NOTE 17. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company participates in and/or sponsors various pension, savings and postretirement benefit plans. The major pension plans and postretirement benefit plans are closed to new participants (with the exception of groups covered by collective bargaining agreements). In connection with the Separation of News Corp, the Company entered into an Employee Matters Agreement with News Corp which provides that employees of News Corp no longer participate in benefit plans sponsored or maintained by the Company as of the Separation date. Upon separation, the Company's plans transferred assets and obligations to News Corp resulting in a net decrease in sponsored pension and postretirement plan obligations of $558 million. Additionally, as a result of the Separation, deferred items of approximately $500 million were transferred to News Corp.
The Company has a legally enforceable obligation to contribute to some plans and is not required to contribute to others. The plans in the U.S. include both defined benefit pension plans and employee non-contributory and employee contributory accumulation plans covering all eligible employees. The Company makes contributions in accordance with applicable laws or contract terms in each jurisdiction in which the Company operates. The Company's benefit obligation is calculated using several assumptions which the Company reviews on a regular basis.
The funded status of the plans can change from year to year, but the assets of the funded plans have been sufficient to pay all benefits that came due in each of fiscal 2013, 2012 and 2011.
The Company uses a June 30 measurement date for all pension and postretirement benefit plans. The following table sets forth the change in the projected benefit obligation, change in the fair value of plan assets and funded status for the Company's benefit plans:
| Pension benefits | Postretirement benefits | |||||||||||
| As of June 30, | ||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||
| (in millions) | ||||||||||||
| Projected benefit obligation, beginning of the year | $ | 3,855 | $ | 3,204 | $ | 377 | $ | 313 | ||||
| Service cost | 105 | 97 | 4 | 5 | ||||||||
| Interest cost | 101 | 176 | 6 | 16 | ||||||||
| Benefits paid | (51) | (115) | (7) | (19) | ||||||||
| Settlements(a) | (66) | (131) | - | - | ||||||||
| Actuarial (gain) loss(b) | (279) | 660 | (3) | 62 | ||||||||
| Foreign exchange rate changes | (2) | (42) | - | - | ||||||||
| Other | (34) | 6 | - | - | ||||||||
| Separation of News Corp plans | (1,534) | - | (231) | - | ||||||||
| Projected benefit obligation, end of the year | 2,095 | 3,855 | 146 | 377 | ||||||||
| Change in the fair value of plan assets for the Company’s benefit plans: | ||||||||||||
| Fair value of plan assets, beginning of the year | 2,772 | 2,724 | - | - | ||||||||
| Actual return on plan assets | 116 | 68 | - | - | ||||||||
| Employer contributions | 95 | 255 | - | - | ||||||||
| Benefits paid | (51) | (115) | - | - | ||||||||
| Settlements(a) | (66) | (131) | - | - | ||||||||
| Foreign exchange rate changes | (3) | (34) | - | - | ||||||||
| Amendments, transfers and other | 1 | 5 | - | - | ||||||||
| Separation of News Corp plans | (1,187) | - | - | - | ||||||||
| Payable to News Corp plans | (20) | - | - | - | ||||||||
| Fair value of plan assets, end of the year | 1,657 | 2,772 | - | - |
| Funded status(c) | $ | (438) | $ | (1,083) | $ | (146) | $ | (377) |
Amounts recognized in the consolidated balance sheets consist of:
| Pension benefits | Postretirement benefits | |||||||||||
| As of June 30, | ||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||
| (in millions) | ||||||||||||
| Accrued pension/postretirement liabilities | $ | (438) | $ | (1,083) | $ | (146) | $ | (377) | ||||
| Net amount recognized | $ | (438) | $ | (1,083) | $ | (146) | $ | (377) | ||||
Amounts recognized in accumulated other comprehensive income consist of:
| Pension benefits | Postretirement benefits | |||||||||||
| As of June 30, | ||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||
| (in millions) | ||||||||||||
| Actuarial losses | $ | 625 | $ | 1,538 | $ | 42 | $ | 105 | ||||
| Prior service cost (benefit) | 9 | 8 | - | (40) | ||||||||
| Net amounts recognized | $ | 634 | $ | 1,546 | $ | 42 | $ | 65 | ||||
Amounts in accumulated other comprehensive income expected to be recognized as a component of net periodic pension cost in fiscal 2014:
| Pension benefits | Postretirement benefits | |||||
| As of June 30, | ||||||
| 2013 | 2013 | |||||
| (in millions) | ||||||
| Actuarial losses | $ | 40 | $ | 3 | ||
| Prior service cost (benefit) | 1 | - | ||||
| Net amounts recognized | $ | 41 | $ | 3 | ||
Accumulated pension benefit obligations at June 30, 2013 and 2012 were $1,843 million and $3,456 million, respectively. Below is information about funded and unfunded pension plans.
| Funded Plans | Unfunded Plans | |||||||||||
| As of June 30, | ||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||
| (in millions) | ||||||||||||
| Projected benefit obligation | $ | 1,807 | $ | 3,508 | $ | 288 | $ | 347 | ||||
| Accumulated benefit obligation | 1,563 | 3,121 | 280 | 335 | ||||||||
| Fair value of plan assets | 1,657 | 2,772 | - (a) | - | ||||||||
Below is information about pension plans in which the accumulated benefit obligation exceeds fair value of the plan assets.
| Funded Plans | Unfunded Plans | |||||||||||
| As of June 30, | ||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||
| (in millions) | ||||||||||||
| Projected benefit obligation | $ | 411 | $ | 3,508 | $ | 288 | $ | 347 | ||||
| Accumulated benefit obligation | 386 | 3,121 | 280 | 335 | ||||||||
| Fair value of plan assets | 370 | 2,772 | - (a) | - | ||||||||
The components of net periodic benefits costs from continuing operations were as follows:
| Pension benefits | Postretirement benefits | |||||||||||||||||
| For the years ended June 30, | ||||||||||||||||||
| 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | |||||||||||||
| (in millions) | ||||||||||||||||||
| Service cost benefits earned during the period | $ | 105 | $ | 78 | $ | 77 | $ | 4 | $ | 3 | $ | 3 | ||||||
| Interest costs on projected benefit obligations | 101 | 103 | 102 | 6 | 6 | 7 | ||||||||||||
| Expected return on plan assets | (110) | (103) | (97) | - | - | - | ||||||||||||
| Amortization of deferred losses | 79 | 32 | 37 | 3 | - | - | ||||||||||||
| Other | 2 | 6 | 8 | - | (2) | (3) | ||||||||||||
| Net periodic benefits costs from continuing operations | $ | 177 | $ | 116 | $ | 127 | $ | 13 | $ | 7 | $ | 7 | ||||||
| Pension benefits | Postretirement benefits | |||||||||||||||||
| For the years ended June 30, | ||||||||||||||||||
| 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | |||||||||||||
| Additional information from continuing operations: | ||||||||||||||||||
| Weighted-average assumptions used to determine benefit obligations | ||||||||||||||||||
| Discount rate | 5.2 | % | 4.3 | % | 5.7 | % | 4.8 | % | 3.8 | % | 5.3 | % | ||||||
| Rate of increase in future compensation | 4.4 | % | 6.2 | % | 6.1 | % | N/A | N/A | N/A | |||||||||
| Weighted-average assumptions used to determine net periodic benefit cost | ||||||||||||||||||
| Discount rate | 4.3 | % | 5.7 | % | 5.7 | % | 3.8 | % | 5.3 | % | 5.5 | % | ||||||
| Expected return on plan assets | 7.0 | % | 7.0 | % | 7.0 | % | N/A | N/A | N/A | |||||||||
| Rate of increase in future compensation | 6.2 | % | 6.1 | % | 6.1 | % | N/A | N/A | N/A | |||||||||
N/A – not applicable
The following assumed health care cost trend rates at June 30 were also used in accounting for postretirement benefits:
| Postretirement benefits | ||||||
| Fiscal 2013 | Fiscal 2012 | |||||
| Health care cost trend rate | 6.8 | % | 7.3 | % | ||
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.0 | % | 5.0 | % | ||
| Year that the rate reaches the ultimate trend rate | 2019 | 2019 | ||||
Assumed health care cost trend rates could have a significant effect on the amounts reported for the postretirement health care plan. The effect of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate would have the following effects on the results for fiscal 2013:
| Service and interest costs | Benefit obligation | |||||
| (in millions) | ||||||
| One percentage point increase | N/A | $ | 5 | |||
| One percentage point decrease | N/A | $ | (4) | |||
The following table sets forth the estimated benefit payments for the next five fiscal years and in aggregate for the five fiscal years thereafter. The expected benefits are estimated based on the same assumptions used to measure the Company's benefit obligation at the end of the fiscal year and include benefits attributable to estimated future employee service:
| Expected benefit payments | |||||||
| Pension benefits | Postretirement benefits | ||||||
| (in millions) | |||||||
| Fiscal year: | |||||||
| 2014 | $ | 100 | $ | 7 | |||
| 2015 | 95 | 7 | |||||
| 2016 | 101 | 7 | |||||
| 2017 | 107 | 8 | |||||
| 2018 | 111 | 9 | |||||
| 2019-2023 | 658 | 49 | |||||
The above table shows expected benefits payments for the postretirement benefits net of U.S. Medicare subsidy receipts which are anticipated to be less than $1 million per year.
Plan Assets
The Company applies the provisions of ASC 715, which required disclosures include: (i) investment policies and strategies; (ii) the major categories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets.
The table below presents the Company's plan assets by level within the fair value hierarchy, as described in Note 8 – Fair Value, as of June 30, 2013 and 2012:
| As of June 30, 2013 | As of June 30, 2012 | ||||||||||||||||||||||||
| Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3(a) | Total | Level 1 | Level 2 | Level 3(a) | |||||||||||||||||
| (in millions) | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||
| Short-term investments | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||
| Pooled funds:(b) | |||||||||||||||||||||||||
| Money market funds | 22 | - | 22 | - | 224 | - | 224 | - | |||||||||||||||||
| Domestic equity funds | 146 | 146 | - | - | 125 | 125 | - | - | |||||||||||||||||
| International equity funds | 264 | 214 | 50 | - | 585 | 291 | 294 | - | |||||||||||||||||
| Domestic fixed income funds | 278 | 278 | - | - | 312 | 312 | - | - | |||||||||||||||||
| International fixed income funds | 32 | - | 32 | - | 329 | - | 329 | - | |||||||||||||||||
| Balanced funds | 297 | 155 | 142 | - | 622 | 146 | 476 | - | |||||||||||||||||
| Common stocks(c) | |||||||||||||||||||||||||
| U.S. common stocks | 300 | 300 | - | - | 258 | 257 | 1 | - | |||||||||||||||||
| Government and agency obligations(d) | |||||||||||||||||||||||||
| Domestic government obligations | 35 | - | 35 | - | 26 | - | 26 | - | |||||||||||||||||
| Domestic agency obligations | 67 | - | 67 | - | 110 | - | 110 | - | |||||||||||||||||
| International government obligations | 66 | - | 66 | - | 75 | - | 75 | - | |||||||||||||||||
| Corporate obligations(d) | 75 | - | 75 | - | 25 | - | 25 | - | |||||||||||||||||
| Partnership interests(e) | 38 | - | 38 | - | 38 | - | 38 | - | |||||||||||||||||
| Other | 37 | (12) | 48 | 1 | 43 | 3 | 27 | 13 | |||||||||||||||||
| Total | $ | 1,657 | $ | 1,081 | $ | 575 | $ | 1 | $ | 2,772 | $ | 1,134 | $ | 1,625 | $ | 13 | |||||||||
The Company's investment strategy for its pension plans is to maximize the long-term rate of return on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The Company's practice is to conduct a periodic strategic review of its asset allocation. The Company's current broad strategic targets are to have a pension asset portfolio comprising of 48% equity securities, 37% fixed income securities and 15% in cash and other investments. In developing the expected long-term rate of return, the Company considered the pension asset portfolio's past average rate of returns and future return expectations of the various asset classes. A portion of the other allocation is reserved in short-term cash to provide for expected benefits to be paid in short term. The Company's equity portfolios are managed in such a way as to achieve optimal diversity. The Company's fixed income portfolio is investment grade in the aggregate. The Company does not manage any assets internally.
The Company's benefit plan weighted-average asset allocations, by asset category, are as follows:
| Pension benefits | |||||||
| As of June 30, | |||||||
| 2013 | 2012 | ||||||
| Asset Category: | |||||||
| Equity securities | 43 | % | 37 | % | |||
| Debt securities | 37 | % | 39 | % | |||
| Other, including cash | 20 | % | 24 | % | |||
| Total | 100 | % | 100 | % | |||
Required pension plan contributions for the next fiscal year are not expected to be material; however, actual contributions may be affected by pension asset and liability valuation changes during the year. The Company will continue to make voluntary contributions as necessary to improve funded status.
Multi-employer Pension and Postretirements Plans
The Company contributes to various multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of its union-represented employees, primarily at the Filmed Entertainment segment. The risks of participating in these multiemployer pension plans are different from single-employer pension plans such that (i) contributions made by the Company to the multiemployer pension plans may be used to provide benefits to employees of other participating employers; (ii) if the Company chooses to stop participating in certain of these multiemployer pension plans, it may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability; and (iii) actions taken by a participating employer that lead to a deterioration of the financial health of a multiemployer pension plan may result in the unfunded obligations of the multiemployer pension plan to be borne by its remaining participating employers. While no multiemployer pension plan that the Company contributed to is individually significant to the Company, the Company was listed on four Form 5500s as providing more than 5% of total contributions based on the current information available. The financial health of a multiemployer plan is indicated by the zone status, as defined by the Pension Protection Act of 2006, which represents the funded status of the plan as certified by the plan's actuary. Plans in the red zone are less than 65% funded, the yellow zone are between 65% and 80% funded, and green zone are at least 80% funded. The most recent available funded status of the four plans in which the Company was listed as providing more than 5% of total contributions are all green. Total contributions made by the Company to multiemployer pension plans were $66 million for the fiscal years ended June 30, 2013 and 2012 and $55 million for the fiscal year ended June 30, 2011.
The Company also contributes to various other multiemployer benefit plans that provide health and welfare benefits to active and retired participants, primarily at the Filmed Entertainment segment. Total contributions made by the Company to these other multiemployer benefit plans for the fiscal years ended June 30, 2013, 2012, and 2011 were $80 million, $67 million and $62 million, respectively.
Defined Contribution Plans
The Company has defined contribution plans for the benefit of substantially all employees meeting certain eligibility requirements. Employer contributions to such plans were $195 million, $198 million and $194 million for the fiscal year ended June 30, 2013, 2012 and 2011, respectively, of which $134 million, $141 million and $148 million related to discontinued operations, respectively.