Pension Plans, Postretirement Plans, Savings Plans and Other Benefits
The Company maintains various pension, postretirement, savings and other postemployment benefit plans that cover substantially all employees worldwide.
U.S. employees hired before July 1, 2007 participate in a non-contributory, qualified, defined benefit pension plan (the “Qualified Plan”) with a cash balance feature. In 2010, the Company amended the Qualified Plan to phase out participant pay credit percentages in the years 2011 and 2012 and eliminate the pay credit effective January 1, 2013. Plan participants continue to earn interest credits. In 2013, the Company recorded a $2 million partial settlement charge from lump sum distribution activity in the Qualified Plan. The Company also recognized corresponding effects in accumulated other comprehensive income and deferred taxes.
The Company also has an unfunded non-qualified supplemental executive retirement plan (the “Non-qualified Plan”) that provides certain key employees with supplemental retirement benefits in excess of limits imposed on qualified plans by U.S. tax laws. The Non-qualified Plan had settlement gains in 2011 resulting from payments to participants.
Internationally-based employees of the Company participate in plans that cover various pension and postemployment benefits specific to their country of employment. These benefits are incorporated into the disclosures below as they are not a material component of the total benefit obligations, fair value of plan assets, or plan funded status. Prior period amounts have been revised to conform to this presentation. The term “Pension Plans” includes the Qualified Plan, the Non-qualified Plan and these international defined benefit pension plans.
The Company maintains a postretirement plan providing health coverage and life insurance benefits for substantially all of its U.S. employees hired before July 1, 2007. The U.S. postretirement plan and the various international postemployment benefit plans are collectively referred to as the “Postretirement Plans”.
The Company uses a December 31 measurement date for its Pension Plans and its Postretirement Plans (collectively the "Plans"). The following table sets forth the Plans' funded status, key assumptions and amounts recognized in the Company's consolidated balance sheet at December 31:
|
| | | | | | | | | | | | | | | |
| Pension Plans | | Postretirement Plans |
| 2013 | | 2012 | | 2013 | | 2012 |
| (in millions) |
Change in benefit obligation | | | | | | | |
Benefit obligation at beginning of year | $ | 268 |
| | $ | 244 |
| | $ | 93 |
| | $ | 87 |
|
Service cost | 10 |
| | 11 |
| | 3 |
| | 2 |
|
Interest cost | 10 |
| | 10 |
| | 3 |
| | 3 |
|
Plan participants' contributions | — |
| | — |
| | 1 |
| | 1 |
|
Actuarial (gain) loss | 6 |
| | 14 |
| | (16 | ) | | 6 |
|
Benefits paid | (13 | ) | | (11 | ) | | (4 | ) | | (6 | ) |
Benefit obligation at end of year | $ | 281 |
| | $ | 268 |
| | $ | 80 |
| | $ | 93 |
|
| | | | | | | |
Change in plan assets | | | | | | | |
Fair value of plan assets at beginning of year | $ | 267 |
| | $ | 243 |
| | $ | — |
| | $ | — |
|
Actual return on plan assets | 11 |
| | 25 |
| | — |
| | — |
|
Employer contributions | 10 |
| | 10 |
| | 3 |
| | 5 |
|
Plan participants' contributions | — |
| | — |
| | 1 |
| | 1 |
|
Benefits paid | (13 | ) | | (11 | ) | | (4 | ) | | (6 | ) |
Fair value of plan assets at end of year | $ | 275 |
| | $ | 267 |
| | $ | — |
| | $ | — |
|
| | | | | | | |
Funded status | | | | | | | |
Fair value of plan assets at end of year | $ | 275 |
| | $ | 267 |
| | $ | — |
| | $ | — |
|
Benefit obligation at end of year | 281 |
| | 268 |
| | 80 |
| | 93 |
|
Funded status at end of year | $ | (6 | ) | | $ | (1 | ) | | $ | (80 | ) | | $ | (93 | ) |
| | | | | | | |
Amounts recognized on the consolidated balance sheet consist of: | | | | | | | |
Prepaid expenses, long term | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | — |
|
Accrued expenses | (2 | ) | | (3 | ) | | (4 | ) | | (4 | ) |
Other liabilities, long term | (4 | ) | | (3 | ) | | (76 | ) | | (89 | ) |
| $ | (6 | ) | | $ | (1 | ) | | $ | (80 | ) | | $ | (93 | ) |
| | | | | | | |
Amounts recognized in accumulated other comprehensive income consist of: | | | | | | | |
Net actuarial loss (gain) | $ | 52 |
| | $ | 50 |
| | $ | (8 | ) | | $ | 7 |
|
Prior service credit | — |
| | — |
| | — |
| | — |
|
| $ | 52 |
| | $ | 50 |
| | $ | (8 | ) | | $ | 7 |
|
| | | | | | | |
Weighted-average assumptions used to determine end of year benefit obligations | | | | | | | |
Discount rate | 4.46 | % | | 3.50 | % | | 4.75 | % | | 3.75 | % |
Rate of compensation increase | | | | | | | |
Qualified Plan | * | | * | | * | | * |
Non-Qualified Plan | 5.00 | % | | 5.00 | % | | * | | * |
International pension plans | 2.82 | % | | * | | * | | * |
Postretirement Plans | * | | * | | 3.00 | % | | 5.37 | % |
* Not Applicable
The accumulated benefit obligation of the Pension Plans was $280 million and $267 million at December 31, 2013 and 2012, respectively.
The benefit obligations and plan assets of the Pension Plans that had benefit obligations in excess of plan assets were as follows at December 31, 2013 and 2012:
|
| | | | | | | | |
| | 2013 | | 2012 |
| | (in millions) |
Projected benefit obligation | | $ | 281 |
| | $ | 6 |
|
Accumulated benefit obligation | | 280 |
| | 5 |
|
Fair value of plan assets | | 275 |
| | — |
|
The assumed health care cost trend rates at December 31 for the Postretirement Plans were as follows:
|
| | | | | |
| 2013 | | 2012 |
Health care cost trend rate assumed for next year | 7.50 | % | | 8.00 | % |
Rate to which the cost trend rate is expected to decline (the ultimate trend rate) | 5.00 | % | | 5.00 | % |
Year that the rate reaches the ultimate trend rate | 2019 |
| | 2019 |
|
Components of net periodic benefit cost recorded in general and administrative expenses were as follows for the Plans for each of the years ended December 31:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Postretirement Plans |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| | (in millions) |
Service cost | | $ | 10 |
| | $ | 11 |
| | $ | 14 |
| | $ | 3 |
| | $ | 2 |
| | $ | 3 |
|
Interest cost | | 10 |
| | 10 |
| | 12 |
| | 3 |
| | 3 |
| | 3 |
|
Expected return on plan assets | | (13 | ) | | (14 | ) | | (19 | ) | | — |
| | — |
| | — |
|
Settlement (gain) loss | | 2 |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Amortization: | | | | | | | | | | | | |
Actuarial loss (gain) | | 3 |
| | 4 |
| | 2 |
| | — |
| | — |
| | (1 | ) |
Prior service credit | | — |
| | (2 | ) | | (2 | ) | | — |
| | — |
| | — |
|
Net periodic benefit cost | | $ | 12 |
| | $ | 9 |
| | $ | 6 |
| | $ | 6 |
| | $ | 5 |
| | $ | 5 |
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Postretirement Plans |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| | (in millions) |
Settlement gain (loss) | | $ | (2 | ) | | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Current year actuarial loss (gain) | | 7 |
| | 4 |
| | 15 |
| | (15 | ) | | 6 |
| | 15 |
|
Amortization of actuarial (loss) gain | | (3 | ) | | (4 | ) | | (2 | ) | | — |
| | — |
| | 1 |
|
Amortization of prior service credit | | — |
| | 2 |
| | 2 |
| | — |
| | — |
| | — |
|
Total recognized in other comprehensive income (loss) | | $ | 2 |
| | $ | 2 |
| | $ | 16 |
| | $ | (15 | ) | | $ | 6 |
| | $ | 16 |
|
Total recognized in net periodic benefit cost and other comprehensive income | | $ | 14 |
| | $ | 11 |
| | $ | 22 |
| | $ | (9 | ) | | $ | 11 |
| | $ | 21 |
|
The estimated amounts that are expected to be amortized from accumulated other comprehensive income into net periodic benefit cost in 2014 are as follows:
|
| | | | | | | | |
| | Pension Plans | | Postretirement Plans |
| | (in millions) |
Actuarial loss | | $ | 4 |
| | $ | — |
|
Weighted-average assumptions used to determine net periodic benefit cost were as follows for the years ended December 31:
|
| | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Postretirement Plans |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Discount rate | | 3.30 | % | | 4.25 | % | | 5.00 | % | | 3.75 | % | | 4.25 | % | | 5.25 | % |
Expected return on plan assets | | 3.29 | % | | 6.00 | % | | 8.00 | % | | * | | * | | * |
Rate of compensation increase: | | | | | | | | | | | | |
Qualified Plan | | * | | 5.37 | % | | 5.37 | % | | * | | * | | * |
Non-Qualified Plan | | 5.00 | % | | 5.00 | % | | 5.00 | % | | * | | * | | * |
International pension plans | | 2.24 | % | | * | | * | | * | | * | | * |
Postretirement Plans | | * | | * | | * | | 5.37 | % | | 5.37 | % | | 5.37 | % |
* Not Applicable
The assumed health care cost trend rates have a significant effect on the amounts reported for the Postretirement Plans. A one-percentage point change in assumed health care cost trend rates for 2013 would have the following effects:
|
| | | | | | | |
| 1% increase | | 1% decrease |
| (in millions) |
Effect on postretirement obligation | $ | 7 |
| | $ | (6 | ) |
The effect on total service and interest cost components would be less than $1 million.
The Company's discount rate assumptions are based on a yield curve derived from high quality corporate bonds, which is matched to the expected cash flows to each of the respective Plans.
For the Qualified Plan, the Company considered the following to determine the assumption for the expected weighted-average return on plan assets: (1) historical return data for both the equity and fixed income markets over the past ten-, twenty- and thirty-year periods; (2) projected returns for both equity and fixed income; and (3) the weighting of assets within our portfolio at December 31, 2013 by class.
Plan assets are managed with a long-term perspective intended to ensure that there is an adequate level of assets to support benefit payments to participants over the life of the Qualified Plan. Plan assets are managed within asset allocation ranges, towards targets of 80% fixed income, 12% large/medium cap U.S. equity, 4% small cap U.S. equity, and 4% non-U.S. equity. Considering the asset allocation along with intent to maintain a majority of Plan assets in fixed income securities, the Company reduced the 2013 expected return on plan assets assumption from 6% to 5%.
The Valuation Hierarchy of the Qualified Plan's assets is determined using a consistent application of the categorization measurements for the Company's financial instruments. See Note 1 (Summary of Significant Accounting Policies).
Mutual funds (including small cap U.S. equity securities and non-U.S. equity securities) are public investment vehicles valued at quoted market prices, which represent the net asset value of the shares held by the Qualified Plan and are therefore included in Level 1 of the Valuation Hierarchy. Commingled funds (including large/medium cap U.S. equity securities and fixed income securities) are valued at unit values provided by investment managers, which are based on the fair value of the underlying investments utilizing public information, independent external valuation from third-party services or third-party advisors, and are therefore included in Level 2 of the Valuation Hierarchy.
The following tables set forth by level, within the Valuation Hierarchy, the Pension Plans' assets at fair value as of December 31, 2013 and 2012:
|
| | | | | | | | | | | | | | | |
| December 31, 2013 |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Fair Value |
| (in millions) |
Mutual funds: | | | | | | | |
Money market | $ | 115 |
| | $ | — |
| | $ | — |
| | $ | 115 |
|
Domestic small cap equity | 10 |
| | — |
| | — |
| | 10 |
|
International equity | 9 |
| | — |
| | — |
| | 9 |
|
Common and collective funds: | | | | | | | |
Domestic large cap equity | — |
| | 31 |
| | — |
| | 31 |
|
Domestic fixed income | — |
| | 101 |
| | — |
| | 101 |
|
Insurance contracts | — |
| | 9 |
| | — |
| | 9 |
|
Total | $ | 134 |
| | $ | 141 |
| | $ | — |
| | $ | 275 |
|
| | | | | | | |
| December 31, 2012 |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Fair Value |
| (in millions) |
Mutual funds: | | | | | | | |
Money market | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 2 |
|
Domestic small cap equity | 12 |
| | — |
| | — |
| | 12 |
|
International equity | 12 |
| | — |
| | — |
| | 12 |
|
Common and collective funds: | | | | | | | |
Domestic large cap equity | — |
| | 32 |
| | — |
| | 32 |
|
Domestic fixed income | — |
| | 209 |
| | — |
| | 209 |
|
Total | $ | 26 |
| | $ | 241 |
| | $ | — |
| | $ | 267 |
|
Pursuant to the requirements of the Pension Protection Act of 2006, the Company did not have a mandatory contribution to the Qualified Plan in 2013, 2012 or 2011. However, the Company did make voluntary contributions of $10 million and $20 million to the Qualified Plan in 2012 and 2011, respectively. The Company is not required to contribute to the Qualified Plan in 2014 and does not intend to make a contribution in 2014. The international defined benefit pension plans are subject to statutory regulations for funding and the Company estimates it will contribute approximately $10 million to these plans in 2014. The Company does not make any contributions to the Non-qualified Plan or to its Postretirement Plans, other than funding benefit payments.
The following table summarizes expected benefit payments through 2023 for the Pension Plans and the Postretirement Plans, including those payments expected to be paid from the Company's general assets. Since the majority of the benefit payments for the Pension Plans are made in the form of lump-sum distributions, actual benefit payments may differ from expected benefit payments.
|
| | | | | | | | | | | | | | | | |
| | | | Postretirement Plans |
| | Pension Plans | | Benefit Payments | | Expected Subsidy Receipts | | Net Benefit Payments |
| | (in millions) |
2014 | | $ | 24 |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
|
2015 | | 22 |
| | 4 |
| | — |
| | 4 |
|
2016 | | 19 |
| | 4 |
| | — |
| | 4 |
|
2017 | | 20 |
| | 4 |
| | — |
| | 4 |
|
2018 | | 22 |
| | 5 |
| | — |
| | 5 |
|
2019 - 2023 | | 92 |
| | 25 |
| | 1 |
| | 24 |
|
Savings Plans
Substantially all of the Company's U.S. employees are eligible to participate in a defined contribution savings plan (the “Savings Plan”) sponsored by the Company. The Savings Plan allows employees to contribute a portion of their base compensation on a pre-tax and after-tax basis in accordance with specified guidelines. The Company matches a percentage of employees' contributions up to certain limits. In addition, the Company has several defined contribution plans outside of the United States. The Company's contribution expense related to all of its defined contribution plans was $51 million, $41 million and $35 million for 2013, 2012 and 2011, respectively.
Severance Plans
The Company provides limited postemployment benefits to eligible former employees, primarily severance under formal severance plans. The Company accounts for severance expense by accruing the expected cost of the severance benefits expected to be provided after employment over their relevant service periods. The Company updates the assumptions in determining the severance accrual by evaluating the actual severance activity and long-term trends underlying the assumptions. Total severance expense of $24 million, $29 million and $23 million in 2013, 2012 and 2011, respectively, was included in general and administrative expenses in the accompanying consolidated statement of operations.
