Benefit Plans | 12 Months Ended |
Dec. 31, 2013 |
Benefit Plans | ' |
Benefit Plans | ' |
NOTE 8 — Benefit Plans |
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The Company and its subsidiaries sponsor noncontributory defined benefit pension plans covering substantially all employees in the United States and Canada, and certain employees in other foreign countries. Plans for most salaried employees provide pay-related benefits based on years of service. Plans for hourly employees generally provide benefits based on flat dollar amounts and years of service. The Company’s general funding policy is to make contributions to the plans in amounts that comply with minimum funding requirements and are within the limits of deductibility under current tax regulations. Certain foreign countries allow income tax deductions without regard to contribution levels, and the Company’s policy in those countries is to make contributions required by the terms of the applicable plan. |
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US salaried employees are covered by a defined benefit “cash balance” pension plan, which provides benefits based on service credits to the participating employees’ accounts of between 3 percent and 10 percent of base salary, bonus and overtime. |
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Included in the Company’s pension obligation are nonqualified supplemental retirement plans for certain key employees. All benefits provided under these plans are unfunded, and payments to plan participants are made by the Company. |
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The Company also provides healthcare and/or life insurance benefits for retired employees in the United States, Canada and Brazil. Healthcare benefits for retirees outside of the United States, Canada, and Brazil are generally covered through local government plans. US salaried employees are provided with access to postretirement medical insurance through retirement healthcare spending accounts. US salaried employees accrue an account during employment, which can be used after employment to purchase postretirement medical insurance from the Company, Medigap or through Medicare HMO policies after age 65. The accounts are credited with a flat dollar amount and indexed for inflation annually during employment. The accounts also accrue interest credits using a rate equal to a specified amount above the yield on five-year US Treasury notes. Employees can use the amounts accumulated in these accounts, including credited interest, to purchase postretirement medical insurance. Employees become eligible for benefits when they meet minimum age and service requirements. The Company recognizes the cost of these postretirement benefits by accruing a flat dollar amount on an annual basis for each US salaried employee. |
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Pension Obligation and Funded Status — The changes in pension benefit obligations and plan assets during 2013 and 2012, as well as the funded status and the amounts recognized in the Company’s Consolidated Balance Sheets related to the Company’s pension plans at December 31, 2013 and 2012, were as follows: |
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| | US Plans | | Non-US Plans | |
(in millions) | | 2013 | | 2012 | | 2013 | | 2012 | |
Benefit obligation | | | | | | | | | |
At January 1 | | $ | 323 | | $ | 271 | | $ | 272 | | $ | 216 | |
Service cost | | 8 | | 7 | | 9 | | 8 | |
Interest cost | | 11 | | 12 | | 12 | | 13 | |
Benefits paid | | (14 | ) | (15 | ) | (12 | ) | (12 | ) |
Actuarial (gain) loss | | (36 | ) | 48 | | (15 | ) | 34 | |
Business combinations / transfers | | 1 | | — | | — | | 12 | |
Curtailment / settlement | | — | | — | | (2 | ) | (4 | ) |
Foreign currency translation | | — | | — | | (14 | ) | 5 | |
Benefit obligation at December 31 | | $ | 293 | | $ | 323 | | $ | 250 | | $ | 272 | |
Fair value of plan assets | | | | | | | | | |
At January 1 | | $ | 257 | | $ | 222 | | $ | 189 | | $ | 156 | |
Actual return on plan assets | | 41 | | 27 | | 16 | | 12 | |
Employer contributions | | 13 | | 23 | | 43 | | 15 | |
Benefits paid | | (14 | ) | (15 | ) | (12 | ) | (12 | ) |
Business combinations / transfers | | — | | — | | — | | 15 | |
Foreign currency translation | | — | | — | | (13 | ) | 3 | |
Fair value of plan assets at December 31 | | $ | 297 | | $ | 257 | | $ | 223 | | $ | 189 | |
Funded status | | $ | 4 | | $ | (66 | ) | $ | (27 | ) | $ | (83 | ) |
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Amounts recognized in the Consolidated Balance Sheets as of December 31, 2013 and 2012 were as follows: |
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| | US Plans | | Non-US Plans | |
(in millions) | | 2013 | | 2012 | | 2013 | | 2012 | |
Non-current asset | | $ | 16 | | $ | — | | $ | 26 | | $ | 1 | |
Current liabilities | | (1 | ) | (1 | ) | (3 | ) | (3 | ) |
Non-current liabilities | | (11 | ) | (65 | ) | (50 | ) | (81 | ) |
Net asset (liability) recognized | | $ | 4 | | $ | (66 | ) | $ | (27 | ) | $ | (83 | ) |
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Amounts recognized in accumulated other comprehensive loss, excluding tax effects, that have not yet been recognized as components of net periodic benefit cost at December 31, 2013 and 2012 were as follows: |
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| | US Plans | | Non-US Plans | |
(in millions) | | 2013 | | 2012 | | 2013 | | 2012 | |
Net actuarial loss | | $ | 7 | | $ | 67 | | $ | 59 | | $ | 92 | |
Transition obligation | | — | | — | | 2 | | 2 | |
Net amount recognized | | $ | 7 | | $ | 67 | | $ | 61 | | $ | 94 | |
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The decrease in net amount recognized in accumulated comprehensive loss at December 31, 2013, as compared to December 31, 2012, is largely due to an increase in discount rates used to measure the Company’s obligation under our pension plans in addition to higher than expected returns on plan assets for most plans. |
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The accumulated benefit obligation for all defined benefit pension plans was $493 million and $548 million at December 31, 2013 and 2012, respectively. |
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Information about plan obligations and assets for plans with an accumulated benefit obligation in excess of plan assets is as follows: |
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| | US Plans | | Non-US Plans | |
(in millions) | | 2013 | | 2012 | | 2013 | | 2012 | |
Projected benefit obligation | | $ | 10 | | $ | 323 | | $ | 52 | | $ | 262 | |
Accumulated benefit obligation | | 8 | | 314 | | 42 | | 227 | |
Fair value of plan assets | | — | | 257 | | 3 | | 178 | |
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Components of net periodic benefit cost consist of the following for the years ended December 31, 2013, 2012 and 2011: |
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| | US Plans | | Non-US Plans | |
(in millions) | | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | |
Service cost | | $8 | | $7 | | $7 | | $9 | | $8 | | $5 | |
Interest cost | | 11 | | 12 | | 13 | | 12 | | 13 | | 15 | |
Expected return on plan assets | | (18 | ) | (16 | ) | (15 | ) | (12 | ) | (13 | ) | (11 | ) |
Amortization of actuarial loss | | 2 | | 1 | | 1 | | 5 | | 4 | | 2 | |
Amortization of transition obligation | | — | | — | | — | | — | | 1 | | 1 | |
Settlement/Curtailment | | — | | — | | 2 | | — | | 1 | | — | |
Net periodic benefit cost | | $3 | | $4 | | $8 | | $14 | | $14 | | $12 | |
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For the US plans, the Company estimates that net periodic benefit cost for 2014 will include approximately $0.5 million relating to the amortization of its accumulated actuarial loss included in accumulated other comprehensive loss at December 31, 2013. |
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For the non-US plans, the Company estimates that net periodic benefit cost for 2014 will include approximately $3 million relating to the amortization of its accumulated actuarial loss and $0.3 million relating to the amortization of transition obligation included in accumulated other comprehensive loss at December 31, 2013. |
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Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets are recognized as a component of net periodic benefit cost over the average remaining service period of a plan’s active employees for active defined benefit pension plans and over the average remaining life of a plan’s active employees for frozen defined benefit pension plans. |
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Total amounts recorded in other comprehensive income and net periodic benefit cost during 2013 was as follows: |
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(in millions, pre-tax) | | US Plans | | Non-US Plans | | | | | | | |
Net actuarial gain | | $ | (58 | ) | $ | (23 | ) | | | | | | |
Amortization of actuarial loss | | (2 | ) | (5 | ) | | | | | | |
Foreign currency translation | | — | | (5 | ) | | | | | | |
Total recorded in other comprehensive income | | (60 | ) | (33 | ) | | | | | | |
Net periodic benefit cost | | 3 | | 14 | | | | | | | |
Total recorded in other comprehensive income and net periodic benefit cost | | $ | (57 | ) | $ | (19 | ) | | | | | | |
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The following weighted average assumptions were used to determine the Company’s obligations under the pension plans: |
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| | US Plans | | Non-US Plans | | | | | |
| | 2013 | | 2012 | | 2013 | | 2012 | | | | | |
Discount rate | | 4.6 | % | 3.6 | % | 5.6 | % | 4.85 | % | | | | |
Rate of compensation increase | | 4.22 | % | 4.19 | % | 4.39 | % | 4.35 | % | | | | |
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The following weighted average assumptions were used to determine the Company’s net periodic benefit cost for the pension plans: |
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| | US Plans | | Non-US Plans | |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | |
Discount rate | | 3.6 | % | 4.5 | % | 5.35 | % | 4.88 | % | 5.68 | % | 5.73 | % |
Expected long-term return on plan assets | | 7.25 | % | 7.25 | % | 7.25 | % | 6.69 | % | 6.81 | % | 6.73 | % |
Rate of compensation increase | | 4.19 | % | 4.19 | % | 2.75 | % | 4.35 | % | 4.51 | % | 3.79 | % |
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The Company has assumed an expected long-term rate of return on assets of 7.25 percent for US plans and 6.10 percent for Canadian plans. In developing the expected long-term rate of return assumption on plan assets, which consist mainly of US and Canadian equity and debt securities, management evaluated historical rates of return achieved on plan assets and the asset allocation of the plans, input from the Company’s independent actuaries and investment consultants, and historical trends in long-term inflation rates. Projected return estimates made by such consultants are based upon broad equity and bond indices. |
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The discount rate reflects a rate of return on high-quality fixed income investments that match the duration of the expected benefit payments. The Company has typically used returns on long-term, high-quality corporate AA bonds as a benchmark in establishing this assumption. |
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Plan Assets — The Company’s investment policy for its pension plans is to balance risk and return through diversified portfolios of equity instruments, fixed income securities, and short-term investments. Maturities for fixed income securities are managed such that sufficient liquidity exists to meet near-term benefit payment obligations. For US pension plans, the weighted average target range allocation of assets was 38-72 percent in equities, 31-58 percent in fixed income and 1-3 percent in cash and other short-term investments. The asset allocation is reviewed regularly and portfolio investments are rebalanced to the targeted allocation when considered appropriate. |
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The Company’s weighted average asset allocation as of December 31, 2013 and 2012 for US and non-US pension plan assets is as follows: |
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| | US Plans | | Non-US Plans | | | | | |
Asset Category | | 2013 | | 2012 | | 2013 | | 2012 | | | | | |
Equity securities | | 62 | % | 61 | % | 51 | % | 42 | % | | | | |
Debt securities | | 36 | % | 38 | % | 39 | % | 47 | % | | | | |
Cash and other | | 2 | % | 1 | % | 10 | % | 11 | % | | | | |
Total | | 100 | % | 100 | % | 100 | % | 100 | % | | | | |
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The fair values of the Company’s plan assets at December 31, 2013, by asset category and level in the fair value hierarchy are as follows: |
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| | Fair Value Measurements at December 31, 2013 | | |
Asset Category | | Quoted Prices | | Significant | | Significant | | Total | | |
(in millions) | in Active | Observable | Unobservable | |
| Markets for | Inputs | Inputs | |
| Identical | (Level 2) | (Level 3) | |
| Assets | | | |
| (Level 1) | | | |
US Plans: | | | | | | | | | | |
Equity index: | | | | | | | | | | |
US (a) | | | | $ | 151 | | | | $ | 151 | | |
International (b) | | | | 32 | | | | 32 | | |
Real estate (c) | | | | 3 | | | | 3 | | |
Fixed income index: | | | | | | | | | | |
Intermediate bond (d) | | | | 57 | | | | 57 | | |
Long bond (e) | | | | 50 | | | | 50 | | |
Cash (f) | | | | 4 | | | | 4 | | |
Total US Plans | | | | $ | 297 | | | | $ | 297 | | |
Non-US Plans: | | | | | | | | | | |
Equity index: | | | | | | | | | | |
US (a) | | | | $ | 38 | | | | $ | 38 | | |
Canada (g) | | | | 38 | | | | 38 | | |
International (b) | | | | 39 | | | | 39 | | |
Fixed income index: | | | | | | | | | | |
Intermediate bond (d) | | | | 1 | | | | 1 | | |
Long bond (h) | | | | 85 | | | | 85 | | |
Other (i) | | | | 19 | | | | 19 | | |
Cash (f) | | 3 | | | | | | 3 | | |
Total Non-US Plans | | $ | 3 | | $ | 220 | | | | $ | 223 | | |
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(a) This category consists of a passively managed equity index fund that tracks the return of large capitalization US equities. |
(b) This category consists of a passively managed equity index fund that tracks an index of returns on international developed market equities. |
(c) This category consists of a passively managed equity index fund that tracks a US real estate equity securities index that includes equities of real estate investment trusts and real estate operating companies. |
(d) This category consists of a passively managed fixed income index fund that tracks the return of intermediate duration government and investment grade corporate bonds. |
(e) This category consists of a passively managed fixed income fund that tracks the return of long duration US government and investment grade corporate bonds. |
(f) This category represents cash or cash equivalents. |
(g) This category consists of a passively managed equity index fund that tracks the return of large and mid-sized capitalization equities traded on the Toronto Stock Exchange. |
(h) This category consists of a passively managed fixed income index fund that tracks the return of the universe of Canada government and investment grade corporate bonds. |
(i) This category mainly consists of investment products provided by an insurance company that offers returns that are subject to a minimum guarantee. |
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All significant pension plan assets are held in collective trusts by the Company’s US and non-US plans. The fair values of shares of collective trusts are based upon the net asset values of the funds reported by the fund managers based on quoted market prices of the underlying securities as of the balance sheet date and are considered to be Level 2 fair value measurements. This may produce a fair value measurement that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies could result in different fair value measurements at the reporting date. |
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In 2013, the Company made cash contributions of $13 million and $43 million to its US and non-US pension plans, respectively. The Company anticipates that in 2014 it will make cash contributions of $2 million and $8 million to its US and non-US pension plans, respectively. Cash contributions in subsequent years will depend on a number of factors including the performance of plan assets. The following benefit payments, which reflect anticipated future service, as appropriate, are expected to be made: |
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(in millions) | | US Plans | | Non-US Plans | | | | | | | |
2014 | | $ | 18 | | $ | 15 | | | | | | | |
2015 | | 17 | | 14 | | | | | | | |
2016 | | 17 | | 14 | | | | | | | |
2017 | | 19 | | 14 | | | | | | | |
2018 | | 20 | | 15 | | | | | | | |
Years 2019 - 2023 | | 105 | | 79 | | | | | | | |
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The Company and certain subsidiaries also maintain defined contribution plans. The Company makes matching contributions to these plans that are subject to certain vesting requirements and are based on a percentage of employee contributions. Amounts charged to expense for defined contribution plans totaled $15 million, $13 million and $12 million in 2013, 2012 and 2011, respectively. |
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Postretirement Benefit Plans — The Company’s postretirement benefit plans currently are not funded. The information presented below includes plans in the United States, Brazil, and Canada. The changes in the benefit obligations of the plans during 2013 and 2012, and the amounts recognized in the Company’s Consolidated Balance Sheets at December 31, 2013 and 2012, are as follows: |
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(in millions) | | 2013 | | 2012 | | | | | | | |
Accumulated postretirement benefit obligation | | | | | | | | | | | |
At January 1 | | $ | 74 | | $ | 54 | | | | | | | |
Service cost | | 3 | | 2 | | | | | | | |
Interest cost | | 4 | | 3 | | | | | | | |
Curtailment / settlement | | (1 | ) | — | | | | | | | |
Actuarial (gain) loss | | (15 | ) | 17 | | | | | | | |
Benefits paid | | (3 | ) | (2 | ) | | | | | | |
Foreign currency translation | | (5 | ) | — | | | | | | | |
At December 31 | | $ | 57 | | $ | 74 | | | | | | | |
Fair value of plan assets | | — | | — | | | | | | | |
Funded status | | $ | (57 | ) | $ | (74 | ) | | | | | | |
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A United States hourly postretirement plan became a member of a multi-employer plan and because of this change, a non-cash curtailment gain of $30 million was recognized as a reduction of net periodic benefit cost in 2011. This curtailment gain represented the previously established liability related to this coverage, net of unrecognized actuarial amounts and prior service previously included in accumulated other comprehensive loss. |
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Amounts recognized in the Consolidated Balance Sheet consist of: |
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(in millions) | | 2013 | | 2012 | | | | | | | |
Current liabilities | | $ | (2 | ) | $ | (2 | ) | | | | | | |
Non-current liabilities | | (55 | ) | (72 | ) | | | | | | |
Net liability recognized | | $ | (57 | ) | $ | (74 | ) | | | | | | |
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Amounts recognized in accumulated other comprehensive loss, excluding tax effects, that have not yet been recognized as components of net periodic benefit cost at December 31, 2013 and 2012 were as follows: |
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(in millions) | | 2013 | | 2012 | | | | | | | |
Net actuarial loss | | $ | 7 | | $ | 26 | | | | | | | |
Prior service cost | | — | | 1 | | | | | | | |
Net amount recognized | | $ | 7 | | $ | 27 | | | | | | | |
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Components of net periodic benefit cost consisted of the following for the years ended December 31, 2013, 2012 and 2011: |
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(in millions) | | 2013 | | 2012 | | 2011 | | | | |
Service cost | | $ | 3 | | $ | 2 | | $ | 2 | | | | |
Interest cost | | 4 | | 3 | | 4 | | | | |
Amortization of actuarial loss (gain) | | 1 | | 1 | | (1 | ) | | | |
Amortization of prior service cost | | — | | — | | 1 | | | | |
Settlement / curtailment | | — | | — | | (31 | ) | | | |
Net periodic benefit cost | | $ | 8 | | $ | 6 | | $ | (25 | ) | | | |
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The Company estimates that postretirement benefit expense for 2014 will include approximately $0.2 million relating to the amortization of its accumulated actuarial loss and $0.1 million relating to the amortization of its prior service cost included in accumulated other comprehensive loss at December 31, 2013. |
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Total amounts recorded in other comprehensive income and net periodic benefit cost during 2013 was as follows: |
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(in millions, pre-tax) | | 2013 | | | | | | | | | | |
Net actuarial gain | | $ | (15 | ) | | | | | | | | | |
Amortization of actuarial loss | | (1 | ) | | | | | | | | | |
Amortization of prior service cost | | (1 | ) | | | | | | | | | |
Foreign currency translation | | (3 | ) | | | | | | | | | |
Total recorded in other comprehensive income | | (20 | ) | | | | | | | | | |
Net periodic benefit cost | | 8 | | | | | | | | | | |
Total recorded in other comprehensive income and net periodic benefit cost | | $ | (12 | ) | | | | | | | | | |
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The following weighted average assumptions were used to determine the Company’s obligations under the postretirement plans: |
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| | 2013 | | 2012 | | | | | | | | | |
Discount rate | | 6.47 | % | 5.44 | % | | | | | | | | |
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The following weighted average assumptions were used to determine the Company’s net postretirement benefit cost: |
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| | 2013 | | 2012 | | 2011 | | | | | | | |
Discount rate | | 5.44 | % | 6.23 | % | 5.69 | % | | | | | | |
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The discount rate reflects a rate of return on high-quality fixed-income investments that match the duration of expected benefit payments. The Company has typically used returns on long-term, high-quality corporate AA bonds as a benchmark in establishing this assumption. |
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The health-care cost trend rates used in valuing the Company’s post-retirement benefit obligations are established based upon actual health-care trends and consultation with actuaries and benefit providers. The following assumptions were used as of December 31, 2013: |
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| | US | | Canada | | Brazil | | | | | | | |
2014 Increase in per capita cost | | 6.9 | % | 7.2 | % | 8.66 | % | | | | | | |
Ultimate trend | | 4.5 | % | 4.5 | % | 8.66 | % | | | | | | |
Year ultimate trend reached | | 2028 | | 2031 | | 2013 | | | | | | | |
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The sensitivities of service cost and interest cost and year-end benefit obligations to changes in health care trend rates for the postretirement benefit plans as of December 31, 2013 are as follows: |
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| | 2013 | | | | | | | | | | |
One-percentage point increase in trend rates: | | | | | | | | | | | | |
· Increase in service cost and interest cost components | | $ | 1 million | | | | | | | | | | |
· Increase in year-end benefit obligations | | $ | 6 million | | | | | | | | | | |
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One-percentage point decrease in trend rates: | | | | | | | | | | | | |
· Decrease in service cost and interest cost components | | $ | (1 million) | | | | | | | | | | |
· Decrease in year-end benefit obligations | | $ | (4 million) | | | | | | | | | | |
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The following benefit payments, which reflect anticipated future service, as appropriate, are expected to be made under the Company’s postretirement benefit plans: |
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(in millions) | | | | | | | | | | | | |
2014 | | $ | 2 | | | | | | | | | | |
2015 | | 3 | | | | | | | | | | |
2016 | | 3 | | | | | | | | | | |
2017 | | 3 | | | | | | | | | | |
2018 | | 3 | | | | | | | | | | |
Years 2019 - 2023 | | $ | 21 | | | | | | | | | | |
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Multiemployer Plans — The Company participates in and contributes to one multiemployer benefit plan under the terms of a collective bargaining agreement that covers certain union-represented employees and retirees in the US. The plan covers medical and dental benefits for active hourly employees and retirees represented by the United States Steel Workers Union for certain US locations. |
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The risks of participating in this multiemployer plan are different from single-employer plans. This plan receives contributions from two or more unrelated employers pursuant to one or more collective bargaining agreements and the assets contributed by one employer may be used to fund the benefits of all employees covered within the plan. |
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The Company is required to make contributions to this plan as determined by the terms and conditions of the collective bargaining agreements and plan terms. For the years ended December 31, 2013, 2012 and 2011, the Company made regular contributions of $12 million, $12 million and $9 million, respectively, to this multi-employer plan. The Company cannot currently estimate the amount of multi-employer plan contributions that will be required in 2014 and future years, but these contributions could increase due to healthcare cost trends. |
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