14. Employee Benefit Obligations
|
|
|
December 31, |
| ||||
|
($ in millions) |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Underfunded defined benefit pension liabilities |
|
$ |
601.9 |
|
$ |
820.2 |
|
|
Less current portion and prepaid pension assets |
|
(21.4 |
) |
(25.0 |
) | ||
|
Long-term defined benefit pension liabilities |
|
580.5 |
|
795.2 |
| ||
|
Retiree medical and other postemployment benefits |
|
165.9 |
|
177.0 |
| ||
|
Deferred compensation plans |
|
257.1 |
|
237.8 |
| ||
|
Other |
|
29.5 |
|
28.1 |
| ||
|
|
|
$ |
1,033.0 |
|
$ |
1,238.1 |
|
The company’s pension plans cover U.S., Canadian and European employees meeting certain eligibility requirements. The defined benefit plans for salaried employees, as well as those for hourly employees in Germany and the United Kingdom, provide pension benefits based on employee compensation and years of service. Plans for North American hourly employees provide benefits based on fixed rates for each year of service. While the German plans are not funded, the company maintains book reserves, and annual additions to the reserves are generally tax deductible. With the exception of the German plans, our policy is to fund the plans in amounts at least sufficient to satisfy statutory funding requirements taking into consideration what is currently deductible under existing tax laws and regulations.
The company also participates in multi-employer defined benefit plans for which Ball is not the sponsor. The aggregated annual 2013 expense for these plans of $2.6 million, which approximated the total annual funding, is included in the summary of net periodic benefit cost. Certain of the company’s multi-employer defined benefit plans are reported to have significant underfunded liabilities. These plans include: the Graphic Communications Conference of the International Brotherhood of Teamsters National Pension Fund, the IAM National Pension Plan and the Western Conference of Teamsters Pension Plan. Pension-related legislation requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, the company contributions to these plans are subject to increases in the future, however, any increases in contribution levels are not expected to significantly impact the company’s liquidity.
The risks of participating in multi-employer pension plans are different from single-employer plans. Assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. In the event that Ball withdraws from participation in one of these plans, then applicable law could require the company to make additional lump-sum contributions to the plan. The company’s withdrawal liability for any multi-employer defined benefit pension plan would depend on the extent of the plan’s funding of vested benefits. Additionally, if a multi-employer defined benefit pension plan fails to satisfy certain minimum funding requirements, the IRS may impose a nondeductible excise tax of 5 percent on the amount of the accumulated funding deficiency for those employers contributing to the plan.
Certain management employees may elect to defer the payment of all or a portion of their annual incentive compensation into the company’s deferred compensation plan and/or the company’s deferred compensation stock plan. The employee becomes a general unsecured creditor of the company with respect to amounts deferred. Amounts deferred into the deferred compensation stock plan receive a 20 percent company match with a maximum match of $20,000 per year. Amounts deferred into the stock plan are represented in the participant’s account as stock units, with each unit having a value equivalent to one share of Ball’s common stock. Participants in the stock plan are allowed to reallocate a prescribed number of units to other notional investment funds subject to specified time constraints.
Defined Benefit Pension Plans
An analysis of the change in benefit accruals for 2013 and 2012 follows:
|
|
|
December 31, |
| ||||||||||||||||
|
|
|
2013 |
|
2012 |
| ||||||||||||||
|
($ in millions) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Benefit obligation at prior year end |
|
$ |
1,373.6 |
|
$ |
660.0 |
|
$ |
2,033.6 |
|
$ |
1,220.9 |
|
$ |
609.8 |
|
$ |
1,830.7 |
|
|
Service cost |
|
48.7 |
|
12.1 |
|
60.8 |
|
47.0 |
|
7.9 |
|
54.9 |
| ||||||
|
Interest cost |
|
55.2 |
|
24.0 |
|
79.2 |
|
56.5 |
|
28.7 |
|
85.2 |
| ||||||
|
Benefits paid |
|
(75.4 |
) |
(32.2 |
) |
(107.6 |
) |
(58.4 |
) |
(34.3 |
) |
(92.7 |
) | ||||||
|
Net actuarial (gains) losses |
|
(122.2 |
) |
18.3 |
|
(103.9 |
) |
103.4 |
|
85.7 |
|
189.1 |
| ||||||
|
Effect of exchange rates |
|
— |
|
19.2 |
|
19.2 |
|
— |
|
18.8 |
|
18.8 |
| ||||||
|
Settlements/curtailments/special termination |
|
3.5 |
|
1.7 |
|
5.2 |
|
— |
|
(56.6 |
) |
(56.6 |
) | ||||||
|
Plan amendments and other |
|
0.8 |
|
1.5 |
|
2.3 |
|
4.2 |
|
— |
|
4.2 |
| ||||||
|
Benefit obligation at year end |
|
1,284.2 |
|
704.6 |
|
1,988.8 |
|
1,373.6 |
|
660.0 |
|
2,033.6 |
| ||||||
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fair value of assets at prior year end |
|
952.0 |
|
261.4 |
|
1,213.4 |
|
824.9 |
|
274.2 |
|
1,099.1 |
| ||||||
|
Actual return on plan assets |
|
76.2 |
|
6.6 |
|
82.8 |
|
79.6 |
|
21.6 |
|
101.2 |
| ||||||
|
Employer contributions |
|
157.5 |
|
16.3 |
|
173.8 |
|
106.8 |
|
26.1 |
|
132.9 |
| ||||||
|
Contributions to unfunded |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
German plans (a) |
|
— |
|
22.5 |
|
22.5 |
|
— |
|
21.9 |
|
21.9 |
| ||||||
|
Benefits paid |
|
(75.4 |
) |
(32.2 |
) |
(107.6 |
) |
(58.4 |
) |
(34.3 |
) |
(92.7 |
) | ||||||
|
Effect of exchange rates |
|
— |
|
1.8 |
|
1.8 |
|
— |
|
9.8 |
|
9.8 |
| ||||||
|
Settlements |
|
(0.8 |
) |
— |
|
(0.8 |
) |
(0.9 |
) |
(56.6 |
) |
(57.5 |
) | ||||||
|
Other |
|
— |
|
1.0 |
|
1.0 |
|
— |
|
(1.3 |
) |
(1.3 |
) | ||||||
|
Fair value of assets at end of year |
|
1,109.5 |
|
277.4 |
|
1,386.9 |
|
952.0 |
|
261.4 |
|
1,213.4 |
| ||||||
|
Underfunded status |
|
$ |
(174.7 |
) |
$ |
(427.2 |
)(a) |
$ |
(601.9 |
) |
$ |
(421.6 |
) |
$ |
(398.6 |
)(a) |
$ |
(820.2 |
) |
(a) The German plans are unfunded and the liability is included in the company’s consolidated balance sheets. Benefits are paid directly by the company to the participants. The German plans represented $370.3 million and $359.6 million of the total unfunded status at December 31, 2013 and 2012, respectively.
Amounts recognized in the consolidated balance sheets for the funded status consisted of:
|
|
|
December 31, |
| ||||||||||||||||
|
|
|
2013 |
|
2012 |
| ||||||||||||||
|
($ in millions) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Prepaid pension cost |
|
$ |
— |
|
$ |
2.3 |
|
$ |
2.3 |
|
$ |
— |
|
$ |
1.0 |
|
$ |
1.0 |
|
|
Defined benefit pension liabilities |
|
(174.7 |
) |
(429.5 |
) |
(604.2 |
) |
(421.6 |
) |
(399.6 |
) |
(821.2 |
) | ||||||
|
|
|
$ |
(174.7 |
) |
$ |
(427.2 |
)(a) |
$ |
(601.9 |
) |
$ |
(421.6 |
) |
$ |
(398.6 |
) |
$ |
(820.2 |
) |
Amounts recognized in accumulated other comprehensive earnings (loss) consisted of:
|
|
|
December 31, |
| ||||||||||||||||
|
|
|
2013 |
|
2012 |
| ||||||||||||||
|
($ in millions) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Net actuarial loss |
|
$ |
462.9 |
|
$ |
153.0 |
|
$ |
615.9 |
|
$ |
626.8 |
|
$ |
128.1 |
|
$ |
754.9 |
|
|
Net prior service cost (credit) |
|
13.9 |
|
(2.4 |
) |
11.5 |
|
14.6 |
|
(2.8 |
) |
11.8 |
| ||||||
|
Tax effect and currency exchange rates |
|
(187.0 |
) |
(47.3 |
) |
(234.3 |
) |
(251.5 |
) |
(47.1 |
) |
(298.6 |
) | ||||||
|
|
|
$ |
289.8 |
|
$ |
103.3 |
|
$ |
393.1 |
|
$ |
389.9 |
|
$ |
78.2 |
|
$ |
468.1 |
|
The accumulated benefit obligation for all U.S. defined benefit pension plans was $1,236.7 million and $1,327.2 million at December 31, 2013 and 2012, respectively. The accumulated benefit obligation for all foreign defined benefit pension plans was $628.2 million and $598.7 million at December 31, 2013 and 2012, respectively. Following is the information for defined benefit plans with an accumulated benefit obligation in excess of plan assets:
|
|
|
December 31, |
| ||||||||||||||||
|
|
|
2013 |
|
2012 |
| ||||||||||||||
|
($ in millions) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Projected benefit obligation |
|
$ |
1,284.1 |
|
$ |
415.2 |
|
$ |
1,699.3 |
|
$ |
1,373.6 |
|
$ |
403.6 |
|
$ |
1,777.2 |
|
|
Accumulated benefit obligation |
|
1,236.7 |
|
393.4 |
|
1,630.1 |
|
1,327.2 |
|
383.8 |
|
1,711.0 |
| ||||||
|
Fair value of plan assets |
|
1,109.5 |
|
40.1 |
(a) |
1,149.6 |
|
952.0 |
|
39.6 |
(a) |
991.6 |
| ||||||
(a) The German plans are unfunded and, therefore, there is no fair value of plan assets associated with them. The unfunded status of those plans was $370.3 million and $359.6 million at December 31, 2013 and 2012, respectively.
Components of net periodic benefit cost were:
|
|
|
Years Ended December 31, |
| |||||||||||||||||||||||||
|
|
|
2013 |
|
2012 |
|
2011 |
| |||||||||||||||||||||
|
($ in millions) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Ball-sponsored plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Service cost |
|
$ |
48.7 |
|
$ |
12.1 |
|
$ |
60.8 |
|
$ |
47.0 |
|
$ |
7.9 |
|
$ |
54.9 |
|
$ |
43.2 |
|
$ |
7.8 |
|
$ |
51.0 |
|
|
Interest cost |
|
55.2 |
|
24.0 |
|
79.2 |
|
56.5 |
|
28.7 |
|
85.2 |
|
57.6 |
|
30.8 |
|
88.4 |
| |||||||||
|
Expected return on plan assets |
|
(77.3 |
) |
(16.7 |
) |
(94.0 |
) |
(73.9 |
) |
(16.9 |
) |
(90.8 |
) |
(72.1 |
) |
(17.1 |
) |
(89.2 |
) | |||||||||
|
Amortization of prior service cost |
|
— |
|
(0.4 |
) |
(0.4 |
) |
0.9 |
|
(0.4 |
) |
0.5 |
|
1.2 |
|
(0.4 |
) |
0.8 |
| |||||||||
|
Recognized net actuarial loss |
|
42.5 |
|
7.8 |
|
50.3 |
|
33.7 |
|
7.0 |
|
40.7 |
|
21.5 |
|
5.7 |
|
27.2 |
| |||||||||
|
Curtailment and settlement losses, including special termination benefits |
|
6.1 |
|
1.7 |
|
7.8 |
|
(0.1 |
) |
25.7 |
|
25.6 |
|
6.5 |
|
— |
|
6.5 |
| |||||||||
|
Net periodic benefit cost for Ball-sponsored plans |
|
75.2 |
|
28.5 |
|
103.7 |
|
64.1 |
|
52.0 |
|
116.1 |
|
57.9 |
|
26.8 |
|
84.7 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Multi-employer plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Net periodic benefit cost, excluding curtailment loss |
|
2.6 |
|
— |
|
2.6 |
|
2.7 |
|
— |
|
2.7 |
|
2.7 |
|
— |
|
2.7 |
| |||||||||
|
Curtailment loss (a) |
|
9.8 |
|
— |
|
9.8 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||||
|
Net periodic benefit cost for multi-employer plans |
|
12.4 |
|
— |
|
12.4 |
|
2.7 |
|
— |
|
2.7 |
|
2.7 |
|
— |
|
2.7 |
| |||||||||
|
Total net periodic benefit cost |
|
$ |
87.6 |
|
$ |
28.5 |
|
$ |
116.1 |
|
$ |
66.8 |
|
$ |
52.0 |
|
$ |
118.8 |
|
$ |
60.6 |
|
$ |
26.8 |
|
$ |
87.4 |
|
(a) Curtailment losses in 2013 are related to the closure of the company’s Elgin, Illinois, facility and the migration of certain of the company’s Weirton, West Virginia, hourly employees from a multi-employer defined benefit pension plan to a Ball-sponsored defined benefit pension plan as of January 1, 2014. Further details are available in Note 5.
In November 2012, the company purchased annuities with pension trust assets to settle the liabilities in certain of its Canadian defined benefit pension plans. In connection with the settlements, the company recorded a charge in the fourth quarter of $27.1 million, which primarily represents previously unrecognized losses included in accumulated other comprehensive earnings (loss).
The estimated actuarial net gain (loss) and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive earnings (loss) into net periodic benefit cost during 2014 are a loss of $37.1 million and a gain of $0.5 million, respectively.
Contributions to the company’s defined benefit pension plans, not including the unfunded German plans, are expected to be in the range of $65 million in 2014. This estimate may change based on changes in the Pension Protection Act and actual plan asset performance and available company cash flow, among other factors. Benefit payments related to these plans are expected to be $81.1 million, $84.5 million, $88.0 million, $92.5 million and $96.6 million for the years ending December 31, 2014 through 2018, respectively, and a total of $536.6 million for the years 2019 through 2023. Payments to participants in the unfunded German plans are expected to be approximately $21 million to $23 million in each of the years 2014 through 2018 and a total of $100 million for the years 2019 through 2023.
Weighted average assumptions used to determine benefit obligations for the North American plans at December 31 were:
|
|
|
U.S. |
|
Canada |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
|
|
Discount rate |
|
5.00 |
% |
4.13 |
% |
4.75 |
% |
4.25 |
% |
4.00 |
% |
4.05 |
% |
|
Rate of compensation increase |
|
4.80 |
% |
4.80 |
% |
4.80 |
% |
3.00 |
% |
3.00 |
% |
3.00 |
% |
Weighted average assumptions used to determine benefit obligations for the European plans at December 31 were:
|
|
|
United Kingdom |
|
Germany |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
|
|
Discount rate |
|
4.50 |
% |
4.50 |
% |
5.00 |
% |
3.25 |
% |
3.25 |
% |
5.00 |
% |
|
Rate of compensation increase |
|
4.25 |
% |
3.75 |
% |
3.90 |
% |
2.75 |
% |
2.75 |
% |
2.75 |
% |
|
Pension increase |
|
3.40 |
% |
2.90 |
% |
3.05 |
% |
1.75 |
% |
1.75 |
% |
1.75 |
% |
The discount and compensation increase rates used above to determine the benefit obligations at December 31, 2013, will be used to determine net periodic benefit cost for 2014. A reduction of the expected return on pension assets assumption by one quarter of a percentage point would result in an approximate $3.9 million increase in the 2014 pension expense, while a quarter of a percentage point reduction in the discount rate applied to the pension liability would result in estimated additional pension expense of $6.5 million in 2014.
Weighted average assumptions used to determine net periodic benefit cost for the North American plans for the years ended December 31 were:
|
|
|
U.S. |
|
Canada |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
|
|
Discount rate |
|
4.13 |
% |
4.75 |
% |
5.55 |
% |
4.00 |
% |
4.05 |
% |
4.75 |
% |
|
Rate of compensation increase |
|
4.80 |
% |
4.80 |
% |
4.80 |
% |
3.00 |
% |
3.00 |
% |
3.25 |
% |
|
Expected long-term rate of return on assets |
|
7.63 |
% |
7.75 |
% |
8.00 |
% |
4.55 |
% |
4.53 |
% |
5.14 |
% |
Weighted average assumptions used to determine net periodic benefit cost for the European plans for the years ended December 31 were:
|
|
|
United Kingdom |
|
Germany |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
|
|
Discount rate |
|
4.50 |
% |
5.00 |
% |
5.50 |
% |
3.25 |
% |
5.00 |
% |
5.00 |
% |
|
Rate of compensation increase |
|
3.75 |
% |
3.90 |
% |
4.25 |
% |
2.75 |
% |
2.75 |
% |
2.75 |
% |
|
Pension increase |
|
2.90 |
% |
3.05 |
% |
3.40 |
% |
1.75 |
% |
1.75 |
% |
1.75 |
% |
|
Expected long-term rate of return on assets |
|
7.00 |
% |
7.00 |
% |
7.00 |
% |
N/A |
|
N/A |
|
N/A |
|
Current financial accounting standards require that the discount rates used to calculate the actuarial present value of pension and other postretirement benefit obligations reflect the time value of money as of the measurement date of the benefit obligation and reflect the rates of return currently available on high quality fixed income securities whose cash flows (via coupons and maturities) match the timing and amount of future benefit payments of the plan. In addition, changes in the discount rate assumption should reflect changes in the general level of interest rates.
In selecting the U.S. discount rate for December 31, 2013, several benchmarks were considered, including Moody’s long-term corporate bond yield for A bonds, the Citigroup Pension Liability Index, the JP Morgan 15+ year corporate bond yield for A bonds and the Merrill Lynch 15+ year corporate bond yield for A bonds. In addition, the expected cash flows from the plans were modeled relative to the Citigroup Pension Discount Curve and matched to cash flows from a portfolio of bonds rated A or better. When determining the appropriate discount rate, the company contemplated the impact of lump sum payment options under its U.S. plans when considering the appropriate yield curve. In Canada the markets for locally denominated high-quality, longer term corporate bonds are relatively thin. As a result, the approach taken in Canada was to use yield curve spot rates to discount the respective benefit cash flows and to compute the underlying constant bond yield equivalent. The Canadian discount rate at December 31, 2013, was selected based on a review of the expected benefit payments for each of the Canadian defined benefit plans over the next 60 years and then discounting the resulting cash flows to the measurement date using the AA corporate bond spot rates to determine the equivalent level discount rate. In the United Kingdom and Germany, the company and its actuarial consultants considered the applicable iBoxx 15+ year AA corporate bond yields for the respective markets and determined a rate consistent with those expectations. In all countries, the discount rates selected for December 31, 2013, were based on the range of values obtained from cash flow specific methods, together with the changes in the general level of interest rates reflected by the benchmarks.
The assumption related to the expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested to provide for the benefits over the life of the plans. The assumption was based upon Ball’s pension plan asset allocations, investment strategies and the views of investment managers and other large pension plan sponsors. Some reliance was placed on historical asset returns of our plans. An asset-return model was used to project future asset returns using simulation and asset class correlation. The analysis included expected future risk premiums, forward-looking return expectations derived from the yield on long-term bonds and the price earnings ratios of major stock market indexes, expected inflation and real risk-free interest rate assumptions and the fund’s expected asset allocation.
The expected long-term rates of return on assets were calculated by applying the expected rate of return to a market related value of plan assets at the beginning of the year, adjusted for the weighted average expected contributions and benefit payments. The market related value of plan assets used to calculate expected return was $1,238.5 million for 2013, $1,179.8 million for 2012 and $1,201.6 million for 2011.
For pension plans, accumulated actuarial gains and losses in excess of a 10 percent corridor and the prior service cost are amortized over the average remaining service period of active participants.
Defined Benefit Pension Plan Assets
Policies and Allocation Information
Investment policies and strategies for the plan assets in the U.S., Canada and the United Kingdom are established by pension investment committees of the company and its relevant subsidiaries and include the following common themes: (1) to provide for long-term growth of principal without undue exposure to risk, (2) to minimize contributions to the plans, (3) to minimize and stabilize pension expense and (4) to achieve a rate of return above the market average for each asset class over the long term. The pension investment committees are required to regularly, but no less frequently than once annually, review asset mix and asset performance, as well as the performance of the investment managers. Based on their reviews, which are generally conducted quarterly, investment policies and strategies are revised as appropriate.
Target asset allocations in the U.S. and Canada are set using a minimum and maximum range for each asset category as a percent of the total funds’ market value. Assets contributed to the United Kingdom plans are invested using established percentages. Following are the target asset allocations established as of December 31, 2013:
|
|
|
U.S. |
|
Canada |
|
United Kingdom (c) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
0-10% |
|
0-2% |
|
— |
|
|
Equity securities |
|
10-75% |
(a) |
8-12% |
|
25 |
% |
|
Fixed income securities |
|
25-70% |
(b) |
88-92% |
|
60 |
% |
|
Absolute return investments |
|
— |
|
— |
|
8 |
% |
|
Alternative investments |
|
0-35% |
|
— |
|
7 |
% |
(a) Equity securities may consist of: (1) up to 25 percent large cap equities, (2) up to 10 percent mid cap equities, (3) up to 10 percent small cap equities, (4) up to 35 percent foreign equities and (5) up to 35 percent special equities. Holdings in Ball Corporation common stock or Ball bonds cannot exceed 5 percent of the trust’s assets.
(b) Debt securities may include up to 10 percent non-investment grade bonds, up to 10 percent bank loans and up to 15 percent international bonds.
(c) The percentages provided reflect the asset allocation percentage at December 31, 2013. The portfolio mix is expected to be adjusted over time toward more fixed income securities.
The actual weighted average asset allocations for Ball’s defined benefit pension plans, which individually were within the established targets for each country for that year, were as follows at December 31:
|
|
|
2013 |
|
2012 |
|
|
Cash and cash equivalents |
|
6 |
% |
2 |
% |
|
Equity securities |
|
37 |
% |
39 |
% |
|
Fixed income securities |
|
49 |
% |
53 |
% |
|
Alternative investments |
|
8 |
% |
6 |
% |
|
|
|
100 |
% |
100 |
% |
Fair Value Measurements of Pension Plan Assets
Following is a description of the valuation methodologies used for pension assets measured at fair value:
Cash and cash equivalents: Cash and cash equivalents consist of cash on deposit with brokers and short-term U.S. Treasury money market funds and are net of receivables and payables for securities traded at the period end but not yet settled. All cash and cash equivalents are stated at cost, which approximates fair value.
Corporate equity securities: Valued at the closing price reported on the active market on which the individual security is traded.
U.S. government and agency securities: Valued using the pricing of similar agency issues, live trading feeds from several vendors and benchmark yields.
Corporate bonds and notes: Valued using market inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data including market research publications. Inputs may be prioritized differently at certain times based on market conditions.
Mutual funds: Valued at the net asset value (NAV) of shares held by the plans at year end.
Limited partnerships and other: Certain of the partnership investments receive fair market valuations on a quarterly basis. Certain other partnerships invest in market-traded securities, both on a long and short basis. These investments are valued using quoted market prices. For the partnership that invests in timber properties, a detailed valuation is performed by an independent appraisal firm every three years. In the interim years, the investment manager updates the independently prepared valuation for property value changes, timber growth, harvesting, etc.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The levels assigned to the defined benefit plan assets are summarized in the tables below:
|
|
|
December 31, 2013 |
| ||||||||||
|
($ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
U.S. pension assets, at fair value: |
|
|
|
|
|
|
|
|
| ||||
|
Cash and cash equivalents |
|
$ |
0.5 |
|
$ |
149.8 |
|
$ |
— |
|
$ |
150.3 |
|
|
Corporate equity securities: |
|
|
|
|
|
|
|
|
| ||||
|
Industrials |
|
54.7 |
|
— |
|
— |
|
54.7 |
| ||||
|
Information technology |
|
55.3 |
|
— |
|
— |
|
55.3 |
| ||||
|
Other |
|
156.7 |
|
30.8 |
|
— |
|
187.5 |
| ||||
|
U.S. government and agency securities: |
|
|
|
|
|
|
|
|
| ||||
|
FHLMC mortgage backed securities |
|
— |
|
17.5 |
|
— |
|
17.5 |
| ||||
|
FNMA mortgage backed securities |
|
— |
|
43.1 |
|
— |
|
43.1 |
| ||||
|
Other |
|
35.7 |
|
15.6 |
|
— |
|
51.3 |
| ||||
|
Corporate bonds and notes: |
|
|
|
|
|
|
|
|
| ||||
|
Financials |
|
— |
|
105.2 |
|
— |
|
105.2 |
| ||||
|
Utilities |
|
— |
|
37.4 |
|
— |
|
37.4 |
| ||||
|
Private placement |
|
— |
|
45.4 |
|
— |
|
45.4 |
| ||||
|
Other |
|
0.2 |
|
108.2 |
|
— |
|
108.4 |
| ||||
|
Commingled funds |
|
23.2 |
|
111.5 |
|
— |
|
134.7 |
| ||||
|
Limited partnerships and other |
|
— |
|
66.8 |
|
51.9 |
|
118.7 |
| ||||
|
Total assets |
|
$ |
326.3 |
|
$ |
731.3 |
|
$ |
51.9 |
|
$ |
1,109.5 |
|
|
|
|
December 31, 2012 |
| ||||||||||
|
($ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
U.S. pension assets, at fair value: |
|
|
|
|
|
|
|
|
| ||||
|
Cash and cash equivalents |
|
$ |
16.4 |
|
$ |
57.6 |
|
$ |
— |
|
$ |
74.0 |
|
|
Corporate equity securities: |
|
|
|
|
|
|
|
|
| ||||
|
Industrials |
|
39.6 |
|
— |
|
— |
|
39.6 |
| ||||
|
Information Technology |
|
33.4 |
|
— |
|
— |
|
33.4 |
| ||||
|
Other |
|
108.3 |
|
44.8 |
|
— |
|
153.1 |
| ||||
|
U.S. government and agency securities: |
|
|
|
|
|
|
|
|
| ||||
|
FHLMC mortgage backed securities |
|
— |
|
27.1 |
|
— |
|
27.1 |
| ||||
|
FNMA mortgage backed securities |
|
— |
|
65.2 |
|
— |
|
65.2 |
| ||||
|
Other |
|
23.6 |
|
11.0 |
|
— |
|
34.6 |
| ||||
|
Corporate bonds and notes: |
|
|
|
|
|
|
|
|
| ||||
|
Financials |
|
— |
|
105.4 |
|
— |
|
105.4 |
| ||||
|
Utilities |
|
— |
|
35.3 |
|
— |
|
35.3 |
| ||||
|
Private placement |
|
— |
|
35.3 |
|
— |
|
35.3 |
| ||||
|
Other |
|
— |
|
124.1 |
|
— |
|
124.1 |
| ||||
|
Commingled funds |
|
13.8 |
|
86.5 |
|
— |
|
100.3 |
| ||||
|
Limited partnerships and other |
|
— |
|
75.7 |
|
48.9 |
|
124.6 |
| ||||
|
Total assets |
|
$ |
235.1 |
|
$ |
668.0 |
|
$ |
48.9 |
|
$ |
952.0 |
|
The following is a reconciliation of the U.S. Level 3 assets for the two years ended December 31, 2013 (dollars in millions):
|
Balance at December 31, 2011 |
|
$ |
55.9 |
|
|
Actual return on plan assets relating to assets still held at the reporting date |
|
3.5 |
| |
|
Purchases |
|
9.0 |
| |
|
Sales |
|
(5.5 |
) | |
|
Transfers to Level 2 (a) |
|
(14.0 |
) | |
|
Balance at December 31, 2012 |
|
48.9 |
| |
|
Actual return on plan assets relating to assets still held at the reporting date |
|
2.0 |
| |
|
Purchases |
|
5.9 |
| |
|
Sales |
|
(4.9 |
) | |
|
Balance at December 31, 2013 |
|
$ |
51.9 |
|
(a) Transfers from Level 3 to Level 2 were made as a result of additional observable inputs becoming available.
|
|
|
December 31, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
Canadian pension assets, at fair value (all Level 2) ($ in millions): |
|
|
|
|
| ||
|
Equity commingled funds |
|
$ |
4.2 |
|
$ |
6.4 |
|
|
Fixed income commingled funds |
|
35.6 |
|
36.4 |
| ||
|
Fixed income securities |
|
9.5 |
|
11.5 |
| ||
|
Total assets |
|
$ |
49.3 |
|
$ |
54.3 |
|
|
|
|
December 31, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
U.K. pension assets, at fair value (all Level 2) ($ in millions): |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
— |
|
$ |
9.8 |
|
|
Equity commingled funds |
|
56.2 |
|
114.0 |
| ||
|
Fixed income commingled funds |
|
134.9 |
|
83.3 |
| ||
|
Absolute return funds |
|
18.0 |
|
— |
| ||
|
Alternative investments |
|
15.8 |
|
— |
| ||
|
Net assets |
|
$ |
224.9 |
|
$ |
207.1 |
|
Other Postemployment Benefits
The company sponsors postretirement health care and life insurance plans for substantially all U.S. and Canadian employees. Employees may also qualify for long-term disability, medical and life insurance continuation and other postemployment benefits upon termination of active employment prior to retirement. All of the Ball-sponsored postretirement health care and life insurance plans are unfunded and, with the exception of life insurance benefits, are self-insured.
In Canada, the company provides supplemental medical and other benefits in conjunction with Canadian provincial health care plans. Most U.S. salaried employees who retired prior to 1993 are covered by noncontributory defined benefit medical plans with capped lifetime benefits. Ball provides a fixed subsidy toward each retiree’s future purchase of medical insurance for U.S. salaried and substantially all nonunion hourly employees retiring after January 1, 1993. Life insurance benefits are noncontributory. Ball has no commitments to increase benefits provided by any of the postemployment benefit plans.
An analysis of the change in other postretirement benefit accruals for 2013 and 2012 follows:
|
($ in millions) |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Change in benefit obligation: |
|
|
|
|
| ||
|
Benefit obligation at prior year end |
|
$ |
168.2 |
|
$ |
165.1 |
|
|
Service cost |
|
1.7 |
|
1.6 |
| ||
|
Interest cost |
|
6.6 |
|
7.4 |
| ||
|
Benefits paid |
|
(12.5 |
) |
(10.0 |
) | ||
|
Net actuarial (gain) loss |
|
(9.1 |
) |
3.5 |
| ||
|
Special termination benefits |
|
1.9 |
|
— |
| ||
|
Effect of exchange rates and other |
|
(1.4 |
) |
0.6 |
| ||
|
Benefit obligation at year end |
|
155.4 |
|
168.2 |
| ||
|
Change in plan assets: |
|
|
|
|
| ||
|
Fair value of assets at prior year end |
|
— |
|
— |
| ||
|
Benefits paid |
|
(12.5 |
) |
(11.1 |
) | ||
|
Employer contributions |
|
12.5 |
|
10.0 |
| ||
|
Medicare Part D subsidy |
|
— |
|
1.1 |
| ||
|
Fair value of assets at end of year |
|
— |
|
— |
| ||
|
Funded status |
|
$ |
(155.4 |
) |
$ |
(168.2 |
) |
Components of net periodic benefit cost were:
|
|
|
Years Ended December 31, |
| |||||||
|
($ in millions) |
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Service cost |
|
$ |
1.7 |
|
$ |
1.6 |
|
$ |
2.3 |
|
|
Interest cost |
|
6.6 |
|
7.4 |
|
9.7 |
| |||
|
Amortization of prior service cost |
|
(0.5 |
) |
(0.1 |
) |
— |
| |||
|
Recognized net actuarial loss (gain) |
|
(0.6 |
) |
(1.0 |
) |
0.7 |
| |||
|
Special termination benefits |
|
1.9 |
|
— |
|
1.9 |
| |||
|
Net periodic benefit cost |
|
$ |
9.1 |
|
$ |
7.9 |
|
$ |
14.6 |
|
Approximately $1.4 million of estimated net actuarial gain and $0.5 million of prior service benefit will be amortized from accumulated other comprehensive earnings (loss) into net period benefit cost during 2014.
The assumptions used for the determination of benefit obligations and net periodic benefit cost were the same as those used for the U.S. and Canadian defined benefit pension plans. For other postretirement benefits, accumulated actuarial gains and losses and prior service cost are amortized over the average remaining service period of active participants.
For the U.S. health care plans at December 31, 2013, an 8 percent health care cost trend rate was used for pre-65 and post-65 benefits, and trend rates were assumed to decrease to 5 percent in 2021 and remain at that level thereafter. For the Canadian plans, a 4 percent health care cost trend rate was used, which was assumed to decrease to 5 percent by 2018 and remain at that level in subsequent years. Benefit payment caps exist in many of the company’s health care plans.
Health care cost trend rates can have an effect on the amounts reported for the health care plan. A one-percentage point increase in assumed health care cost trend rates would increase the total of service and interest cost by $0.3 million and the postretirement benefit obligation by $4.9 million. A one-percentage point decrease would decrease the total of service and interest cost by $0.2 million and the postretirement benefit obligation by $4.4 million.
Other Benefit Plans
The company matches U.S. salaried employee contributions to the 401(k) plan with shares of Ball common stock up to 100 percent of the first 3 percent of a participant’s salary plus 50 percent of the next 2 percent. The expense associated with the company match amounted to $23.5 million, $21.8 million and $20.8 million for 2013, 2012 and 2011, respectively.
In addition, substantially all employees within the company’s aerospace and technologies segment who participate in Ball’s 401(k) plan may receive a performance-based matching cash contribution of up to 4 percent of base salary. The company recognized $9.2 million and $8.3 million of additional compensation expense related to this program for the years 2012 and 2011, respectively. There was no additional compensation expense recognized in 2013.