Retirement Plans | 12 Months Ended |
Dec. 31, 2014 |
Retirement Plans [Abstract] | |
Retirement Plans [Text Block] | 6. Retirement Plans |
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Pension and Other Postretirement Benefits |
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Pension Plans – We provide defined benefit retirement income to eligible non-union employees through qualified and non-qualified (supplemental) pension plans. Qualified and non-qualified pension benefits are based on years of service and the highest compensation during the latest years of employment, with specific reductions made for early retirements. |
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Other Postretirement Benefits (OPEB) – We provide medical and life insurance benefits for eligible retirees. These benefits are funded as medical claims and life insurance premiums are paid. |
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Funded Status |
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We are required by GAAP to separately recognize the overfunded or underfunded status of our pension and OPEB plans as an asset or liability. The funded status represents the difference between the projected benefit obligation (PBO) and the fair value of the plan assets. Our non-qualified (supplemental) pension plan is unfunded by design. The PBO of the pension plans is the present value of benefits earned to date by plan participants, including the effect of assumed future compensation increases. The PBO of the OPEB plan is equal to the accumulated benefit obligation, as the present value of the OPEB liabilities is not affected by compensation increases. Plan assets are measured at fair value. We use a December 31 measurement date for plan assets and obligations for all our retirement plans. |
Changes in our PBO and plan assets were as follows for the years ended December 31: |
Funded Status | Pension | | OPEB | | | | |
Millions | 2014 | 2013 | | 2014 | 2013 | | | | |
Projected Benefit Obligation | | | | | | | | | | | | | |
Projected benefit obligation at beginning of year | $ | 3,372 | $ | 3,591 | | $ | 330 | $ | 372 | | | | |
Service cost | | 70 | | 72 | | | 2 | | 3 | | | | |
Interest cost | | 158 | | 134 | | | 14 | | 12 | | | | |
Actuarial loss/(gain) | | 735 | | -257 | | | 33 | | -34 | | | | |
Gross benefits paid | | -193 | | -168 | | | -25 | | -23 | | | | |
Projected benefit obligation at end of year | $ | 4,142 | $ | 3,372 | | $ | 354 | $ | 330 | | | | |
Plan Assets | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | $ | 3,429 | $ | 2,875 | | $ | - | $ | - | | | | |
Actual return on plan assets | | 185 | | 506 | | | - | | - | | | | |
Voluntary funded pension plan contributions | | 200 | | 200 | | | - | | - | | | | |
Non-qualified plan benefit contributions | | 33 | | 16 | | | 25 | | 23 | | | | |
Gross benefits paid | | -193 | | -168 | | | -25 | | -23 | | | | |
Fair value of plan assets at end of year | $ | 3,654 | $ | 3,429 | | $ | - | $ | - | | | | |
Funded status at end of year | $ | -488 | $ | 57 | | $ | -354 | $ | -330 | | | | |
Amounts recognized in the statement of financial position as of December 31, 2014 and 2013 consist of: |
| Pension | | OPEB | | | | |
Millions | 2014 | 2013 | | 2014 | 2013 | | | | |
Noncurrent assets | $ | 1 | $ | 364 | | $ | - | $ | - | | | | |
Current liabilities | | -19 | | -16 | | | -23 | | -25 | | | | |
Noncurrent liabilities | | -470 | | -291 | | | -331 | | -305 | | | | |
Net amounts recognized at end of year | $ | -488 | $ | 57 | | $ | -354 | $ | -330 | | | | |
The change in the funded status and accumulated other comprehensive income/(loss) is primarily a result of implementing a new set of mortality tables issued by the Society of Actuaries in October 2014 and lower discount rates. |
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Pre-tax amounts recognized in accumulated other comprehensive income/(loss) as of December 31, 2014 and 2013 consist of: |
| 2014 | | | 2013 |
Millions | Pension | OPEB | Total | | Pension | OPEB | Total |
Prior service (cost)/credit | $ | - | $ | 17 | $ | 17 | | $ | - | $ | 28 | $ | 28 |
Net actuarial loss | | -1,727 | | -148 | | -1,875 | | | -1,018 | | -125 | | -1,143 |
Total | $ | -1,727 | $ | -131 | $ | -1,858 | | $ | -1,018 | $ | -97 | $ | -1,115 |
Pre-tax changes recognized in other comprehensive income/(loss) during 2014, 2013 and 2012 were as follows: |
| Pension | | | OPEB |
Millions | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 |
Net actuarial (loss)/gain | $ | -780 | $ | 561 | $ | -265 | | $ | -33 | $ | 34 | $ | -42 |
Amortization of: | | | | | | | | | | | | | |
Prior service cost/(credit) | | - | | - | | 1 | | | -11 | | -16 | | -18 |
Actuarial loss | | 71 | | 106 | | 83 | | | 10 | | 15 | | 13 |
Total | $ | -709 | $ | 667 | $ | -181 | | $ | -34 | $ | 33 | $ | -47 |
Amounts included in accumulated other comprehensive income/(loss) expected to be amortized into net periodic cost during 2015: |
Millions | Pension | OPEB | Total | | | | | | | |
Prior service credit | $ | - | $ | 10 | $ | 10 | | | | | | | |
Net actuarial loss | | -103 | | -13 | | -116 | | | | | | | |
Total | $ | -103 | $ | -3 | $ | -106 | | | | | | | |
Underfunded Accumulated Benefit Obligation – The accumulated benefit obligation (ABO) is the present value of benefits earned to date, assuming no future compensation growth. The underfunded accumulated benefit obligation represents the difference between the ABO and the fair value of plan assets. At December 31, 2014 and 2013, the non-qualified (supplemental) plan ABO was $379 million and $302 million, respectively. The following table discloses only the PBO, ABO, and fair value of plan assets for pension plans where the accumulated benefit obligation is in excess of the fair value of the plan assets as of December 31: |
Underfunded Accumulated Benefit Obligation | | | | | | | | | | | |
Millions | 2014 | 2013 | | | | | | | | | |
Projected benefit obligation | $ | 388 | $ | 308 | | | | | | | | | |
Accumulated benefit obligation | $ | 379 | $ | 302 | | | | | | | | | |
Fair value of plan assets | | - | | - | | | | | | | | | |
Underfunded accumulated benefit obligation | $ | -379 | $ | -302 | | | | | | | | | |
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The ABO for all defined benefit pension plans was $3.9 billion and $3.2 billion at December 31, 2014 and 2013, respectively. |
Assumptions – The weighted-average actuarial assumptions used to determine benefit obligations at December 31: |
| Pension | OPEB | | | | | | | | | |
Percentages | 2014 | 2013 | 2014 | 2013 | | | | | | | | | |
Discount rate | 3.94% | 4.72% | 3.74% | 4.47% | | | | | | | | | |
Compensation increase | 4.00% | 4.00% | N/A | N/A | | | | | | | | | |
Health care cost trend rate (employees under 65) | N/A | N/A | 6.34% | 6.49% | | | | | | | | | |
Ultimate health care cost trend rate | N/A | N/A | 4.50% | 4.50% | | | | | | | | | |
Year ultimate trend rate reached | N/A | N/A | 2028 | 2028 | | | | | | | | | |
Expense |
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Both pension and OPEB expense are determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a five-year period. This practice is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying the recognition of differences between actual returns on assets and expected returns based on long-term rate of return assumptions. Differences in actual experience in relation to assumptions are not recognized in net income immediately, but are deferred in accumulated other comprehensive income and, if necessary, amortized as pension or OPEB expense. |
The components of our net periodic pension and OPEB cost/(benefit) were as follows for the years ended December 31: |
| Pension | | OPEB | |
Millions | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |
Net Periodic Benefit Cost: | | | | | | | | | | | | | |
Service cost | $ | 70 | $ | 72 | $ | 54 | $ | 2 | $ | 3 | $ | 3 | |
Interest cost | | 158 | | 134 | | 141 | | 14 | | 12 | | 15 | |
Expected return on plan assets | | -230 | | -202 | | -190 | | - | | - | | - | |
Amortization of: | | | | | | | | | | | | | |
Prior service cost/(credit) | | - | | - | | 1 | | -11 | | -16 | | -18 | |
Actuarial loss | | 71 | | 106 | | 83 | | 10 | | 15 | | 13 | |
Net periodic benefit cost/(benefit) | $ | 69 | $ | 110 | $ | 89 | $ | 15 | $ | 14 | $ | 13 | |
Assumptions – The weighted-average actuarial assumptions used to determine expense were as follows: |
| Pension | OPEB | | | | | | | |
Percentages | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | | | | | | | |
Discount rate | 4.72% | 3.78% | 4.54% | 4.47% | 3.48% | 4.36% | | | | | | | |
Expected return on plan assets | 7.50% | 7.50% | 7.50% | N/A | N/A | N/A | | | | | | | |
Compensation increase | 4.00% | 3.43% | 3.69% | N/A | N/A | N/A | | | | | | | |
Health care cost trend rate (employees under 65) | N/A | N/A | N/A | 6.49% | 6.64% | 6.91% | | | | | | | |
Ultimate health care cost trend rate | N/A | N/A | N/A | 4.50% | 4.50% | 4.50% | | | | | | | |
Year ultimate trend reached | N/A | N/A | N/A | 2028 | 2028 | 2028 | | | | | | | |
The discount rate was based on a yield curve of high quality corporate bonds with cash flows matching our plans' expected benefit payments. The expected return on plan assets is based on our asset allocation mix and our historical return, taking into account current and expected market conditions. The actual return on pension plan assets, net of fees, was approximately 6% in 2014, 17% in 2013, and 13% in 2012. |
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Assumed health care cost trend rates have an effect on the expense and liabilities reported for health care plans. The assumed health care cost trend rate is based on historical rates and expected market conditions. The 2015 assumed health care cost trend rate for employees under 65 is 6.49%. It is assumed the rate will decrease gradually to an ultimate rate of 4.5% in 2028 and will remain at that level. A one-percentage point change in the assumed health care cost trend rates would have the following effects on OPEB: |
Millions | One % pt. Increase | One % pt. Decrease | | | | | | | | | |
Effect on total service and interest cost components | $ | 1 | $ | -1 | | | | | | | | | |
Effect on accumulated benefit obligation | | 19 | | -16 | | | | | | | | | |
Cash Contributions |
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The following table details our cash contributions for the qualified pension plans and the benefit payments for the non-qualified (supplemental) pension and OPEB plans: |
| | Pension | | | | | | | | |
Millions | Qualified | Non-qualified | OPEB | | | | | | |
2013 | $ | 200 | $ | 16 | $ | 23 | | | | | | |
2014 | | 200 | | 33 | | 25 | | | | | | |
Our policy with respect to funding the qualified plans is to fund at least the minimum required by law and not more than the maximum amount deductible for tax purposes. All contributions made to the qualified pension plans in 2014 were voluntary and were made with cash generated from operations. |
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The non-qualified pension and OPEB plans are not funded and are not subject to any minimum regulatory funding requirements. Benefit payments for each year represent supplemental pension payments and claims paid for medical and life insurance. We anticipate our 2015 supplemental pension and OPEB payments will be made from cash generated from operations. |
Benefit Payments |
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The following table details expected benefit payments for the years 2015 through 2024: |
Millions | Pension | OPEB | | | | | | | | | |
2015 | $ | 180 | $ | 23 | | | | | | | | | |
2016 | | 186 | | 23 | | | | | | | | | |
2017 | | 191 | | 23 | | | | | | | | | |
2018 | | 196 | | 23 | | | | | | | | | |
2019 | | 201 | | 23 | | | | | | | | | |
Years 2020 - 2024 | | 1,069 | | 107 | | | | | | | | | |
Asset Allocation Strategy |
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Our pension plan asset allocation at December 31, 2014 and 2013, and target allocation for 2015, are as follows: |
| Target Allocation 2015 | | Percentage of Plan Assets December 31, | | | | | | | | | |
| | 2014 | 2013 | | | | | | | | | |
Equity securities | 60% to 70% | | 68% | 70% | | | | | | | | | |
Debt securities | 20% to 30% | | 23 | 21 | | | | | | | | | |
Real estate | 2% to 8% | | 4 | 4 | | | | | | | | | |
Commodities | 4% to 6% | | 5 | 5 | | | | | | | | | |
Total | | 100% | 100% | | | | | | | | | |
The investment strategy for pension plan assets is to maintain a broadly diversified portfolio designed to achieve our target average long-term rate of return of 7.5%. While we believe we can achieve a long-term average rate of return of 7.5%, we cannot be certain that the portfolio will perform to our expectations. Assets are strategically allocated among equity, debt, and other investments in order to achieve a diversification level that reduces fluctuations in investment returns. Asset allocation target ranges for equity, debt, and other portfolios are evaluated at least every three years with the assistance of an independent consulting firm. Actual asset allocations are monitored monthly, and rebalancing actions are executed at least quarterly, if needed. |
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The pension plan investments are held in a Master Trust. The majority of pension plan assets are invested in equity securities because equity portfolios have historically provided higher returns than debt and other asset classes over extended time horizons and are expected to do so in the future. Correspondingly, equity investments also entail greater risks than other investments. Equity risks are balanced by investing a significant portion of the plans' assets in high quality debt securities. The average credit rating of the debt portfolio exceeded A+ as of December 31, 2014 and 2013. The debt portfolio is also broadly diversified and invested primarily in U.S. Treasury, mortgage, and corporate securities. The weighted-average maturity of the debt portfolio was 12 years at both December 31, 2014 and 2013. |
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The investment of pension plan assets in securities issued by UPC is explicitly prohibited by the plan for both the equity and debt portfolios, other than through index fund holdings. |
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Fair Value Measurements |
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The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy. |
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Temporary Cash Investments – These investments consist of U.S. dollars and foreign currencies held in master trust accounts at The Northern Trust Company (the Trustee). Foreign currencies held are reported in terms of U.S. dollars based on currency exchange rates readily available in active markets. These temporary cash investments are classified as Level 1 investments. |
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Registered Investment Companies – Registered Investment Companies are real estate investments and bond investments registered with the Securities and Exchange Commission. The real estate investments are traded actively on public exchanges. The share prices for these investments are published at the close of each business day. The Plan's holdings of real estate investments are classified as Level 1 investments. The bond investments are not traded publicly, but the underlying assets held in these funds are traded on active markets and the prices for these assets are readily observable. The Plan's holdings in bond investments are classified as Level 2 investments. |
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Federal Government Securities – Federal Government Securities consist of bills, notes, bonds, and other fixed income securities issued directly by the U.S. Treasury or by U.S. government-sponsored enterprises. These assets are valued using a bid evaluation process with bid data provided by independent pricing sources. Federal Government Securities are classified as Level 2 investments. |
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Bonds and Debentures – Bonds and debentures consist of fixed income securities issued by U.S. and non-U.S. corporations as well as state, local, and non-U.S. governments. These assets are valued using a bid evaluation process with bid data provided by independent pricing sources. Corporate, state, and municipal bonds and debentures are classified as Level 2 investments. |
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Corporate Stock – This investment category consists of common and preferred stock issued by U.S. and non-U.S. corporations. Most common shares are traded actively on exchanges and price quotes for these shares are readily available. Common stock is classified as a Level 1 investment. Preferred shares included in this category are valued using a bid evaluation process with bid data provided by independent pricing sources. Preferred stock is classified as a Level 2 investment. |
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Venture Capital and Buyout Partnerships – This investment category is comprised of interests in limited partnerships that invest primarily in privately-held companies. Due to the private nature of the partnership investments, pricing inputs are not readily observable. Asset valuations are developed by the general partners that manage the partnerships. These valuations are based on the application of public market multiples to private company cash flows, market transactions that provide valuation information for comparable companies, and other methods. The fair value recorded by the Plan is calculated using the net asset value (NAV) per share, which is derived from the valuation method described here. The Plan's holdings of limited partnership interests are classified as Level 3 investments. |
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Real Estate Partnerships – Most of the Plan's real estate investments are interests in partnerships or other commingled funds. Valuations for the holdings in this category are not based on readily observable inputs and are primarily derived from property appraisals. The fair value recorded by the Plan is calculated using the NAV per share, which is derived from the valuation method described here. The Plan's interests in real estate partnerships and other commingled funds are classified as Level 3 investments. |
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Common Trust and Other Funds – Common trust funds are comprised of shares or units in commingled funds that are not publicly traded. The underlying assets in these funds (U.S. stock funds, non-U.S. stock funds, commodity funds, and short term investment funds) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. Holdings of common trust funds are classified as Level 2 investments. |
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This category also includes investments in limited liability companies that invest in publicly-traded convertible securities, commodities, and other assets. The limited liability company investments are funds that invest in both long and short positions in convertible securities, stocks, commodities, and fixed income securities. The underlying securities held by the funds are traded actively on exchanges and price quotes for these investments are readily available. Interests in the limited liability companies are classified as Level 2 investments. |
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As of December 31, 2014, the pension plan assets measured at fair value on a recurring basis were as follows: |
| Quoted Prices | | Significant | | | | | | | | |
| in Active | | Other | | Significant | | | | |
| Markets for | | Observable | | Unobservable | | | | |
| Identical Inputs | | Inputs | | Inputs | | | | | |
Millions | (Level 1) | | (Level 2) | | (Level 3) | | Total | | |
Plan assets: | | | | | | | | | | | | | |
Temporary cash investments | $ | 22 | | $ | - | | $ | - | | $ | 22 | | |
Registered investment companies | | 12 | | | 282 | | | - | | | 294 | | |
Federal government securities | | - | | | 163 | | | - | | | 163 | | |
Bonds & debentures | | - | | | 381 | | | - | | | 381 | | |
Corporate stock | | 1,076 | | | 15 | | | - | | | 1,091 | | |
Venture capital and buyout partnerships | | - | | | - | | | 234 | | | 234 | | |
Real estate partnerships | | - | | | - | | | 139 | | | 139 | | |
Common trust and other funds | | - | | | 1,340 | | | - | | | 1,340 | | |
Total plan assets at fair value | $ | 1,110 | | $ | 2,181 | | $ | 373 | | | 3,664 | | |
Other assets [a] | | | | | | | | | | | -10 | | |
Total plan assets | | | | | | | | | | $ | 3,654 | | |
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[a] Other assets include accrued receivables and pending broker settlements. | | | | | |
As of December 31, 2013, the pension plan assets measured at fair value on a recurring basis were as follows: |
| Quoted Prices | | Significant | | | | | | | | |
| in Active | | Other | | Significant | | | | |
| Markets for | | Observable | | Unobservable | | | | |
| Identical Inputs | | Inputs | | Inputs | | | | | |
Millions | (Level 1) | | (Level 2) | | (Level 3) | | Total | | |
Plan assets: | | | | | | | | | | | | | |
Temporary cash investments | $ | 16 | | $ | - | | $ | - | | $ | 16 | | |
Registered investment companies | | 11 | | | 253 | | | - | | | 264 | | |
Federal government securities | | - | | | 126 | | | - | | | 126 | | |
Bonds & debentures | | - | | | 310 | | | - | | | 310 | | |
Corporate stock | | 983 | | | 16 | | | - | | | 999 | | |
Venture capital and buyout partnerships | | - | | | - | | | 213 | | | 213 | | |
Real estate partnerships | | - | | | - | | | 139 | | | 139 | | |
Common trust and other funds | | - | | | 1,357 | | | - | | | 1,357 | | |
Total plan assets at fair value | $ | 1,010 | | $ | 2,062 | | $ | 352 | | | 3,424 | | |
Other assets [a] | | | | | | | | | | | 5 | | |
Total plan assets | | | | | | | | | | $ | 3,429 | | |
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[a] Other assets include accrued receivables and pending broker settlements. | | | | | |
For the years ended December 31, 2014 and 2013, there were no significant transfers in or out of Levels 1, 2, or 3. |
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The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3 investments) during 2014: |
| Venture Capital | | | | | | | | | |
| and Buyout | | Real Estate | | | | | | | |
Millions | Partnerships | | Partnerships | | Total | | | | | |
Beginning balance - January 1, 2014 | $ | 213 | | $ | 139 | | $ | 352 | | | | | |
Realized gain | | 17 | | | 8 | | | 25 | | | | | |
Unrealized gain | | 5 | | | 6 | | | 11 | | | | | |
Purchases | | 54 | | | 19 | | | 73 | | | | | |
Sales | | -55 | | | -33 | | | -88 | | | | | |
Ending balance - December 31, 2014 | $ | 234 | | $ | 139 | | $ | 373 | | | | | |
The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3 investments) during 2013: |
| Venture Capital | | | | | | | | | |
| and Buyout | | Real Estate | | | | | | | |
Millions | Partnerships | | Partnerships | | Total | | | | | |
Beginning balance - January 1, 2013 | $ | 179 | | $ | 143 | | $ | 322 | | | | | |
Realized gain | | 7 | | | 8 | | | 15 | | | | | |
Unrealized gain | | 24 | | | 3 | | | 27 | | | | | |
Purchases | | 43 | | | 23 | | | 66 | | | | | |
Sales | | -40 | | | -38 | | | -78 | | | | | |
Ending balance - December 31, 2013 | $ | 213 | | $ | 139 | | $ | 352 | | | | | |
Other Retirement Programs |
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401(k)/Thrift Plan – We provide a defined contribution plan (401(k)/thrift plan) to eligible non-union and union employees for whom we make matching contributions. We match 50 cents for each dollar contributed by employees up to the first six percent of compensation contributed. Our plan contributions were $19 million in 2014, $18 million in 2013, and $15 million in 2012. |
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Railroad Retirement System – All Railroad employees are covered by the Railroad Retirement System (the System). Contributions made to the System are expensed as incurred and amounted to approximately $711 million in 2014, $670 million in 2013, and $644 million in 2012. |
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Collective Bargaining Agreements – Under collective bargaining agreements, we participate in multi-employer benefit plans that provide certain postretirement health care and life insurance benefits for eligible union employees. Premiums paid under these plans are expensed as incurred and amounted to $52 million in 2014, $57 million in 2013, and $62 million in 2012. |