Retirement and Other Benefit Programs | 12 Months Ended |
Dec. 31, 2013 |
Retirement and Other Benefit Programs | ' |
NOTE 12 |
RETIREMENT AND OTHER BENEFIT PROGRAMS |
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The company sponsors a number of qualified and nonqualified pension plans for eligible employees. The company also sponsors certain unfunded contributory healthcare and life insurance benefits for substantially all domestic retired employees. Newly hired employees in the United States and Puerto Rico are not eligible to participate in the pension plans but receive a higher level of company contributions in the defined contribution plans. In September 2013, Baxter completed its acquisition of Gambro and assumed a net pension liability of approximately $212 million from Gambro-related pension plans, of which $209 million has been classified as a noncurrent liability. The Gambro pension plans were recorded at fair value on the date of acquisition and were re-measured at year-end as part of the company’s annual re-measurement of pension plan obligations and plan assets. |
On August 31, 2012, Baxter announced an offer to terminated-vested participants in the U.S. pension plan (approximately 16,000 participants) to pay a lump-sum payment which would fully settle the company’s pension plan obligation to these participants. The company offered the one-time voluntary lump-sum payment in an effort to reduce its long-term pension obligations and ongoing annual pension expense. The final acceptance rate by participants was approximately 50 percent, which resulted in a final payout of $377 million from plan assets in December 2012. The company recorded a non-cash settlement charge of $164 million in the fourth quarter of 2012 to immediately expense the unrealized actuarial losses related to the obligations that were settled, which were previously deferred in AOCI. The settlement charge was recognized in marketing and administrative expenses since the terminated-vested participants subject to the settlement were no longer contributing to the activities of the company. |
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Reconciliation of Pension and Other Postemployment Benefits (OPEB) Plan Obligations, Assets and Funded Status |
The benefit plan information in the table below pertains to all of the company’s pension and OPEB plans, both in the United States and in other countries. |
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| | Pension benefits | | | OPEB | | | | | | | | | |
as of and for the years ended December 31 (in millions) | | 2013 | | | 2012 | | | 2013 | | | 2012 | | | | | | | | | |
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Benefit obligations | | | | | | | | | | | | | | | | | | | | |
Beginning of period | | $ | 5,364 | | | $ | 4,944 | | | $ | 650 | | | $ | 618 | | | | | | | | | |
Service cost | | | 137 | | | | 110 | | | | 10 | | | | 7 | | | | | | | | | |
Interest cost | | | 207 | | | | 235 | | | | 26 | | | | 29 | | | | | | | | | |
Participant contributions | | | 9 | | | | 9 | | | | 11 | | | | 14 | | | | | | | | | |
Actuarial (gain)/loss | | | (350 | ) | | | 652 | | | | (99 | ) | | | 18 | | | | | | | | | |
Benefit payments | | | (203 | ) | | | (196 | ) | | | (34 | ) | | | (36 | ) | | | | | | | | |
Settlements | | | (4 | ) | | | (387 | ) | | | — | | | | — | | | | | | | | | |
Acquisition | | | 220 | | | | — | | | | — | | | | — | | | | | | | | | |
Foreign exchange and other | | | 45 | | | | (3 | ) | | | — | | | | — | | | | | | | | | |
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End of period | | | 5,425 | | | | 5,364 | | | | 564 | | | | 650 | | | | | | | | | |
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Fair value of plan assets | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of period | | | 3,642 | | | | 3,673 | | | | — | | | | — | | | | | | | | | |
Actual return on plan assets | | | 464 | | | | 464 | | | | — | | | | — | | | | | | | | | |
Employer contributions | | | 67 | | | | 78 | | | | 23 | | | | 22 | | | | | | | | | |
Participant contributions | | | 9 | | | | 9 | | | | 11 | | | | 14 | | | | | | | | | |
Benefit payments | | | (203 | ) | | | (196 | ) | | | (34 | ) | | | (36 | ) | | | | | | | | |
Settlements | | | (4 | ) | | | (387 | ) | | | — | | | | — | | | | | | | | | |
Acquisition | | | 8 | | | | — | | | | — | | | | — | | | | | | | | | |
Foreign exchange and other | | | 17 | | | | 1 | | | | — | | | | — | | | | | | | | | |
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End of period | | | 4,000 | | | | 3,642 | | | | — | | | | — | | | | | | | | | |
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Funded status at December 31 | | $ | (1,425 | ) | | $ | (1,722 | ) | | $ | (564 | ) | | $ | (650 | ) | | | | | | | | |
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Amounts recognized in the consolidated balance sheets | | | | | | | | | | | | | | | | | | | | |
Noncurrent asset | | $ | 50 | | | $ | 38 | | | $ | — | | | $ | — | | | | | | | | | |
Current liability | | | (29 | ) | | | (19 | ) | | | (24 | ) | | | (25 | ) | | | | | | | | |
Noncurrent liability | | | (1,446 | ) | | | (1,741 | ) | | | (540 | ) | | | (625 | ) | | | | | | | | |
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Net liability recognized at December 31 | | $ | (1,425 | ) | | $ | (1,722 | ) | | $ | (564 | ) | | $ | (650 | ) | | | | | | | | |
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Accumulated Benefit Obligation Information |
The pension obligation information in the table above represents the projected benefit obligation (PBO). The PBO incorporates assumptions relating to future compensation levels. The accumulated benefit obligation (ABO) is the same as the PBO except that it includes no assumptions relating to future compensation levels. The ABO for all of the company’s pension plans was $5.00 billion and $4.95 billion at the 2013 and 2012 measurement dates, respectively. |
The information in the funded status table above represents the totals for all of the company’s pension plans. The following is information relating to the individual plans in the funded status table above that have an ABO in excess of plan assets. |
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as of December 31 (in millions) | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | |
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ABO | | $ | 4,780 | | | $ | 4,816 | | | | | | | | | | | | | | | | | |
Fair value of plan assets | | | 3,710 | | | | 3,452 | | | | | | | | | | | | | | | | | |
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The following is information relating to the individual plans in the funded status table above that have a PBO in excess of plan assets (many of which also have an ABO in excess of assets, and are therefore also included in the table directly above). |
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as of December 31 (in millions) | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | |
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PBO | | $ | 5,260 | | | $ | 5,211 | | | | | | | | | | | | | | | | | |
Fair value of plan assets | | | 3,785 | | | | 3,452 | | | | | | | | | | | | | | | | | |
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Expected Net Pension and OPEB Plan Payments for the Next 10 Years |
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(in millions) | | Pension | | | OPEB | | | | | | | | | | | | | | | | | |
benefits | | | | | | | | | | | | | | | | |
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2014 | | $ | 219 | | | $ | 24 | | | | | | | | | | | | | | | | | |
2015 | | | 231 | | | | 27 | | | | | | | | | | | | | | | | | |
2016 | | | 243 | | | | 28 | | | | | | | | | | | | | | | | | |
2017 | | | 261 | | | | 30 | | | | | | | | | | | | | | | | | |
2018 | | | 275 | | | | 32 | | | | | | | | | | | | | | | | | |
2019 through 2023 | | | 1,608 | | | | 172 | | | | | | | | | | | | | | | | | |
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Total expected net benefit payments for next 10 years | | $ | 2,837 | | | $ | 313 | | | | | | | | | | | | | | | | | |
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The expected net benefit payments above reflect the company’s share of the total net benefits expected to be paid from the plans’ assets (for funded plans) or from the company’s assets (for unfunded plans). The total expected OPEB benefit payments for the next ten years are net of approximately $49 million of expected federal subsidies relating to the Medicare Prescription Drug, Improvement and Modernization Act, including $3 million, $4 million, $4 million, $4 million and $5 million in each of the years 2014, 2015, 2016, 2017 and 2018, respectively. |
Amounts Recognized in AOCI |
The pension and OPEB plans’ gains or losses, prior service costs or credits, and transition assets or obligations not yet recognized in net periodic benefit cost are recognized on a net-of-tax basis in AOCI and will be amortized from AOCI to net periodic benefit cost in the future. |
The following is a summary of the pre-tax losses included in AOCI at December 31, 2013 and December 31, 2012. |
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(in millions) | | Pension | | | OPEB | | | | | | | | | | | | | | | | | |
benefits | | | | | | | | | | | | | | | | |
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Actuarial loss | | $ | 1,455 | | | $ | 55 | | | | | | | | | | | | | | | | | |
Prior service cost (credit) and transition obligation | | | — | | | | (1 | ) | | | | | | | | | | | | | | | | |
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Total pre-tax loss recognized in AOCI at December 31, 2013 | | $ | 1,455 | | | $ | 54 | | | | | | | | | | | | | | | | | |
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Actuarial loss | | $ | 2,247 | | | $ | 163 | | | | | | | | | | | | | | | | | |
Prior service cost (credit) and transition obligation | | | 1 | | | | (1 | ) | | | | | | | | | | | | | | | | |
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Total pre-tax loss recognized in AOCI at December 31, 2012 | | $ | 2,248 | | | $ | 162 | | | | | | | | | | | | | | | | | |
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Refer to Note 13 for the net-of-tax balances included in AOCI as of each of the year-end dates. The following is a summary of the net-of-tax amounts recorded in OCI relating to pension and OPEB plans. |
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years ended December 31 (in millions) | | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | |
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Gain (charge) arising during the year, net of tax expense (benefit) of $221 in 2013, ($143) in 2012 and ($214) in 2011 | | $ | 426 | | | $ | (353 | ) | | $ | (375 | ) | | | | | | | | | | | | |
Settlement charge, net of tax expense of $65 in 2012 | | | — | | | | 103 | | | | — | | | | | | | | | | | | | |
Amortization of loss to earnings, net of tax expense of $88 in 2013, $77 in 2012 and $63 in 2011 | | | 166 | | | | 139 | | | | 112 | | | | | | | | | | | | | |
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Pension and other employee benefits gain (charge) | | $ | 592 | | | $ | (111 | ) | | $ | (263 | ) | | | | | | | | | | | | |
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Due to the settlement of certain of the company’s pension obligations in 2012, $168 million ($103 million on an after-tax basis) of prior unrecognized actuarial losses have been recognized from AOCI into the company’s earnings. The impact of the settlement on AOCI was more than offset by the prior year actuarial losses. In 2013, the OCI activity for pension and OPEB plans related almost entirely to actuarial losses. Activity relating to prior service costs and credits and transition obligations was insignificant. |
Amounts Expected to be Amortized From AOCI to Net Periodic Benefit Cost in 2014 |
With respect to the AOCI balance at December 31, 2013, the following is a summary of the pre-tax amounts expected to be amortized to net periodic benefit cost in 2014. |
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(in millions) | | Pension | | | OPEB | | | | | | | | | | | | | | | | | |
benefits | | | | | | | | | | | | | | | | |
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Actuarial loss | | $ | 144 | | | $ | — | | | | | | | | | | | | | | | | | |
Prior service cost (credit) and transition obligation | | | — | | | | — | | | | | | | | | | | | | | | | | |
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Total pre-tax amount expected to be amortized from AOCI to net pension and OPEB cost in 2014 | | $ | 144 | | | $ | — | | | | | | | | | | | | | | | | | |
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Net Periodic Benefit Cost |
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years ended December 31 (in millions) | | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | |
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Pension benefits | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 137 | | | $ | 110 | | | $ | 112 | | | | | | | | | | | | | |
Interest cost | | | 207 | | | | 235 | | | | 237 | | | | | | | | | | | | | |
Expected return on plan assets | | | (254 | ) | | | (288 | ) | | | (303 | ) | | | | | | | | | | | | |
Amortization of net losses and other deferred amounts | | | 245 | | | | 209 | | | | 177 | | | | | | | | | | | | | |
Settlement losses | | | 1 | | | | 168 | | | | — | | | | | | | | | | | | | |
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Net periodic pension benefit cost | | $ | 336 | | | $ | 434 | | | $ | 223 | | | | | | | | | | | | | |
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OPEB | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 10 | | | $ | 7 | | | $ | 6 | | | | | | | | | | | | | |
Interest cost | | | 26 | | | | 29 | | | | 28 | | | | | | | | | | | | | |
Amortization of net loss and prior service credit | | | 9 | | | | 7 | | | | (2 | ) | | | | | | | | | | | | |
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Net periodic OPEB cost | | $ | 45 | | | $ | 43 | | | $ | 32 | | | | | | | | | | | | | |
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Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date |
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| | Pension benefits | | | OPEB | | | | | | | | | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | | | | | | | | | |
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Discount rate | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. and Puerto Rico plans | | | 4.85% | | | | 3.95% | | | | 4.90% | | | | 4.00% | | | | | | | | | |
International plans | | | 3.41% | | | | 3.19% | | | | n/a | | | | n/a | | | | | | | | | |
Rate of compensation increase | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. and Puerto Rico plans | | | 3.80% | | | | 4.50% | | | | n/a | | | | n/a | | | | | | | | | |
International plans | | | 3.29% | | | | 3.51% | | | | n/a | | | | n/a | | | | | | | | | |
Annual rate of increase in the per-capita cost | | | n/a | | | | n/a | | | | 6.25% | | | | 6.50% | | | | | | | | | |
Rate decreased to | | | n/a | | | | n/a | | | | 5.00% | | | | 5.00% | | | | | | | | | |
by the year ended | | | n/a | | | | n/a | | | | 2019 | | | | 2019 | | | | | | | | | |
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The assumptions above, which were used in calculating the December 31, 2013 measurement date benefit obligations, will be used in the calculation of net periodic benefit cost in 2014. |
Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost |
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| | Pension benefits | | | OPEB | |
| | 2013 | | | 2012 | | | 2011 | | | 2013 | | | 2012 | | | 2011 | |
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Discount rate | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. and Puerto Rico plans | | | 3.95% | | | | 4.80% | | | | 5.45% | | | | 4.00% | | | | 4.75% | | | | 5.40% | |
International plans | | | 3.19% | | | | 4.48% | | | | 4.57% | | | | n/a | | | | n/a | | | | n/a | |
Expected return on plan assets | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. and Puerto Rico plans | | | 7.50% | | | | 7.75% | | | | 8.25% | | | | n/a | | | | n/a | | | | n/a | |
International plans | | | 6.33% | | | | 6.85% | | | | 7.29% | | | | n/a | | | | n/a | | | | n/a | |
Rate of compensation increase | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. and Puerto Rico plans | | | 4.50% | | | | 4.50% | | | | 4.50% | | | | n/a | | | | n/a | | | | n/a | |
International plans | | | 3.51% | | | | 3.54% | | | | 3.57% | | | | n/a | | | | n/a | | | | n/a | |
Annual rate of increase in the per-capita cost | | | n/a | | | | n/a | | | | n/a | | | | 6.50% | | | | 7.00% | | | | 7.50% | |
Rate decreased to | | | n/a | | | | n/a | | | | n/a | | | | 5.00% | | | | 5.00% | | | | 5.00% | |
by the year ended | | | n/a | | | | n/a | | | | n/a | | | | 2019 | | | | 2016 | | | | 2016 | |
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The company establishes the expected return on plan assets assumption primarily based on a review of historical compound average asset returns, both company-specific and relating to the broad market (based on the company’s asset allocation), as well as an analysis of current market and economic information and future expectations. The company plans to use a 7.50% assumption for its U.S. and Puerto Rico plans for 2014. |
Effect of a One-Percent Change in Assumed Healthcare Cost Trend Rate on the OPEB Plan |
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| | One percent | | | One percent | | | | | | | | | |
increase | decrease | | | | | | | | |
years ended December 31 (in millions) | | 2013 | | | 2012 | | | 2013 | | | 2012 | | | | | | | | | |
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Effect on total of service and interest cost components of OPEB cost | | $ | 6 | | | $ | 5 | | | $ | (5 | ) | | $ | (4 | ) | | | | | | | | |
Effect on OPEB obligation | | $ | 74 | | | $ | 92 | | | $ | (61 | ) | | $ | (74 | ) | | | | | | | | |
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Pension Plan Assets |
An investment committee of members of senior management is responsible for supervising, monitoring and evaluating the invested assets of the company’s funded pension plans. The investment committee, which meets at least quarterly, abides by documented policies and procedures relating to investment goals, targeted asset allocations, risk management practices, allowable and prohibited investment holdings, diversification, use of derivatives, the relationship between plan assets and benefit obligations, and other relevant factors and considerations. |
The investment committee’s documented policies and procedures include the following: |
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| • | | Ability to pay all benefits when due; | | | | | | | | | | | | | | | | | | | | | |
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| • | | Targeted long-term performance expectations relative to applicable market indices, such as Standard & Poor’s, Russell, MSCI EAFE, and other indices; | | | | | | | | | | | | | | | | | | | | | |
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| • | | Targeted asset allocation percentage ranges (summarized below), and periodic reviews of these allocations; | | | | | | | | | | | | | | | | | | | | | |
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| • | | Diversification of assets among third-party investment managers, and by geography, industry, stage of business cycle and other measures; | | | | | | | | | | | | | | | | | | | | | |
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| • | | Specified investment holding and transaction prohibitions (for example, private placements or other restricted securities, securities that are not traded in a sufficiently active market, short sales, certain derivatives, commodities and margin transactions); | | | | | | | | | | | | | | | | | | | | | |
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| • | | Specified portfolio percentage limits on holdings in a single corporate or other entity (generally 5%, except for holdings in U.S. government or agency securities); | | | | | | | | | | | | | | | | | | | | | |
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| • | | Specified average credit quality for the fixed-income securities portfolio (at least A- by Standard & Poor’s or A3 by Moody’s); | | | | | | | | | | | | | | | | | | | | | |
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| • | | Specified portfolio percentage limits on foreign holdings; and | | | | | | | | | | | | | | | | | | | | | |
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| • | | Periodic monitoring of investment manager performance and adherence to the investment committee’s policies. | | | | | | | | | | | | | | | | | | | | | |
Plan assets are invested using a total return investment approach whereby a mix of equity securities, debt securities and other investments are used to preserve asset values, diversify risk and exceed the planned benchmark investment return. Investment strategies and asset allocations are based on consideration of plan liabilities, the plans’ funded status and other factors, such as the plans’ demographics and liability durations. Investment performance is reviewed by the investment committee on a quarterly basis and asset allocations are reviewed at least annually. |
Plan assets are managed in a balanced portfolio comprised of two major components: equity securities and fixed income securities. The target allocations for plan assets are 60 percent in equity securities and 40 percent in fixed income securities and other holdings. The documented policy includes an allocation range based on each individual investment type within the major components that allows for a variance from the target allocations of approximately 5 percentage points. Equity securities primarily include common stock of U.S. and international companies, common/collective trust funds, mutual funds, and partnership investments. Fixed income securities and other holdings primarily include cash, money market funds with an original maturity of three months or less, U.S. and foreign government and governmental agency issues, corporate bonds, municipal securities, hedge funds, derivative contracts and asset-backed securities. |
While the investment committee provides oversight over plan assets for U.S. and international plans, the summary above is specific to the plans in the United States. The plan assets for international plans are managed and allocated by the entities in each country, with input and oversight provided by the investment committee. The plan assets for the U.S. and international plans are included in the table below. |
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The following tables summarize the bases used to measure the pension plan assets and liabilities that are carried at fair value on a recurring basis. |
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| | | | | | | | | | | | Basis of fair value measurement | | | | | | | | |
(in millions) | | Balance at | | Quoted prices in | | Significant other | | Significant | | | | | | | | |
December 31, 2013 | active markets for | observable inputs | unobservable | | | | | | | | |
| identical assets | (Level 2) | inputs | | | | | | | | |
| (Level 1) | | (Level 3) | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Fixed income securities | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ 267 | | $ 24 | | $ 243 | | $ — | | | | | | | | |
U.S. government and government agency issues | | 287 | | — | | 287 | | — | | | | | | | | |
Corporate bonds | | 637 | | — | | 637 | | — | | | | | | | | |
Equity securities | | | | | | | | | | | | | | | | |
Common stock: | | | | | | | | | | | | | | | | |
Large cap | | 974 | | 974 | | — | | — | | | | | | | | |
Mid cap | | 442 | | 442 | | — | | — | | | | | | | | |
Small cap | | 93 | | 93 | | — | | — | | | | | | | | |
| | | | | | | | Total common stock | | 1,509 | | 1,509 | | — | | — | | | | | | | | |
Mutual funds | | 381 | | 180 | | 201 | | — | | | | | | | | |
Common/collective trust funds | | 617 | | — | | 612 | | 5 | | | | | | | | |
Partnership investments | | 199 | | — | | — | | 199 | | | | | | | | |
Other holdings | | 103 | | 10 | | 91 | | 2 | | | | | | | | |
Collateral held on loaned securities | | 248 | | — | | 248 | | — | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Collateral to be paid on loaned securities | | -248 | | -88 | | -160 | | — | | | | | | | | |
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Fair value of pension plan assets | | $4,000 | | $1,635 | | $2,159 | | $ 206 | | | | | | | | |
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| | | | | | | | | | | | Basis of fair value measurement | | | | | | | | |
(in millions) | | Balance at | | Quoted prices in | | Significant other | | Significant | | | | | | | | |
December 31, 2012 | active markets for | observable inputs | unobservable | | | | | | | | |
| identical assets | (Level 2) | inputs | | | | | | | | |
| (Level 1) | | (Level 3) | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Fixed income securities | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ 324 | | $ 210 | | $ 114 | | $ — | | | | | | | | |
U.S. government and government agency issues | | 252 | | — | | 252 | | — | | | | | | | | |
Corporate bonds | | 657 | | — | | 657 | | — | | | | | | | | |
Equity securities | | | | | | | | | | | | | | | | |
Common stock: | | | | | | | | | | | | | | | | |
Large cap | | 807 | | 807 | | — | | — | | | | | | | | |
Mid cap | | 426 | | 426 | | — | | — | | | | | | | | |
Small cap | | 121 | | 121 | | — | | — | | | | | | | | |
| | | | | | | | Total common stock | | 1,354 | | 1,354 | | — | | — | | | | | | | | |
Mutual funds | | 317 | | 143 | | 174 | | — | | | | | | | | |
Common/collective trust funds | | 467 | | — | | 462 | | 5 | | | | | | | | |
Partnership investments | | 180 | | — | | — | | 180 | | | | | | | | |
Other holdings | | 91 | | 8 | | 81 | | 2 | | | | | | | | |
Collateral held on loaned securities | | 168 | | — | | 168 | | — | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Collateral to be paid on loaned securities | | -168 | | -60 | | -108 | | — | | | | | | | | |
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Fair value of pension plan assets | | $3,642 | | $1,655 | | $1,800 | | $ 187 | | | | | | | | |
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The following is a reconciliation of changes in fair value measurements that used significant unobservable inputs (Level 3). |
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(in millions) | | Total | | | Common/collective | | | Partnership | | | Other holdings | | | | | | | | | |
trust funds | investments | | | | | | | | |
Balance at December 31, 2011 | | $ | 176 | | | $ | 4 | | | $ | 170 | | | $ | 2 | | | | | | | | | |
Actual return on plan assets still held at year end | | | 12 | | | | 1 | | | | 11 | | | | — | | | | | | | | | |
Actual return on plan assets sold during the year | | | — | | | | — | | | | — | | | | — | | | | | | | | | |
Purchases, sales and settlements | | | (1 | ) | | | — | | | | (1 | ) | | | — | | | | | | | | | |
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Balance at December 31, 2012 | | | 187 | | | | 5 | | | | 180 | | | | 2 | | | | | | | | | |
Actual return on plan assets still held at year end | | | 8 | | | | — | | | | 8 | | | | — | | | | | | | | | |
Actual return on plan assets sold during the year | | | — | | | | — | | | | — | | | | — | | | | | | | | | |
Purchases, sales and settlements | | | 11 | | | | — | | | | 11 | | | | — | | | | | | | | | |
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Balance at December 31, 2013 | | $ | 206 | | | $ | 5 | | | $ | 199 | | | $ | 2 | | | | | | | | | |
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The assets and liabilities of the company’s pension plans are valued using the following valuation methods: |
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Investment category | | Valuation methodology | | | | | | | | | | | | | | | | | | | | | | |
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Cash and cash equivalents | | These largely consist of a short-term investment fund, U.S. Dollars and foreign currency. The fair value of the short-term investment fund is based on the net asset value | | | | | | | | | | | | | | | | | | | | | | |
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U.S. government and government agency issues | | Values are based on reputable pricing vendors, who typically use pricing matrices or models that use observable inputs | | | | | | | | | | | | | | | | | | | | | | |
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Corporate bonds | | Values are based on reputable pricing vendors, who typically use pricing matrices or models that use observable inputs | | | | | | | | | | | | | | | | | | | | | | |
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Common stock | | Values are based on the closing prices on the valuation date in an active market on national and international stock exchanges | | | | | | | | | | | | | | | | | | | | | | |
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Mutual funds | | Values are based on the net asset value of the units held in the respective fund which are obtained from national and international exchanges or based on the net asset value of the underlying assets of the fund provided by the fund manager | | | | | | | | | | | | | | | | | | | | | | |
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Common/collective trust funds | | Values are based on the net asset value of the units held at year end | | | | | | | | | | | | | | | | | | | | | | |
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Partnership investments | | Values are based on the estimated fair value of the participation by the company in the investment as determined by the general partner or investment manager of the respective partnership | | | | | | | | | | | | | | | | | | | | | | |
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Other holdings | | The value of these assets vary by investment type, but primarily are determined by reputable pricing vendors, who use pricing matrices or models that use observable inputs | | | | | | | | | | | | | | | | | | | | | | |
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Collateral held on loaned securities | | Values are based on the net asset value per unit of the fund in which the collateral is invested | | | | | | | | | | | | | | | | | | | | | | |
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Collateral to be paid on loaned securities | | Values are based on the fair value of the underlying securities loaned on the valuation date | | | | | | | | | | | | | | | | | | | | | | |
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Expected Pension and OPEB Plan Funding |
The company’s funding policy for its pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the company may determine to be appropriate considering the funded status of the plans, tax deductibility, the cash flows generated by the company, and other factors. Volatility in the global financial markets could have an unfavorable impact on future funding requirements. The company has no obligation to fund its principal plans in the United States in 2014. The company continually reassesses the amount and timing of any discretionary contributions. The company expects to make cash contributions to its pension plans of at least $42 million in 2014, primarily related to the company’s international plans. The company expects to have net cash outflows relating to its OPEB plan of approximately $25 million in 2014. |
The table below details the funded status percentage of the company’s pension plans as of December 31, 2013, including certain plans that are unfunded in accordance with the guidelines of the company’s funding policy outlined above. |
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| | United States and Puerto Rico | | | International | | | | | | | | |
as of December 31, 2013 (in millions) | | Qualified | | | Nonqualified | | | Funded | | | Unfunded | | | Total | | | | | |
plans | plan | plans | plans | | | | |
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Fair value of plan assets | | $ | 3,253 | | | | n/a | | | $ | 747 | | | | n/a | | | $ | 4,000 | | | | | |
PBO | | | 3,750 | | | $ | 191 | | | | 1,152 | | | $ | 332 | | | | 5,425 | | | | | |
Funded status percentage | | | 87% | | | | n/a | | | | 65% | | | | n/a | | | | 74% | | | | | |
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U.S. Defined Contribution Plan |
Most U.S. employees are eligible to participate in a qualified defined contribution plan. Company contributions were $45 million in 2013, $39 million in 2012 and $37 million in 2011. |