Pension and Other Postretirement Benefit Plans | 12 Months Ended |
Dec. 31, 2013 |
Compensation and Retirement Disclosure [Abstract] | ' |
Pension and Other Postretirement Benefit Plans | ' |
Note 14. Pension and Other Postretirement Benefit Plans |
We have multiple contributory and non-contributory defined benefit pension plans covering a significant portion of our U.S. and Canadian employees. We also sponsor a number of OPEB plans (e.g., defined benefit health care and life insurance plans) for retirees at certain locations. Benefits are based on years of service and, depending on the plan, average compensation earned by employees either during their last years of employment or over their careers. Our plan assets and cash contributions to the plans have been sufficient to provide pension benefits to participants and meet the funding requirements of the Employee Retirement Income Security Act of 1974 in the United States as well as applicable legislation in Canada. In particular, the cash contributions required for our material registered Canadian pension plans are specified in the funding relief regulations with regards to the solvency deficits in the affected plans, as further discussed below under “Canadian pension funding.” |
In addition to the previously described plans, we have a number of defined contribution plans covering substantially all of our U.S. employees and a significant portion of our Canadian employees. Under the U.S. defined contribution plans, employees are allowed to contribute to these plans and we make matching contributions. In addition, under the U.S. defined contribution plans, most non-union employees also receive an automatic company contribution, regardless of the employee’s contribution. The amount of the automatic company contribution is a percentage of the employee’s pay, determined based on age and years of service. The Canadian registered defined contribution plans provide for mandatory contributions by employees and by us, as well as opportunities for employees to make additional optional contributions and receive, in some cases, matching contributions on those optional amounts. Our expense for the defined contribution plans totaled $22 million in 2013, $21 million in 2012 and $22 million in 2011. |
Certain of the above plans are covered under collective bargaining agreements. |
The following tables include both our foreign (Canada and South Korea) and domestic (U.S.) plans. The assumptions used to measure the obligations of each of our foreign and domestic plans are not significantly different from each other, with the exception of the health care trend rates, which are presented below, and the mortality rates revised in 2013 for our Canadian plans to reflect the increase in life expectancy based on the findings of the Canadian Institute of Actuaries. |
The changes in our pension and OPEB obligations and plan assets for the years ended December 31, 2013 and 2012 and the funded status and reconciliation of amounts recognized in our Consolidated Balance Sheets as of December 31, 2013 and 2012 were as follows: |
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| Pension Plans | | OPEB Plans | | | | | | | | | | | | |
(In millions) | 2013 | | | 2012 | | | | 2013 | | | 2012 | | | | | | | | | | | | | | |
Change in benefit obligations: | | | | | | | | | | | | | | | | | | | | | | | | | |
Benefit obligations as of beginning of year | $ | 6,724 | | | $ | 6,411 | | | | $ | 424 | | | $ | 404 | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Service cost | | 33 | | | | 36 | | | | | 3 | | | | 3 | | | | | | | | | | | | | | |
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Interest cost | | 274 | | | | 312 | | | | | 16 | | | | 20 | | | | | | | | | | | | | | |
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Actuarial (gain) loss | | (208 | ) | | | 488 | | | | | (79 | ) | | | 13 | | | | | | | | | | | | | | |
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Participant contributions | | 18 | | | | 15 | | | | | 5 | | | | 5 | | | | | | | | | | | | | | |
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Plan amendments | | 18 | | | | (30 | ) | | | | (21 | ) | | | — | | | | | | | | | | | | | | |
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Curtailments and settlements | | 1 | | | | (51 | ) | | | | — | | | | — | | | | | | | | | | | | | | |
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Acquisition | | — | | | | 133 | | | | | — | | | | 3 | | | | | | | | | | | | | | |
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Divestiture | | — | | | | (239 | ) | | | | — | | | | (4 | ) | | | | | | | | | | | | | |
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Benefits paid | | (489 | ) | | | (506 | ) | | | | (27 | ) | | | (25 | ) | | | | | | | | | | | | | |
Effect of foreign currency exchange rate changes | | (367 | ) | | | 155 | | | | | (11 | ) | | | 5 | | | | | | | | | | | | | | |
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Benefit obligations as of end of year | | 6,004 | | | | 6,724 | | | | | 310 | | | | 424 | | | | | | | | | | | | | | |
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Change in plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets as of beginning of year | | 5,175 | | | | 5,259 | | | | | — | | | | — | | | | | | | | | | | | | | |
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Actual return on plan assets | | 472 | | | | 348 | | | | | — | | | | — | | | | | | | | | | | | | | |
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Employer contributions | | 133 | | | | 103 | | | | | 22 | | | | 20 | | | | | | | | | | | | | | |
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Participant contributions | | 18 | | | | 15 | | | | | 5 | | | | 5 | | | | | | | | | | | | | | |
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Settlements | | (6 | ) | | | (62 | ) | | | | — | | | | — | | | | | | | | | | | | | | |
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Acquisition | | — | | | | 97 | | | | | — | | | | — | | | | | | | | | | | | | | |
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Divestiture | | — | | | | (209 | ) | | | | — | | | | — | | | | | | | | | | | | | | |
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Benefits paid | | (489 | ) | | | (506 | ) | | | | (27 | ) | | | (25 | ) | | | | | | | | | | | | | |
Effect of foreign currency exchange rate changes | | (290 | ) | | | 130 | | | | | — | | | | — | | | | | | | | | | | | | | |
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Fair value of plan assets as of end of year | | 5,013 | | | | 5,175 | | | | | — | | | | — | | | | | | | | | | | | | | |
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Funded status as of end of year | $ | (991 | ) | | $ | (1,549 | ) | | | $ | (310 | ) | | $ | (424 | ) | | | | | | | | | | | | | |
Amounts recognized in our Consolidated Balance Sheets consisted of: | | | | | | | | | | | | | | | | | | | | | | | | | |
Other assets | $ | 17 | | | $ | 3 | | | | $ | — | | | $ | — | | | | | | | | | | | | | | |
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Accounts payable and accrued liabilities | | (3 | ) | | | (4 | ) | | | | (21 | ) | | | (26 | ) | | | | | | | | | | | | | |
Pension and OPEB obligations | | (1,005 | ) | | | (1,548 | ) | | | | (289 | ) | | | (398 | ) | | | | | | | | | | | | | |
Net obligations recognized | $ | (991 | ) | | $ | (1,549 | ) | | | $ | (310 | ) | | $ | (424 | ) | | | | | | | | | | | | | |
The total benefit obligations and the total fair value of plan assets for pension plans with benefit obligations in excess of plan assets were $5,079 million and $4,071 million, respectively, as of December 31, 2013, and were $6,630 million and $5,078 million, respectively, as of December 31, 2012. The total accumulated benefit obligations and the total fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $5,014 million and $4,071 million, respectively, as of December 31, 2013, and were $6,546 million and $5,078 million, respectively, as of December 31, 2012. The total accumulated benefit obligations for all pension plans were $5,931 million and $6,639 million as of December 31, 2013 and 2012, respectively. |
In 2013, following the introduction of the health insurance exchange system, we approved an amendment to our U.S. OPEB plan, whereby salaried post-65 retirees will be provided Medicare coverage via a Medicare Exchange program, effective January 1, 2014. This plan amendment resulted in a prior service credit of $21 million and an actuarial gain of $36 million. Also, following the restart of our previously closed Gatineau paper mill, 119 employees were reinstated to our pension plans in 2013, which resulted in a prior service cost of $18 million. For additional information on these plan amendments, see Note 8, “Accumulated Other Comprehensive Loss.” |
In 2012, following the renewal of the 2009 collective agreements in our Canadian pulp and paper mills, we cancelled 2011 and 2013 ad hoc indexations as part of the emergence from the Creditor Protection Proceedings. This plan amendment resulted in a prior service credit of $30 million. |
These changes were recorded in “Pension and other postretirement benefit obligations” in our Consolidated Balance Sheets. The prior service (credits) cost and the actuarial gain are amortized to “Cost of sales, excluding depreciation, amortization and distribution costs” in our consolidated statements of operations, over the expected average remaining service lifetime of the respective plans. |
The components of net periodic benefit cost relating to our pension and OPEB plans for the years ended December 31, 2013, 2012 and 2011 were as follows: |
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| Pension Plans | | OPEB Plans | | | | |
(In millions) | 2013 | | | 2012 | | | 2011 | | | | 2013 | | | 2012 | | | 2011 | | | | | | |
Service cost | $ | 33 | | | $ | 36 | | | $ | 35 | | | | $ | 3 | | | $ | 3 | | | $ | 3 | | | | | | |
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Interest cost | | 274 | | | | 312 | | | | 335 | | | | | 16 | | | | 20 | | | | 22 | | | | | | |
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Expected return on plan assets | | (308 | ) | | | (340 | ) | | | (351 | ) | | | | — | | | | — | | | | — | | | | | | |
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Amortization of prior service (credits) costs | | (2 | ) | | | — | | | | 2 | | | | | (1 | ) | | | — | | | | — | | | | | | |
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Amortization of actuarial losses (gains) | | 25 | | | | — | | | | — | | | | | (2 | ) | | | — | | | | — | | | | | | |
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Net periodic benefit cost before special events | | 22 | | | | 8 | | | | 21 | | | | | 16 | | | | 23 | | | | 25 | | | | | | |
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Curtailments and settlements | | 3 | | | | 21 | | | | 5 | | | | | — | | | | — | | | | 3 | | | | | | |
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| $ | 25 | | | $ | 29 | | | $ | 26 | | | | $ | 16 | | | $ | 23 | | | $ | 28 | | | | | | |
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A detail of amounts included in “Accumulated other comprehensive loss” in our Consolidated Balance Sheets can be found in Note 8, “Accumulated Other Comprehensive Loss.” We estimate that $4 million of prior service credits, net of actuarial losses, will be amortized from accumulated other comprehensive loss into our Consolidated Statements of Operations in 2014. |
The following is a summary of the special events that impacted our net periodic benefit costs as a curtailment or settlement for the years ended December 31, 2013, 2012 and 2011: |
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| Pension Plans | | OPEB Plans | | | | |
(In millions) | 2013 | | | 2012 | | | 2011 | | | | 2013 | | | 2012 | | | 2011 | | | | | | |
Settlements resulting from lump-sum payouts or plan liquidations and wind-ups | $ | — | | | $ | 10 | | | $ | 3 | | | | $ | — | | | $ | — | | | $ | — | | | | | | |
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Curtailments and settlements resulting from the closure of mills or paper machines and other mill restructurings | | 3 | | | | 11 | | | | 2 | | | | | — | | | | — | | | | 3 | | | | | | |
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| $ | 3 | | | $ | 21 | | | $ | 5 | | | | $ | — | | | $ | — | | | $ | 3 | | | | | | |
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On January 14, 2014, we announced an extended period of market-related outage at a paper mill in Fort Frances, which, if the mill remains idled, would result in the elimination of approximately 150 positions. In 2013, we announced a workforce reduction at our Baie-Comeau paper mill, which will result in the elimination of approximately 90 positions. The cost of these curtailments were included in “Closure costs, impairment, and other related charges” in our Consolidated Statements of Operations for the year ended December 31, 2013. |
In 2012, we recorded charges for curtailments and settlements primarily related to the indefinite idling of part of our Mersey operations (eliminating 176 positions), a workforce reduction at our Baie-Comeau paper mill (eliminating 90 positions) and the lump-sum payments for the vested terminated employees in certain of our U.S. pension plans. The cost of these curtailments and settlements was included in “Closure costs, impairment and other related charges” in our Consolidated Statements of Operations for the year ended December 31, 2012. |
In 2011, we ceased paperboard production at our Coosa Pines paper mill (eliminating 137 positions), reduced the workforce at our Mersey operations (eliminating 97 positions), permanently closed a paper machine at our Kénogami paper mill (eliminating 130 positions) and liquidated, either partially or fully, two of our pension plans. The cost of these curtailments was included in “Closure costs, impairment and other related charges” in our Consolidated Statements of Operations for the year ended December 31, 2011. |
Assumptions used to determine benefit obligations and net periodic benefit cost |
The weighted-average assumptions used to determine the benefit obligations at the measurement dates and the net periodic benefit cost for the years ended December 31, 2013, 2012 and 2011 were as follows: |
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| Pension Plans | | OPEB Plans | | | | | | | | | | | | |
| 2013 | | | 2012 | | | 2011 | | | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | |
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Benefit obligations: | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 4.9 | % | | 4.3 | % | | 4.9 | % | | 5 | % | | 4.2 | % | | 4.9 | % | | | | | | | | | | | | |
Rate of compensation increase | 2.5 | % | | 2.5 | % | | 1.2 | % | | — | | | — | | | — | | | | | | | | | | | | | |
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Net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 4.3 | % | | 4.9 | % | | 5.5 | % | | 4.2 | % | | 4.9 | % | | 5.6 | % | | | | | | | | | | | | |
Expected return on assets | 6.3 | % | | 6.5 | % | | 6.6 | % | | — | | | — | | | — | | | | | | | | | | | | | |
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Rate of compensation increase | 2.5 | % | | 1.2 | % | | 0.9 | % | | — | | | — | | | — | | | | | | | | | | | | | |
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The discount rate for our domestic and foreign plans was determined with a model that develops a hypothetical high-quality bond portfolio, where the bonds are theoretically purchased to settle the expected benefit payments of the plans. The discount rate reflects the single rate that produces the same discounted values as the value of the theoretical bond portfolio. In determining the expected return on assets, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. In determining the rate of compensation increase, we reviewed historical salary increases and promotions, while considering current industry conditions, the terms of collective bargaining agreements with our employees and the outlook for our industry. For the mortality rate of our domestic plans, we used recently-issued actuarially-determined mortality tables that were consistent with our historical mortality experience and future expectations for mortality of the employees who participate in our domestic pension and OPEB plans. The mortality rate for our foreign plans was established using the recently-issued actuarially-determined mortality table reflecting a longer life expectancy, combined with the result of our historical mortality experience study that were consistent with our future expectations for mortality of the employees who participate in our foreign pension and OPEB plans. |
The assumed health care cost trend rates used to determine the benefit obligations for our domestic and foreign OPEB plans as of December 31, 2013 and 2012 were as follows: |
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| 2013 | | 2012 | | | | | | | | | | | | | | | | |
| Domestic Plans | Foreign Plans | | Domestic Plans | Foreign Plans | | | | | | | | | | | | | | | | |
Health care cost trend rate assumed for next year | 7.5 | % | | 4.4 | % | | | 7 | % | | 4.4 | % | | | | | | | | | | | | | | | | | |
Rate to which the cost trend rate is assumed to decline (ultimate trend rate) | 4.5 | % | | 3.8 | % | | | 4.5 | % | | 2.9 | % | | | | | | | | | | | | | | | | | |
Year that the rate reaches the ultimate trend rate | 2028 | | | 2033 | | | | 2028 | | | 2031 | | | | | | | | | | | | | | | | | | |
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For the health care cost trend rates, we considered historical trends for these costs, actual experience of the plans, recently enacted health care legislation as well as future expectations. |
Variations in this health care cost trend rate can have a significant effect on the amounts reported. A 1% change in this assumption would have had the following impact on our 2013 OPEB obligation and costs for our domestic and foreign plans: |
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| 1% Increase | | 1% Decrease |
(Dollars in millions) | Domestic Plans | Foreign Plans | | Domestic Plans | Foreign Plans |
Benefit obligation | $ | 23 | | | 13 | % | | $ | 6 | | | 4 | % | | | $ | (18 | ) | | (11 | )% | | $ | (5 | ) | | (4 | )% | |
|
Service and interest costs | $ | 2 | | | 23 | % | | $ | — | | | 6 | % | | | $ | (2 | ) | | (18 | )% | | $ | — | | | (5 | )% | |
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Fair value of plan assets |
The fair value of plan assets held by our pension plans as of December 31, 2013 was as follows: |
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(In millions) | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | |
Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. companies | $ | 751 | | | $ | 751 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | |
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Non-U.S. companies | | 912 | | | | 636 | | | | 276 | | | | — | | | | | | | | | | | | | | | |
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Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate and government securities | | 2,611 | | | | 240 | | | | 2,371 | | | | — | | | | | | | | | | | | | | | |
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Asset-backed securities | | 161 | | | | — | | | | 161 | | | | — | | | | | | | | | | | | | | | |
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Bank loans/foreign annuities | | 40 | | | | — | | | | — | | | | 40 | | | | | | | | | | | | | | | |
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Real estate | | 48 | | | | — | | | | — | | | | 48 | | | | | | | | | | | | | | | |
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Cash and cash equivalents | | 444 | | | | 444 | | | | — | | | | — | | | | | | | | | | | | | | | |
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Accrued interest and dividends | | 46 | | | | — | | | | 46 | | | | — | | | | | | | | | | | | | | | |
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| $ | 5,013 | | | $ | 2,071 | | | $ | 2,854 | | | $ | 88 | | | | | | | | | | | | | | | |
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The fair value of plan assets held by our pension plans as of December 31, 2012 was as follows: |
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(In millions) | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | |
Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. companies | $ | 642 | | | $ | 632 | | | $ | 10 | | | $ | — | | | | | | | | | | | | | | | |
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Non-U.S. companies | | 847 | | | | 571 | | | | 276 | | | | — | | | | | | | | | | | | | | | |
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Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate and government securities | | 3,019 | | | | 242 | | | | 2,777 | | | | — | | | | | | | | | | | | | | | |
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Asset-backed securities | | 139 | | | | — | | | | 139 | | | | — | | | | | | | | | | | | | | | |
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Bank loans/foreign annuities | | 41 | | | | — | | | | — | | | | 41 | | | | | | | | | | | | | | | |
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Real estate | | 51 | | | | — | | | | 5 | | | | 46 | | | | | | | | | | | | | | | |
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Cash and cash equivalents | | 398 | | | | 398 | | | | — | | | | — | | | | | | | | | | | | | | | |
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Accrued interest and dividends | | 38 | | | | — | | | | 38 | | | | — | | | | | | | | | | | | | | | |
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| $ | 5,175 | | | $ | 1,843 | | | $ | 3,245 | | | $ | 87 | | | | | | | | | | | | | | | |
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Equity securities include large-cap and mid-cap publicly-traded companies mainly located in the United States, Canada and other developed countries, as well as commingled equity funds invested in the same types of securities. The fair value of the equity securities is determined based on quoted market prices (Level 1) or the net asset values per share that are derived from the accumulated fair values of the equity securities within the commingled funds (Level 2). |
Debt securities include corporate bonds of U.S. and Canadian companies from diversified industries, bonds and Treasuries issued by the U.S. government and the Canadian federal and provincial governments, asset-backed securities and commingled fixed income funds invested in these same types of securities. The fair value of the debt securities is determined based on quoted market prices (Level 1), market-corroborated inputs such as matrix prices, yield curves and indices (Level 2), the net asset values per share that are derived from the accumulated fair values of the debt securities within the commingled funds (Level 2) or specialized pricing sources that utilize consensus-based contributed prices and spreads (Level 3). Bank loan investments are primarily located in the U.S. The fair value of bank loans is determined based on the mid-point of the bid and ask price points (Level 3). |
Real estate investments are located in Canada. The fair value of the real estate is determined based on an appraisal completed by a national real estate firm. Those appraisers use several valuation concepts, including the cost approach, market approach and income approach (Level 3). |
The fair value of accrued interest and dividends is determined based on market-corroborated inputs such as declared dividends and stated interest rates (Level 2). |
The changes in Level 3 pension plan assets for the years ended December 31, 2013 and 2012 were as follows: |
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(In millions) | Bank Loans/Foreign | Real Estate | Total | | | | | | | | | | | | | | | | | |
Annuities | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2011 | $ | 44 | | | $ | 39 | | | $ | 83 | | | | | | | | | | | | | | | | | | | |
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Unrealized gains relating to assets held as of December 31, 2012 | | — | | | | 7 | | | | 7 | | | | | | | | | | | | | | | | | | | |
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Realized gains | | 1 | | | | — | | | | 1 | | | | | | | | | | | | | | | | | | | |
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Purchases | | 54 | | | | — | | | | 54 | | | | | | | | | | | | | | | | | | | |
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Sales | | (57 | ) | | | — | | | | (57 | ) | | | | | | | | | | | | | | | | | | |
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Effect of foreign currency exchange rate changes | | (1 | ) | | | — | | | | (1 | ) | | | | | | | | | | | | | | | | | | |
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Balance as of December 31, 2012 | | 41 | | | | 46 | | | | 87 | | | | | | | | | | | | | | | | | | | |
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Unrealized gains relating to assets held as of December 31, 2013 | | 2 | | | | 5 | | | | 7 | | | | | | | | | | | | | | | | | | | |
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Purchases | | 40 | | | | — | | | | 40 | | | | | | | | | | | | | | | | | | | |
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Sales | | (41 | ) | | | — | | | | (41 | ) | | | | | | | | | | | | | | | | | | |
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Effect of foreign currency exchange rate changes | | (2 | ) | | | (3 | ) | | | (5 | ) | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2013 | $ | 40 | | | $ | 48 | | | $ | 88 | | | | | | | | | | | | | | | | | | | |
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Long-term strategy and objective |
Our investment strategy and objective is to maximize the long-term rate of return on our plan assets within an acceptable level of risk in order to meet our current and future obligations to pay benefits to qualifying employees and their beneficiaries while minimizing and stabilizing pension benefit costs and contributions. One way we accomplish this objective is to diversify our plan investments. Diversification of assets is achieved through strategic allocations to various asset classes, as well as various investment styles within these asset classes, and by retaining multiple, experienced third-party investment management firms with complementary investment styles and philosophies to implement these allocations. Risk is further managed by reviewing our investment policies at least annually and monitoring our fund managers at least quarterly for compliance with mandates and performance measures. A series of permitted and prohibited investments are listed in our respective investment policies, which are provided to our fund managers. The use of derivative financial instruments for speculative purposes and investments in the equity or debt securities of Resolute Forest Products and its affiliates are prohibited. |
We have established a target asset allocation and an allowable range from such target asset allocation for our plans based upon analysis of risk/return tradeoffs and correlations of asset mixes given long-term historical returns, prospective capital market returns, forecasted benefit payments and the forecasted timing of those payments. The targeted asset allocation of the plan assets is designed to hedge the change in the pension liabilities resulting from fluctuations in the discount rate by investing in debt and other securities, while also generating excess returns required to reduce the unfunded pension deficit by investing in equity securities with higher potential returns. The targeted asset allocation of the plan assets is 50% equity securities, with an allowable range of 30% to 60%, and 50% debt and other securities, with an allowable range of 40% to 70%, including up to 5% in short-term instruments required for near-term liquidity needs. Approximately 60% of the equity securities are targeted to be invested in the U.S. and Canada, with the balance in other developed and emerging countries. Substantially all of the debt securities are targeted to be invested in the U.S. and Canada. The asset allocation for each plan is reviewed periodically and rebalanced toward the targeted asset mix when the fair value of the investments within an asset class falls outside the predetermined range. |
Expected benefit payments and future contributions |
The following benefit payments are expected to be paid from the plans’ net assets. The OPEB plans’ benefit payments have been reduced by expected Medicare subsidy receipts associated with the Medicare Prescription Drug, Improvement and Modernization Act of 2003. |
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(In millions) | Pension Plans | OPEB Plans | Expected Subsidy Receipts | | | | | | | | | | | | | | | | | |
2014 | $ | 407 | | | $ | 21 | | | $ | 1 | | | | | | | | | | | | | | | | | | | |
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2015 | | 408 | | | | 21 | | | | 1 | | | | | | | | | | | | | | | | | | | |
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2016 | | 409 | | | | 21 | | | | 1 | | | | | | | | | | | | | | | | | | | |
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2017 | | 410 | | | | 21 | | | | 1 | | | | | | | | | | | | | | | | | | | |
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2018 | | 409 | | | | 20 | | | | 1 | | | | | | | | | | | | | | | | | | | |
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2019- 2023 | | 2,002 | | | | 103 | | | | 10 | | | | | | | | | | | | | | | | | | | |
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We estimate our 2014 contributions (excluding contributions to our defined contribution plans) to be approximately $140 million to our pension plans and approximately $20 million to our OPEB plans. |
Patient Protection and Affordable Care Act |
In March 2010, the Patient Protection and Affordable Care Act (the “PPACA”) was enacted, potentially impacting our cost to provide healthcare benefits to eligible active and retired employees. The PPACA has both short-term and long-term implications on benefit plan standards. Implementation of this legislation began in 2010 and is expected to continue in phases from 2011 through 2018. |
We have analyzed this legislation to determine: (i) the impact of the required plan standard changes on our employee healthcare plans, (ii) the effect of the excise tax on high cost healthcare plans and (iii) the resulting costs. The impact, for those changes that were currently estimable, was not material to our results of operations. In 2013, PPACA also introduced the health insurance exchange system to facilitate the purchase of state health insurance. Individuals may purchase insurance from a set of government standardized plans offering federal subsidies. In light of this new arrangement, we re-evaluated the current postretirement medical offerings and ultimately decided to shift post-Medicare coverage to the exchanges starting in 2014 for the U.S. salaried employees. For additional information, see Note 8, “Accumulated Other Comprehensive Loss.” In addition, following the five year renewal of the master collective agreement covering four unionized U.S. pulp and paper mills, effective as of February 14, 2014, we will amend our U.S. OPEB plan, whereby unionized post-65 active employees will be provided Medicare coverage via a Medicare Exchange program, effective January 1, 2015. For additional information, see Note 23, “Subsequent Events.” |
Moving Ahead for Progress in the 21st Century Act |
In July 2012, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”) was signed into law, offering optional short-term funding relief for domestic pension plan sponsors. The discount-rate stabilization provision in MAP-21 limits the discount rates applicable in determining funding requirements to rates within a specified corridor of a 25-year average. The corridor was 15% and 10% in 2013 and 2012 respectively, and will widen to 20% in 2014, 25% in 2015 and 30% for the years after 2015. This enactment provides relief in the form of reduced minimum required contributions. We benefited from this funding relief and as a result, our required contributions for our domestic plans in 2013 and 2012 were reduced by $23 million and $9 million, respectively. |
Canadian pension funding |
Funding relief measures |
As a pre-condition to our emergence from the Creditor Protection Proceedings, we entered into agreements with the provinces of Québec and Ontario to establish parameters concerning the funding of the aggregate solvency deficits in our material Canadian registered pension plans, which we refer to as the “affected plans,” until 2020. These plans represented approximately 75% of our unfunded pension obligations as of December 31, 2013. In exchange for certain undertakings, the provinces confirmed their intention to adopt regulations specific to us, which we refer to as the “funding relief regulations,” to implement those parameters in respect of the affected plans. |
The funding relief regulations provide, among other things, that our aggregate annual contribution in respect of the solvency deficits in the affected plans for each year from 2011 through 2020 are limited to the following: (i) a Cdn$50 million basic contribution; (ii) beginning in 2013, if the plans’ aggregate solvency ratio falls below a specified target for a year, an additional contribution equal to 15% of free cash flow (calculated as per the funding relief regulations) up to Cdn$15 million per year and (iii) beginning in 2016, if the amount payable for benefits in a year exceeds a specified threshold and the plans’ aggregate solvency ratio is more than 2% below the target for that year, a supplementary contribution equal to such excess (such supplementary contribution being capped at Cdn$25 million on the first occurrence only of such an excess). Should a plan move into a surplus during the 2011 – 2020 period, it will cease to be subject to this funding relief. After 2020, the funding rules in place at the time will apply to any remaining deficit. |
As adopted in mid-2011, the funding relief regulations also provide that corrective measures would be required if the aggregate solvency ratio in the affected plans fell below a prescribed level under the targets specified by the regulations as of December 31 in any year through 2014. Such measures may include additional funding over five years to attain the target solvency ratio prescribed in the regulations. |
In addition, our principal Canadian operating subsidiary has undertaken in those agreements, among other things, for up to five years following the Emergence Date, to: |
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• | not pay a dividend at any time when the weighted average solvency ratio of its affected plans is less than 80%; | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | abide by the compensation plan detailed in the Plans of Reorganization with respect to salaries, bonuses and severance; | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | direct at least 60% of the maintenance and value-creation investments earmarked for our Canadian pulp and paper operations to projects in Québec and at least 30% to projects in Ontario; | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | invest a minimum of Cdn$50 million over a two to three year construction period for a new condensing turbine at our Thunder Bay, Ontario facility, subject to certain conditions; | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | invest at least Cdn$75 million in strategic projects in Québec over a five-year period; | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | maintain our head office and the current related functions in Québec; | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | make an additional solvency deficit reduction contribution to its pension plans of Cdn$75, payable over four years, for each metric ton of capacity reduced in Québec or Ontario, in the event of downtime of more than six consecutive months or nine cumulative months over a period of 18 months; | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | create a diversification fund by contributing Cdn$2 million per year for five years for the benefit of the municipalities and workers in our Québec operating regions; | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | pay an aggregate of Cdn$5 million over five years to be used for such environmental remediation purposes instructed by the province of Ontario; and | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | maintain and renew certain financial assurances with the province of Ontario in respect of certain properties in the province. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Solvency deficit |
The aggregate solvency ratio calculation is based on a number of factors and assumptions, including the accrued benefits to be provided by the plans, interest rate levels, membership data and demographic experience. The assumptions used in the solvency calculation are materially different from the assumptions used to arrive at the pension and OPEB obligations for purposes of our consolidated financial statements. |
Under Canadian actuarial rules for solvency determinations, the liabilities are calculated on the assumption that the plans are terminated at the measurement date (each December 31 for the affected plans), and the liabilities are discounted primarily using a specified annuity purchase rate, which is that day’s spot interest rate on government securities in Canada plus a prescribed margin. By contrast, for purposes of our consolidated financial statements, the discount rate is determined with a model that develops a hypothetical high-quality bond portfolio, where the bonds are theoretically purchased to settle the expected benefit payments of the plans. |
As of December 31, 2013, a 1% change in discount rates would result in an approximate Cdn$520 million ($490 million, based on the exchange rate in effect on December 31, 2013) change in the solvency deficit. |
Corrective measures |
As of December 31, 2011 and 2012, the aggregate solvency ratio in the affected plans was below the minimum solvency level prescribed in the regulations. Accordingly, the regulations required that we propose corrective measures designed to attain the target solvency ratio prescribed in the regulations within five years. The difference between the solvency status as of December 31, 2011, and the target specified under the funding relief regulations represented the portion of the solvency deficit that was subject to corrective measures; it amounted to approximately Cdn$500 million as of December 31, 2011 ($471 million, based on the exchange rate in effect on December 31, 2013). The solvency deficit widened by approximately Cdn$130 million as of December 31, 2012 ($122 million, based on the exchange rate in effect on December 31, 2013), which then triggered the need for additional corrective measures in respect of that amount. |
Because of the rising interest rate environment, strong asset returns and 2013 funding, when we file the actuarial report in respect of the affected plans in the second quarter of this year, we expect that the solvency deficit as of December 31, 2013, will have decreased significantly from the level at December 31, 2012. |
In 2013, we reached an agreement in principle with Company stakeholders in Québec and in Ontario to replace the corrective measures mechanism under the funding relief regulations in favor of set incremental contributions beyond the basic funding under the existing framework. We expect that in the coming months, Québec and Ontario will adopt regulations to implement this revised framework. |
The revised framework of the funding relief provides, among other things, that our basic contribution is increased from Cdn$50 million to Cdn$80 million for each year from 2013 through 2020, and the additional contribution that began in 2013, based on the free cash flow, is eliminated. Moreover, the additional solvency deficit reduction contribution of Cdn$75 per metric ton would not apply to any capacity reduction before April 2013. |
Accordingly, we accelerated Cdn$30 million of contributions to the affected plans in 2013, representing the incremental funding under the regulations had they been adopted in 2013. |