U.S. POSTRETIREMENT BENEFITS
International Paper provides certain retiree health care and life insurance benefits covering certain U.S. salaried and hourly employees. These employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. Excluded from company-provided medical benefits are salaried employees whose age plus years of employment with the Company totaled less than 60 as of January 1, 2004. International Paper does not fund these benefits prior to payment and has the right to modify or terminate certain of these plans in the future.
In addition to the U.S. plan, certain Brazilian and Moroccan employees are eligible for retiree health care and life insurance benefits.
The components of U.S. postretirement benefit expense in 2013, 2012 and 2011 were as follows:
|
| | | | | | | | | | | | | | | | | | |
In millions | | 2013 |
| | 2012 |
| | 2011 |
|
| U.S.
Plans |
| Non-
U.S.
Plans |
| U.S.
Plans |
| Non-
U.S.
Plans |
| U.S.
Plans |
| Non-
U.S.
Plans |
|
Service cost | $ | 2 |
| $ | 2 |
| $ | 3 |
| $ | — |
| $ | 2 |
| $ | — |
|
Interest cost | 14 |
| 5 |
| 20 |
| 1 |
| 21 |
| 2 |
|
Actuarial loss | 7 |
| — |
| 10 |
| — |
| 9 |
| — |
|
Amortization of prior service credits | (24 | ) | — |
| (30 | ) | — |
| (25 | ) | — |
|
Curtailment gain | — |
| — |
| (7 | ) | — |
| — |
| — |
|
Net postretirement (benefit) expense (a) | $ | (1 | ) | $ | 7 |
| $ | (4 | ) | $ | 1 |
| $ | 7 |
| $ | 2 |
|
(a) Excludes $7 million of curtailment gains in 2013 related to the sale of Building Products that were recorded in Net (gains) losses on sales and impairments of businesses in the consolidated statement of operations.
International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) and considers changes in these long-term factors based upon market conditions and the requirements of employers’ accounting for postretirement benefits other than pensions. Temple-Inland's postretirement plan was remeasured on July 19, 2013 due to the sale of Building Products which reduced the obligation by $6 million International Paper's postretirement plan was remeasured on January 31, 2012 due to a negative plan amendment which reduced our obligation by $29 million and reduced the 2012 expected benefit cost by $11 million. Temple-Inland's postretirement plan was remeasured on July 31, 2012 due to a negative plan amendment which reduced the obligation by $6 million and reduced 2012 expense by $1 million.
The discount rates used to determine net U.S. and non-U.S. postretirement benefit cost for the years ended December 31, 2013, 2012 and 2011 were as follows:
|
| | | | | | | | | | | | | |
| | 2013 |
| | | 2012 |
| | 2011 |
|
| U.S.
Plans |
| Non-
U.S.
Plans |
| U.S.
Plans |
| | Non-
U.S.
Plans |
| U.S.
Plans |
| Non-
U.S.
Plans |
|
Discount rate | 3.70 | % | 8.43 | % | 4.40 | % | (a) | 7.73 | % | 5.30 | % | 7.72 | % |
| |
(a) | Represents the weighted average rate for the IP plan for 2012 due to the remeasurement. The weighted average rate used for Temple-Inland in 2012 was 4.19%. |
The weighted average assumptions used to determine the benefit obligation at December 31, 2013 and 2012 were as follows:
|
| | | | | | | | |
| | 2013 |
| | 2012 |
|
| U.S.
Plans |
| Non-
U.S.
Plans |
| U.S.
Plans |
| Non-
U.S.
Plans |
|
Discount rate | 4.50 | % | 11.94 | % | 3.70 | % | 8.43 | % |
Health care cost trend rate assumed for next year | 7.00 | % | 11.43 | % | 7.50 | % | 7.18 | % |
Rate that the cost trend rate gradually declines to | 5.00 | % | 6.12 | % | 5.00 | % | 7.18 | % |
Year that the rate reaches the rate it is assumed to remain | 2017 |
| 2024 |
| 2017 |
| 2013 |
|
A 1% increase in the assumed annual health care cost trend rate would have increased the U.S. and non-U.S. accumulated postretirement benefit obligations at December 31, 2013 by approximately $13 million and $12 million, respectively. A 1% decrease in the annual trend rate would have decreased the U.S. and non-U.S. accumulated postretirement benefit obligation at December 31, 2013 by approximately $11 million and $10 million, respectively. The effect on net postretirement benefit cost from a 1% increase or decrease would be approximately $1 million for both U.S. and non-U.S. plans.
The plan is only funded in an amount equal to benefits paid. The following table presents the changes in benefit obligation and plan assets for 2013 and 2012:
|
| | | | | | | | | | | | |
In millions | | 2013 |
| | 2012 |
|
| U.S.
Plans |
| Non-
U.S.
Plans |
| U.S.
Plans |
| Non-
U.S.
Plans |
|
Change in projected benefit obligation: | | | | |
Benefit obligation, January 1 | $ | 449 |
| $ | 22 |
| $ | 425 |
| $ | 23 |
|
Service cost | 2 |
| 2 |
| 3 |
| — |
|
Interest cost | 14 |
| 5 |
| 20 |
| 1 |
|
Participants’ contributions | 19 |
| — |
| 34 |
| 1 |
|
Actuarial (gain) loss | (80 | ) | 12 |
| 44 |
| 10 |
|
Acquisitions | — |
| 38 |
| 108 |
| — |
|
Plan amendments | — |
| — |
| (63 | ) | — |
|
Benefits paid | (82 | ) | (1 | ) | (107 | ) | (2 | ) |
Less: Federal subsidy | 2 |
| — |
| 7 |
| — |
|
Restructuring | — |
| — |
| (17 | ) | — |
|
Curtailment | (2 | ) | — |
| (5 | ) | (11 | ) |
Currency Impact | — |
| (6 | ) | — |
| — |
|
Benefit obligation, December 31 | $ | 322 |
| $ | 72 |
| $ | 449 |
| $ | 22 |
|
Change in plan assets: | | | | |
Fair value of plan assets, January 1 | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Company contributions | 63 |
| 1 |
| 73 |
| 1 |
|
Participants’ contributions | 19 |
| — |
| 34 |
| 1 |
|
Benefits paid | (82 | ) | (1 | ) | (107 | ) | (2 | ) |
Fair value of plan assets, December 31 | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Funded status, December 31 | $ | (322 | ) | $ | (72 | ) | $ | (449 | ) | $ | (22 | ) |
Amounts recognized in the consolidated balance sheet under ASC 715: | | | | |
Current liability | $ | (39 | ) | $ | (2 | ) | $ | (59 | ) | $ | (2 | ) |
Non-current liability | (283 | ) | (70 | ) | (390 | ) | (20 | ) |
| $ | (322 | ) | $ | (72 | ) | $ | (449 | ) | $ | (22 | ) |
Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax): | | | | |
Net actuarial loss (gain) | $ | 31 |
| $ | 11 |
| $ | 115 |
| $ | (1 | ) |
Prior service credit | (35 | ) | — |
| (65 | ) | — |
|
| $ | (4 | ) | $ | 11 |
| $ | 50 |
| $ | (1 | ) |
The non-current portion of the liability is included with the postemployment liability in the accompanying consolidated balance sheet under Postretirement and postemployment benefit obligation.
The components of the $54 million decrease and $12 million increase in the amounts recognized in OCI during 2013 for U.S. and non-U.S. plans, respectively, consisted of:
|
| | | | | | |
In millions | U.S.
Plans |
| Non-
U.S.
Plans |
|
Curtailment | $ | 5 |
| $ | — |
|
Current year actuarial gain | (76 | ) | — |
|
Amortization of actuarial (loss) gain | (7 | ) | 12 |
|
Amortization of prior service credit | 24 |
| — |
|
| $ | (54 | ) | $ | 12 |
|
The portion of the change in the funded status that was recognized in either net periodic benefit cost or OCI for the U.S. plans was $63 million, $0 million and $47 million in 2013, 2012 and 2011, respectively. The portion of the change in funded status for the non-U.S. plans was $19 million, $2 million, and $3 million in 2013, 2012 and 2011, respectively.
The estimated amounts of net loss and prior service credit that will be amortized from OCI into net U.S. postretirement benefit cost in 2014 are expected to be $4 million and $(13) million, respectively. The estimated amounts for non-U.S. plans in 2014 are expected to be $1 million and $0 million, respectively.
At December 31, 2013, estimated total future postretirement benefit payments, net of participant contributions and estimated future Medicare Part D subsidy receipts, were as follows:
|
| | | | | | | | | |
In millions | Benefit
Payments |
| Subsidy
Receipts |
| Benefit
Payments |
|
| U.S.
Plans |
| U.S.
Plans |
| Non-
U.S.
Plans |
|
2014 | $ | 42 |
| $ | 3 |
| $ | 2 |
|
2015 | 35 |
| 3 |
| 3 |
|
2016 | 32 |
| 3 |
| 3 |
|
2017 | 30 |
| 3 |
| 4 |
|
2018 | 28 |
| 3 |
| 4 |
|
2019 – 2023 | 120 |
| 11 |
| 31 |
|
