Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER POSTRETIREMENT BENEFITS (Tables)

v2.4.0.8
PENSION AND OTHER POSTRETIREMENT BENEFITS (Tables)
12 Months Ended
Dec. 31, 2013
Pension
 
Pension and other postretirement benefits  
Changes in benefit obligations and plan assets
The changes in the benefit obligations, the various plan assets, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant pension plans were as follows:
 
 
Qualified and Non-Qualified Pension Plans
 
 
U.S. Plans
 
U.K. Plans
In millions
 
2013
 
2012
 
2013
 
2012
Change in benefit obligation
 
 
 
 
 
 
 
 
Benefit obligation at the beginning of the year
 
$
2,454

 
$
2,243

 
$
1,269

 
$
1,128

Service cost
 
70

 
58

 
21

 
21

Interest cost
 
93

 
103

 
57

 
59

Actuarial losses (gains)
 
(193
)
 
207

 
96

 
52

Benefits paid from fund
 
(150
)
 
(148
)
 
(50
)
 
(41
)
Benefits paid directly by employer
 
(13
)
 
(10
)
 

 

Exchange rate changes
 

 

 
37

 
52

Curtailment gain
 

 

 

 
(2
)
Other
 

 
1

 
(1
)
 

Benefit obligation at end of year
 
$
2,261

 
$
2,454

 
$
1,429

 
$
1,269

 
 
 
 
 
 
 
 
 
Change in plan assets
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
 
$
2,327

 
$
2,091

 
$
1,324

 
$
1,200

Actual return on plan assets
 
168

 
284

 
142

 
88

Employer contributions
 
100

 
100

 
56

 
22

Benefits paid
 
(150
)
 
(148
)
 
(50
)
 
(41
)
Exchange rate changes
 

 

 
44

 
55

Fair value of plan assets at end of year
 
$
2,445

 
$
2,327

 
$
1,516

 
$
1,324

 
 
 
 
 
 
 
 
 
Funded status (including underfunded and nonfunded plans) at end of year
 
$
184

 
$
(127
)
 
$
87

 
$
55

 
 
 
 
 
 
 
 
 
Amounts recognized in consolidated balance sheets
 
 
 
 
 
 
 
 
Prepaid pensions - long-term assets
 
$
427

 
$
127

 
$
87

 
$
55

Accrued compensation, benefits and retirement costs - current liabilities
 
(11
)
 
(10
)
 

 

Pensions - long-term liabilities
 
(232
)
 
(244
)
 

 

Net amount recognized
 
$
184

 
$
(127
)
 
$
87

 
$
55

 
 
 
 
 
 
 
 
 
Amounts recognized in accumulated other comprehensive loss consist of:
 
 
 
 
 
 
 
 
Net actuarial loss
 
$
478

 
$
734

 
$
361

 
$
349

Prior service credit
 
(1
)
 
(1
)
 

 

Net amount recognized
 
$
477

 
$
733

 
$
361

 
$
349

Information regarding total accumulated benefit obligation, PBO's and underfunded pension plans
The following table presents information regarding total accumulated benefit obligation, PBO's and underfunded pension plans that are included in the preceding table:
 
 
Qualified and Non-Qualified Pension Plans
 
 
U.S. Plans
 
U.K. Plans
In millions
 
2013
 
2012
 
2013
 
2012
Total accumulated benefit obligation
 
$
2,231

 
$
2,417

 
$
1,309

 
$
1,167

Plans with accumulated benefit obligation in excess of plan assets
 
 
 
 
 
 
 
 
Accumulated benefit obligation
 
212

 
216

 

 

Plans with projected benefit obligation in excess of plan assets
 
 
 
 
 
 
 
 
Projected benefit obligation
 
243

 
254

 

 

Net periodic cost
The following table presents the net periodic pension cost under our plans:
 
 
Qualified and Non-Qualified Pension Plans
 
 
U.S. Plans
 
U.K. Plans
In millions
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Service cost
 
$
70

 
$
58

 
$
51

 
$
21

 
$
21

 
$
20

Interest cost
 
93

 
103

 
109

 
57

 
59

 
58

Expected return on plan assets
 
(167
)
 
(157
)
 
(151
)
 
(72
)
 
(81
)
 
(74
)
Amortization of prior service (credit) cost
 
(1
)
 
(1
)
 
(1
)
 

 
1

 
3

Recognized net actuarial loss
 
62

 
47

 
39

 
24

 
14

 
14

Net periodic pension cost
 
$
57

 
$
50

 
$
47

 
$
30

 
$
14

 
$
21

Amounts recognized in other comprehensive income
Other changes in benefit obligations and plan assets recognized in other comprehensive income in 2013, 2012 and 2011 were as follows:
In millions
 
2013
 
2012
 
2011
Amortization of prior service (cost) credit
 
$
1

 
$
(1
)
 
$
(2
)
Recognized actuarial loss
 
(86
)
 
(61
)
 
(53
)
Incurred prior service cost
 

 
1

 
1

Incurred actuarial (gain) loss
 
(168
)
 
124

 
138

Foreign exchange translation adjustments
 
10

 
16

 

Total recognized in other comprehensive income
 
$
(243
)
 
$
79

 
$
84

 
 
 
 
 
 
 
Total recognized in net periodic pension cost and other comprehensive income
 
$
(156
)
 
$
143

 
$
152

Various assumptions used in determining the benefit obligation
The table below presents various assumptions used in determining the pension benefit obligation for each year and reflects weighted-average percentages for the various plans as follows:
 
 
Qualified and Non-Qualified Pension Plans
 
 
U.S. Plans
 
U.K. Plans
 
 
2013
 
2012
 
2013
 
2012
Discount rate
 
4.83
%
 
3.97
%
 
4.60
%
 
4.70
%
Compensation increase rate
 
4.91
%
 
4.90
%
 
4.50
%
 
4.00
%
Various assumptions used in determining the net periodic cost
The table below presents various assumptions used in determining the net periodic pension cost and reflects weighted-average percentages for the various plans as follows:
 
 
Qualified and Non-Qualified Pension Plans
 
 
U.S. Plans
 
U.K. Plans
 
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Discount rate
 
3.97
%
 
4.82
%
 
5.42
%
 
4.70
%
 
5.20
%
 
5.80
%
Expected return on plan assets
 
8.00
%
 
8.00
%
 
8.00
%
 
5.80
%
 
6.50
%
 
7.00
%
Compensation increase rate
 
4.91
%
 
4.00
%
 
4.00
%
 
4.00
%
 
4.25
%
 
4.50
%
Estimated future contributions and benefit payments
The table below presents expected future benefit payments under our pension plans:
 
 
Qualified and Non-Qualified Pension Plans
In millions
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019 - 2023
Expected benefit payments
 
$
225

 
$
228

 
$
235

 
$
238

 
$
244

 
$
1,271

U.S. Plans
 
Pension and other postretirement benefits  
Target allocation of pension plan assets
The primary investment objective is to exceed, on a net-of-fee basis, the rate of return of a policy portfolio comprised of the following:
Asset Class
 
Target
 
Range
U.S. equities
 
9.0
%
 
+/-5.0%
Non-U.S. equities
 
3.0
%
 
+/-3.0%
Global equities
 
10.0
%
 
+/-3.0%
Total equities
 
22.0
%
 
 
Real estate
 
7.0
%
 
+3.0/-7.0%
Private equity
 
7.0
%
 
+3.0/-7.0%
Fixed income
 
64.0
%
 
+/-5.0%
Total
 
100.0
%
 
 
Fair value of plan assets
The fair values of U.S. pension plan assets by asset category were as follows:
 
 
Fair Value Measurements as of December 31, 2013
In millions
 
Quoted prices in active
markets for identical assets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable inputs
(Level 3)
 
Total
Equities
 
 
 
 
 
 
 
 
U.S.
 
$
96

 
$
375

 
$

 
$
471

Non-U.S.
 
143

 
138

 

 
281

Fixed Income
 
 
 
 
 
 
 

Government debt
 
325

 
455

 

 
780

Corporate debt
 
 
 
 
 
 
 

U.S.
 
279

 
244

 

 
523

Non-U.S.
 
64

 

 

 
64

Asset/mortgaged backed securities
 
12

 

 

 
12

Net cash equivalents(1)
 
36

 

 

 
36

Derivative instruments(2)
 

 
2

 

 
2

Private equity and real estate(3)
 

 

 
296

 
296

Total
 
$
955

 
$
1,214

 
$
296

 
$
2,465

Pending trade/purchases/sales
 
 

 
 

 
 

 
(28
)
Accruals(4)
 
 

 
 

 
 

 
8

Total
 
 

 
 

 
 

 
$
2,445


 
 
Fair Value Measurements as of December 31, 2012
In millions
 
Quoted prices in active
markets for identical assets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable inputs
(Level 3)
 
Total
Equities
 
 

 
 

 
 
 
 

U.S.
 
$
113

 
$
542

 
$

 
$
655

Non-U.S.
 
177

 
127

 

 
304

Fixed Income
 
 
 
 
 
 
 


Government debt
 
475

 
132

 

 
607

Corporate debt
 
 
 
 
 
 
 


U.S.
 
203

 
191

 

 
394

Non-U.S.
 
42

 

 

 
42

Asset/mortgaged backed securities
 
13

 

 

 
13

Net cash equivalents(1)
 
35

 

 

 
35

Private equity and real estate(3)
 

 

 
286

 
286

Total
 
$
1,058

 
$
992

 
$
286

 
$
2,336

Pending trade/purchases/sales
 
 

 
 

 
 

 
(16
)
Accruals(4)
 
 

 
 

 
 

 
7

Total
 
 

 
 

 
 

 
$
2,327

____________________________________________________
(1)
Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments.
(2)
Derivative instruments include interest rate swaps, foreign currency forward contracts and credit default swaps.
(3)
The instruments in private equity and real estate funds, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statement of the funds.
(4)
Interest or dividends that had not been settled as of the year ended December 31.

Changes in the fair value of Level 3 plan assets
The reconciliation of Level 3 assets was as follows:
 
 
Fair Value Measurements as of December 31,
Using Significant Unobservable Inputs (Level 3)
In millions
 
Private Equity
 
Real Estate
 
Total
Balance at December 31, 2011
 
$
147

 
$
119

 
$
266

Actual return on plan assets
 
 
 
 
 
 
Unrealized (losses) gains on assets still held at the reporting date
 
15

 
9

 
24

Purchases, sales and settlements, net
 
(6
)
 
2

 
(4
)
Balance at December 31, 2012
 
156

 
130

 
286

Actual return on plan assets
 
 
 
 
 
 
Unrealized (losses) gains on assets still held at the reporting date
 
20

 
10

 
30

Purchases, sales and settlements, net
 
(23
)
 
3

 
(20
)
Balance at December 31, 2013
 
$
153

 
$
143

 
$
296

Non-U.S. Plans
 
Pension and other postretirement benefits  
Target allocation of pension plan assets
To achieve these objectives we have established the following targets:
Asset Class
 
Target
 
Range
Global equities
 
30.5
%
 
+2.5/-5.0%
Real estate
 
7.5
%
 
+2.5/-5.0%
Re-insurance
 
5.0
%
 
+2.5/-5.0%
Private equity
 
7.5
%
 
+2.5/-5.0%
Corporate credit instruments
 
4.5
%
 
+2.5/-4.5%
Fixed income
 
45.0
%
 
+5.5/-2.0%
Total
 
100.0
%
 
 
Fair value of plan assets
The fair values of U.K. pension plan assets by asset category were as follows:
 
 
Fair Value Measurements as of December 31, 2013
In millions
 
Quoted prices in active
markets for identical assets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable inputs
(Level 3)
 
Total
Equities
 
 
 
 
 
 
 
 
U.S.
 
$

 
$
270

 
$

 
$
270

Non-U.S.
 

 
328

 

 
328

Fixed Income
 
 
 
 
 
 
 
 
Government debt
 

 
120

 

 
120

Corporate debt non-U.S.
 

 
138

 

 
138

Net cash equivalents(1)
 
13

 

 

 
13

Derivative instruments(2)
 

 
24

 

 
24

Re-insurance
 

 
66

 

 
66

Private equity, real estate & insurance(3)
 

 

 
557

 
557

Total
 
$
13

 
$
946

 
$
557

 
$
1,516


 
 
Fair Value Measurements as of December 31, 2012
In millions
 
Quoted prices in active
markets for identical assets
(Level 1)
 
Significant other
observable inputs
(Level 2)
 
Significant
unobservable inputs
(Level 3)
 
Total
Equities
 
 
 
 
 
 
 
 
U.S.
 
$

 
$
251

 
$

 
$
251

Non-U.S.
 

 
325

 

 
325

Fixed Income
 
 
 
 
 
 
 

Government debt
 

 
191

 

 
191

Net cash equivalents(1)
 
10

 

 
 
 
10

Re-insurance
 

 
61

 

 
61

Private equity, real estate & insurance(3)
 

 

 
486

 
486

Total
 
$
10

 
$
828

 
$
486

 
$
1,324

_____________________________________________________
(1) 
Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments.
(2) 
Derivative instruments include interest rate swaps, foreign currency forward contracts and credit default swaps.
(3) 
The instruments in private equity and real estate funds, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statement of the funds.
Changes in the fair value of Level 3 plan assets
The reconciliation of Level 3 assets was as follows:
 
 
Fair Value Measurements as of December 31,
Using Significant Unobservable Inputs (Level 3)
In millions
 
Insurance
 
Real Estate
 
Private Equity
 
Total
Balance at December 31, 2011
 
$

 
$
33

 
$
14

 
$
47

Actual return on plan assets
 
 
 
 
 
 
 
 
Unrealized (losses) gains on assets still held at the reporting date
 
13

 
1

 
1

 
15

Purchases, sales and settlements, net
 
411

 

 
13

 
424

Balance at December 31, 2012
 
424

 
34

 
28

 
486

Actual return on plan assets
 
 
 
 
 
 
 
 
Unrealized (losses) gains on assets still held at the reporting date
 
29

 
2

 
5

 
36

Purchases, sales and settlements, net
 
(13
)
 
33

 
15

 
35

Balance at December 31, 2013
 
$
440

 
$
69

 
$
48

 
$
557

Other Postretirement Benefits
 
Pension and other postretirement benefits  
Changes in benefit obligations and plan assets
The changes in the benefit obligations, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant other postretirement benefit plans were as follows:
In millions
 
2013
 
2012
Change in benefit obligation
 
 
 
 
Benefit obligation at the beginning of the year
 
$
478

 
$
483

Interest cost
 
17

 
21

Plan participants' contributions
 
10

 
8

Plan amendments
 

 
(4
)
Actuarial losses (gains)
 
(49
)
 
21

Benefits paid directly by employer
 
(58
)
 
(51
)
Benefit obligation at end of year
 
$
398

 
$
478

 
 
 
 
 
Funded status at end of year
 
$
(398
)
 
$
(478
)
 
 
 
 
 
Amounts recognized in consolidated balance sheets
 
 
 
 
Accrued compensation, benefits and retirement costs - current liabilities
 
$
(42
)
 
$
(46
)
Postretirement benefits other than pensions-long-term liabilities
 
(356
)
 
(432
)
Net amount recognized
 
$
(398
)
 
$
(478
)
 
 
 
 
 
Amounts recognized in accumulated other comprehensive loss consist of:
 
 
 
 
Net actuarial loss
 
$
27

 
$
83

Prior service credit
 
(5
)
 
(6
)
Net amount recognized
 
$
22

 
$
77

Net periodic cost
The following table presents the net periodic other postretirement benefits cost under our plans:
In millions
 
2013
 
2012
 
2011
Interest cost
 
$
17

 
$
21

 
$
24

Amortization of prior service credit
 

 
(5
)
 
(8
)
Recognized net actuarial loss
 
6

 
3

 

Other
 

 
1

 
1

Net periodic other postretirement benefit cost
 
$
23

 
$
20

 
$
17

Amounts recognized in other comprehensive income
Other changes in benefit obligations recognized in other comprehensive income in 2013, 2012 and 2011 were as follows:
In millions
 
2013
 
2012
 
2011
Amortization of prior service credit
 
$

 
$
5

 
$
8

Recognized actuarial loss
 
(6
)
 
(3
)
 

Incurred actuarial (gain) loss
 
(49
)
 
20

 
16

Incurred prior service credit
 

 
(4
)
 

Other
 

 
(1
)
 

Total recognized in other comprehensive income
 
$
(55
)
 
$
17

 
$
24

 
 
 
 
 
 
 
Total recognized in net periodic other postretirement benefit cost and other comprehensive income
 
$
(32
)
 
$
37

 
$
41

Various assumptions used in determining the benefit obligation
The table below presents assumptions used in determining the other postretirement benefit obligation for each year and reflects weighted-average percentages for our other postretirement plans as follows:
 
 
2013
 
2012
Discount rate
 
4.55
%
 
3.70
%
Various assumptions used in determining the net periodic cost
The table below presents assumptions used in determining the net periodic other postretirement benefits cost and reflects weighted-average percentages for the various plans as follows:
 
 
2013
 
2012
 
2011
Discount rate
 
3.70
%
 
4.70
%
 
5.20
%
Estimated future contributions and benefit payments
The table below presents expected benefit payments under our other postretirement benefit plans:
In millions
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019 - 2023
Expected benefit payments
 
$
43

 
$
41

 
$
38

 
$
36

 
$
33

 
$
140