by the Plan Administrator. The interest rate currently used is
based upon the Prime Rate plus 1% at the inception of the loan. A
participant is limited to a maximum of two loans outstanding at any one
time from all plans of the Company combined. As of January 1, 2004
participants are charged a $75 loan initiation fee by the recordkeeper.
Loan fees were not charged to employees in 2003. Interest income on
participant loans totaled $400,891 and $492,746 in 2004 and 2003,
respectively.
5
NOTE 1 - Description of plan (continued)
Distributions and vesting provisions
Vested account balances are payable in the event of retirement, death, or
separation from service (including disability) as defined in the Plan
document. Distributions to participants are payable either through a lump
sum payment or through periodic payments. If a lump sum distribution is
elected, the participant has the option of taking their balance in the
Allmerica Financial Corporation Stock Fund in-kind.
A participant's account balance is immediately vested and includes the
employer matching contribution, the rollover account, the after-tax
voluntary contribution account and the tax deductible voluntary
contribution account. In addition, all employer profit sharing
contributions for active participants (contributed for the plan years 1994
and prior) are now fully vested.
Payments from the fund are subject to limitations and requirements
specified in the Plan document.
NOTE 2 - Significant accounting policies
Significant accounting and reporting policies followed by the Plan are
summarized as follows:
Basis of presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Valuation of investments
During 2003, the Fixed Fund was held in the Sponsor's general account and
provided for guaranteed rates of interest reset annually. The credited
interest rate was 5.42% for monies invested in 2003. The average rate of
return for the Fixed Fund for the year ended December 31, 2003 was 5.42%.
This investment option was no longer available to employees in 2004.
The insurance contracts underlying the Fixed Fund of the Plan were fully
benefit-responsive and were therefore exempt from fair value accounting for
certain contracts under the provisions of Statement of Position 94-4,
"Reporting Investment Contracts
6
NOTE 2 - Significant accounting policies (continued)
Held by Health and Welfare Benefit Plans and Defined Contribution Plans".
As such, these investments were recorded at contract value, which
approximated fair value at December 31, 2003.
Investments in non-affiliated mutual funds are priced using the end of day
fair market value of the underlying funds as recorded by Fidelity
Management Trust Company in 2004 and as recorded by State Street Bank and
Trust Company in 2003, which are based on the published net asset values of
the funds.
Investments in Fidelity Managed Income Portfolio II - Class 2, a commingled
pool of the Fidelity Group Trust for Employee Benefit Plans, are priced
daily. This pool primarily invests in short or long-term contracts issued
by insurance companies ("GICs"), investment contracts issued by commercial
banks ("BICs"), synthetic investment contracts, fixed income securities,
and money market mutual funds. The portfolio seeks to maintain a stable $1
unit price. Investments in GICs, BICs and synthetic investment contracts
are carried at contract value as they provide for fully benefit-responsive
withdrawals. Fixed income securities for which quotations are readily
available are valued at their most recent bid price. For those securities
for which quotations are not readily available, the security is valued
based upon a method that the Trustee of the portfolio deems to be
reflective of fair value. Investments in money market funds are valued at
the net asset value each day.
The Allmerica Financial Corporation Stock Fund is stated at fair value as
determined by quoted market prices of both AFC common stock and cash
equivalents held in the Fund. The investment returns for 2004 and 2003 were
6.42% and 190.75%, respectively.
Participant loans are valued at their outstanding values, which approximate
fair value.
Purchases and sales of securities are accounted for as of the trade date.
Dividends are recorded on the ex-dividend date and interest income is
recorded on an accrual basis.
Net appreciation (depreciation) on the fair value of investments includes
realized gains and (losses) and unrealized appreciation (depreciation) of
the investments.
Administrative expenses and other fees
Expenses related to the management of investments are reflected in the
value of each investment vehicle in 2004. All other fees incurred in 2004
in the administration of the Plan were paid by the Sponsor.
During 2003, Hewitt Associates LLC maintained agreements with certain
non-affiliated mutual funds and for such agreements received a portion of
certain asset-based fees (12b-1 fees) charged by the fund. These fees were
calculated based on the average daily net asset value of Plan assets in
each respective fund. These fees were used to
7
NOTE 2 - Significant accounting policies (continued)
reduce charges by Hewitt Associates LLC to the Sponsor for certain
administrative and professional services. In addition, the Sponsor paid all
other expenses incurred in 2003 in the administration of the Plan.
Payment of benefits
Benefits are recorded when paid.
NOTE 3 - Federal income taxes
The Internal Revenue Service has determined and informed the Sponsor by a
letter dated February 21, 2002, that the Plan is qualified and the trust
established under the Plan is tax exempt under the appropriate sections of
the Internal Revenue Code. The Plan Administrator believes that the Plan
continues to be designed and is currently being operated in compliance with
the applicable provisions of the Internal Revenue Code. Therefore, no
provision for income tax is required.
NOTE 4 - Plan termination
Although the Sponsor has not expressed any intent to terminate the Plan or
discontinue contributions, it may do so at any time. Should the Plan
terminate or discontinue contributions, the Plan provides that each
participant's interest in the Plan's assets as of the termination date
shall become 100% vested and non-forfeitable and be either payable to the
participant or applied to purchase a non-forfeitable retirement annuity at
the participant's option.
NOTE 5 - Other matters
Effective January 1, 2003, certain common-law employees formerly
participating in The Allmerica Financial Agent's Retirement Plan became
employees of the Company. The AFC Board of Directors approved eligibility
for immediate participation in The Allmerica Financial Employees' 401(k)
Matched Savings Plan.
NOTE 6 - Subsequent events
On November 8, 2004 the Board of Directors of FAFLIC approved the following
amendments to the Plan effective January 1, 2005:
o The name of the Plan was changed from The Allmerica Financial
Employees' 401(k) Matched Savings Plan to The Allmerica Financial
Retirement Savings Plan.
o The employer matching contribution rate has been changed to a
contribution equal to 100% of each participant's deferral, up to a
maximum of 5% of compensation contributed.
o All employees will be immediately eligible to receive the employer
match.
8
NOTE 6 - Subsequent events (continued)
o Employees hired on or after January 1, 2005 will vest in the employer
contribution at a rate of 50% upon completion of one year of service,
and 100% after two years of service as defined in the Plan Document.
All employees hired prior to January 1, 2005 will be 100% vested. All
employee contributions continue to be vested 100% immediately.
o The Plan Sponsor will conduct an annual true-up of the employer
matching contributions for all those participants active as of the
last day of the calendar year. Through the true-up process, the
Company ensures that participants maximize their annual Company match
on their deferrals, even if a participant periodically adjusts their
deferrals throughout the course of the year.
o Individuals employed by the Company on the last day of the calendar
year, as well as those who retired or died during the year, will be
eligible to receive a non-elective employer contribution equal to 3%
of their eligible compensation. This contribution will be distributed
on or before March 15 of the following year and allocated in
accordance with the investment election made by each participant. This
award is subject to the same vesting provisions as the employer match,
described above.
9
The Allmerica Financial Employees' 401(k) Matched Savings Plan
For 5500, Schedule H, Line 4i
Schedule of Assets (Held at End of Year)
At December 31, 2004
--------------------------------------------------------------------------------
Identity of Description Shares or
Issue of Investments Units Current Value
Investments with non-affiliated
mutual funds:
*Fidelity Equity-Income Fund Diversified portfolio of large-cap 1,175,614 $ 62,048,913
value companies.
*Spartan U.S. Equity Index Fund Common stocks primarily those 1,062,740 45,549,038
included in the S&P Composite Stock
Index.
PIMCO Total Return Fund - Invests primarily in debt 3,316,617 35,388,301
Administrative Class securities, such as: U.S.
government securities, corporate
bonds, and mortgage-related
securities.
*Fidelity Retirement Money Invests in U.S. dollar-denominated 28,732,869 28,732,869
Market Portfolio money market securities of domestic
and foreign issuers as well as
repurchase agreements.
*Fidelity Low-Priced Stock Fund Small-cap blend fund seeking 582,611 23,450,102
capital appreciation.
Artisan Mid Cap Fund Long-term capital growth fund of 603,025 17,825,430
mid-size companies.
American Funds Growth Fund of Large-cap growth fund invested 488,489 13,301,556
America - Class R4 primarily in common stocks.
*Fidelity Small Cap Stock Fund Small-cap fund focused on long-term 460,304 8,359,116
growth of capital by investing in
both growth and value oriented
securities.
*Fidelity Diversified Large-cap growth fund invested 178,416 5,109,834
International Fund primarily in non-U.S. denominated
common stocks.
*Fidelity Freedom 2020 Fund Underlying securities are other 240,618 3,359,025
Fidelity mutual funds. Designed
for investors who expect to retire
around the year 2020.
10
The Allmerica Financial Employees' 401(k) Matched Savings Plan
Form 5500, Schedule H, Line 4i (continued)
Schedule of Assets (Held at End of Year)
December 31, 2004
--------------------------------------------------------------------------------
Identity of Description Shares or
Issue of Investments Units Current Value
*Fidelity Freedom 2010 Fund Invests in a combination of 228,444 $ 3,111,413
Fidelity equity, fixed-income, and
money market funds. Targeted to
investors expected to retire around
the year 2010.
*Fidelity Freedom 2030 Fund Underlying securities are other 106,941 1,505,727
Fidelity mutual funds. Designed
for investors who expect to retire
around the year 2030.
*Fidelity Freedom 2040 Fund Large-cap blend fund that invests 95,813 792,377
in a combination of Fidelity
equity, fixed income, and money
market funds. Targeted to
investors expected to retire around
the year 2040.
*Fidelity Freedom 2000 Fund Conservative allocation fund 51,886 626,780
invested in Fidelity equity,
fixed-income, and money market
funds. Targeted to investors
already in retirement.
*Fidelity Freedom Income Fund Invests in a combination of 54,718 616,675
Fidelity equity, fixed-income and
money market funds. Designed for
investors already in retirement.
Commingled Pool:
*Fidelity Managed Income Stable value fund invested in 99,128,241 99,128,241
Portfolio II - Class 2 investment contracts issued by
insurance companies and other
financial institutions, and in
fixed income securities.
*Allmerica Financial
Corporation Stock
Fund:
*Allmerica Financial Common stock traded on the New York 22,525,263
Corporation Stock Stock Exchange.
Cash and equivalents 727,444
*Participant loans Interest rates from 4.75% to 6,876,871
10.58%.
---------------
Total Investments $ 379,034,975
===============
* Represents party-in-interest.
11
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
THE ALLMERICA FINANCIAL EMPLOYEES'
401(K) MATCHED SAVINGS PLAN
---------------------------
(Name of Plan)
/s/ John Taylor
---------------
Plan Administrator: First Allmerica Financial
Life Insurance Company by John Taylor
Vice President, Compensation and Benefits
June 24, 2005
12
Exhibit Index
Exhibit 23.1 Consent of Independent Registered Public Accounting Firm
13