Pension and Other Postretirement Benefit Plans | Note 13. 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. 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.” We also sponsor a number of OPEB plans (e.g., health care and life insurance plans) for retirees at certain locations. 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 plan, employees are allowed to make contributions that we match. In addition, under the U.S. defined contribution plan, most employees also receive an automatic company contribution, regardless of the employee’s contribution. The amount of the automatic company contribution, in most instances, 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 $20 million in 2015 and $22 million in both 2014 and 2013 . Certain of the above plans are covered under collective bargaining agreements. The following tables include both our foreign (Canada and South Korea) and domestic 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. The changes in our pension and OPEB obligations and plan assets for the years ended December 31, 2015 and 2014 and the funded status and reconciliation of amounts recognized in our Consolidated Balance Sheets as of December 31, 2015 and 2014 were as follows: Pension Plans OPEB Plans (In millions) 2015 2014 2015 2014 Change in benefit obligations: Benefit obligations as of beginning of year $ 6,229 $ 6,004 $ 210 $ 310 Service cost 23 26 1 1 Interest cost 225 274 8 11 Actuarial (gain) loss (140 ) 788 (11 ) 10 Participant contributions 7 11 2 4 Plan amendments — — — (91 ) Curtailments — 4 — — Settlements (65 ) (5 ) — — Benefits paid (410 ) (440 ) (15 ) (23 ) Effect of foreign currency exchange rate changes (801 ) (433 ) (21 ) (12 ) Benefit obligations as of end of year 5,068 6,229 174 210 Change in plan assets: Fair value of plan assets as of beginning of year 4,808 5,013 — — Actual return on plan assets 224 450 — — Employer contributions 123 142 13 19 Participant contributions 7 11 2 4 Settlements (65 ) (5 ) — — Benefits paid (410 ) (440 ) (15 ) (23 ) Effect of foreign currency exchange rate changes (638 ) (363 ) — — Fair value of plan assets as of end of year 4,049 4,808 — — Funded status as of end of year $ (1,019 ) $ (1,421 ) $ (174 ) $ (210 ) Amounts recognized in our Consolidated Balance Sheets consisted of: Other assets $ 10 $ 5 $ — $ — Accounts payable and accrued liabilities (3 ) (4 ) (14 ) (16 ) Pension and OPEB obligations (1,026 ) (1,422 ) (160 ) (194 ) Net obligations recognized $ (1,019 ) $ (1,421 ) $ (174 ) $ (210 ) The total benefit obligations and the total fair value of plan assets for pension plans with benefit obligations in excess of plan assets were $4,642 million and $3,613 million , respectively, as of December 31, 2015 , and were $5,947 million and $4,521 million , respectively, as of December 31, 2014 . 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 $4,555 million and $3,583 million , respectively, as of December 31, 2015 , and were $5,765 million and $4,417 million , respectively, as of December 31, 2014 . The total accumulated benefit obligations for all pension plans were $5,007 million and $6,150 million as of December 31, 2015 and 2014 , respectively. Plan amendments In 2014, we modified our U.S. OPEB plan, whereby unionized participants, upon reaching Medicare eligibility, will be provided comparable Medicare coverage via a Medicare Exchange program, effective January 1, 2015. This plan amendment resulted in a prior service credit of $91 million . Components of net periodic benefit cost The components of net periodic benefit cost relating to our pension and OPEB plans for the years ended December 31, 2015 , 2014 and 2013 , were as follows: Pension Plans OPEB Plans (In millions) 2015 2014 2013 2015 2014 2013 Service cost $ 23 $ 26 $ 33 $ 1 $ 1 $ 3 Interest cost 225 274 274 8 11 16 Expected return on plan assets (260 ) (300 ) (308 ) — — — Amortization of prior service credits (2 ) (2 ) (2 ) (14 ) (11 ) (1 ) Amortization of actuarial losses (gains) 84 9 25 (5 ) (4 ) (2 ) Net periodic benefit cost before special events 70 7 22 (10 ) (3 ) 16 Curtailments and settlements 14 4 3 — — — $ 84 $ 11 $ 25 $ (10 ) $ (3 ) $ 16 The prior service credits and the actuarial gains and losses 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 or the average future lifetime, as applicable, of the respective plans. We estimate that $48 million of actuarial losses and $15 million of prior service credits will be amortized from accumulated other comprehensive loss into our Consolidated Statements of Operations in 2016 . Curtailments and settlements In 2015, we recorded a settlement charge related to annuity purchases for certain inactive U.S. employees. The cost of this settlement was included in “Cost of sales, excluding depreciation, amortization and distribution costs” in our Consolidated Statement of Operations for the year ended December 31, 2015. In 2014, we recorded net charges for curtailments related to the permanent closure of our Laurentide and Iroquois Falls paper mills (eliminating approximately 470 positions and resulting in the curtailment of two of our pension plans). The net costs of these curtailments were included in “Closure costs, impairment, and other related charges” in our Consolidated Statement of Operations for the year ended December 31, 2014. In 2013, we recorded charges for curtailments primarily related to an extended period of market-related outage at our Fort Frances paper mill, which was permanently closed on May 6, 2014, resulting in the elimination of approximately 150 positions. The cost of this curtailment was included in “Closure costs, impairment, and other related charges” in our Consolidated Statement of Operations for the year ended December 31, 2013. 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, 2015 , 2014 and 2013 were as follows: Pension Plans OPEB Plans 2015 2014 2013 2015 2014 2013 Benefit obligations: Discount rate 4.2 % 4.0 % 4.9 % 4.4 % 4.0 % 5.0 % Rate of compensation increase 2.5 % 2.5 % 2.5 % Net periodic benefit cost: Discount rate 4.0 % 4.9 % 4.3 % 4.1 % 5.0 % 4.2 % Expected return on assets 6.3 % 6.5 % 6.3 % Rate of compensation increase 2.5 % 2.5 % 2.5 % 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. In determining the life expectancy rate of our domestic and foreign plans, we used the most-recent actuarially-determined mortality tables and improvement scales. For the foreign plans, the mortality tables were adjusted with the result of our historical mortality experience study. The rates used are consistent with our future expectations of life expectancy for the employees who participate in our 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, 2015 and 2014 were as follows: 2015 2014 Domestic Plans Foreign Plans Domestic Plans Foreign Plans Health care cost trend rate assumed for next year 7.2 % 4.4 % 7.2 % 4.4 % Rate to which the cost trend rate is assumed to decline (ultimate trend rate) 4.5 % 3.8 % 4.5 % 3.8 % Year that the rate reaches the ultimate trend rate 2028 2033 2028 2033 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 2015 OPEB obligation and costs for our domestic and foreign plans: 1% Increase 1% Decrease (In millions, except percentages) Domestic Plans Foreign Plans Domestic Plans Foreign Plans OPEB obligation $ 3 5 % $ 6 5 % $ (3 ) (5 )% $ (5 ) (5 )% Service and interest costs $ — 6 % $ — 6 % $ — (5 )% $ — (5 )% Fair value of plan assets The fair value of plan assets held by our pension plans as of December 31, 2015 was as follows: (In millions) Total Level 1 Level 2 Level 3 Equity securities: U.S. companies $ 587 $ 587 $ — $ — Non-U.S. companies 626 626 — — Debt securities: Corporate and government securities 2,243 274 1,969 — Asset-backed securities 97 — 97 — Cash and cash equivalents 191 191 — — Accrued interest and dividends 36 — 36 — Total before investments measured at NAV $ 3,780 $ 1,678 $ 2,102 $ — Investments measured at NAV 269 $ 4,049 The fair value of plan assets held by our pension plans as of December 31, 2014 was as follows: (In millions) Total Level 1 Level 2 Level 3 Equity securities: U.S. companies $ 678 $ 678 $ — $ — Non-U.S. companies 723 723 — — Debt securities: Corporate and government securities 2,665 494 2,171 — Asset-backed securities 110 — 110 — Bank loans/foreign annuities 4 — — 4 Cash and cash equivalents 197 197 — — Accrued interest and dividends 42 — 42 — Total before investments measured at NAV $ 4,419 $ 2,092 $ 2,323 $ 4 Investments measured at NAV 389 $ 4,808 Equity securities include large-cap, mid-cap and small-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). 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). 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). 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). Investments measured at NAV are excluded from the fair value hierarchy tables. These investments are commingled funds, composed of either debt securities, equity securities or real estate investments, where the corresponding NAV per share is equal to the total net assets divided by the total number of shares. The changes in Level 3 pension plan assets for the years ended December 31, 2015 and 2014 were as follows: (In millions) Bank Loans / Foreign Annuities Balance as of December 31, 2013 $ 40 Unrealized losses relating to assets held as of December 31, 2014 (2 ) Realized gains 2 Purchases 11 Sales (44 ) Effect of foreign currency exchange rate changes (3 ) Balance as of December 31, 2014 4 Sales (4 ) Balance as of December 31, 2015 $ — 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 As of December 31, 2015 , benefit payments expected to be paid over the next 10 years are as follows: (In millions) Pension Plans (1) OPEB Plans 2016 $ 344 $ 14 2017 345 13 2018 343 13 2019 342 12 2020 339 12 2021 - 2025 1,638 56 (1) Benefit payments are expected be paid from the plans’ net assets. We expect our 2016 pension contributions (excluding contributions to our defined contribution plans) to be approximately $142 million , including pension contributions of Cdn $150 million ( $110 million , based on the exchange rate in effect on December 31, 2015 ) related to our Canadian 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 2020. 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 decided to transfer post‑Medicare coverage via a Medicare Exchange program starting in 2014 for U.S. non-unionized employees and in 2015 for U.S. unionized employees. Canadian pension funding Funding relief measures The funding of our material Canadian registered pension plans, which we refer to as the “affected plans,” representing 67% of our unfunded pension obligations as of December 31, 2015 , is governed by regulations specific to us, adopted by the provinces of Ontario and Quebec. We refer to these regulations, the effect of which will lapse in 2020, as the “funding relief regulations.” As amended, the funding relief regulations provide that our aggregate annual contribution in respect of the solvency deficits in the affected plans for each year until 2020 is limited to a Cdn $80 million basic contribution and a supplemental contribution, beginning in 2016, if the plans’ aggregate solvency ratio is more than 2% below the target specified in the regulations for the preceding year, subject to certain conditions. The supplemental contributions essentially prevent payments of benefits from further depleting the plans’ solvency ratio. The first such supplemental contribution is capped at Cdn $25 million . Any supplemental contribution payable in respect of any subsequent year would be payable over a three -year period. Since prevailing interest rates in Canada remained at low levels, the solvency ratio in the affected plans is more than 2% below the target specified in the regulations as of December 31, 2015 . As a result, we will be required to make a supplemental contribution up to the capped amount of Cdn $25 million in 2016. Should a plan move to surplus before the funding relief regulations expire in 2020, it will cease to be subject to the regulations. After 2020, the funding rules in place at the time will apply to any remaining deficit. We are permitted to exit the funding relief regulations of either province earlier than 2020, by providing a notice to that effect to the applicable province on December 31 of any year. Our exit from such regulations would take effect for the year following the date of notice. If we elect to exit the funding relief regulations in either province, our pension plans in such province would become subject to the pension plan funding regime otherwise applicable to pension plans in that province. Our principal Canadian operating subsidiary entered into an agreement (the “2015 agreement”) with the Government of Quebec, effective as of December 9, 2015, to renew certain undertakings originally made in 2010 in connection with funding relief regulations applicable to our material Canadian registered pension plans in the province of Quebec. The original undertakings agreed with the Government of Quebec were applicable until December 9, 2015, with a commitment to re-evaluate after the end of the initial term. A comparable undertaking entered into with the Government of Ontario in 2010, expired in December 2015. Subject to certain exceptions, the 2015 agreement renews the following prior undertakings to Quebec: • abide by the compensation plan detailed in the Plans of Reorganization (as defined in Note 16, “Share Capital – Common stock”) with respect to salaries, bonuses and severance; • direct at least 60% of the maintenance and value-creation investments earmarked for our Canadian pulp and paper operations to projects in Quebec; • maintain our head office and the then-current related functions in Quebec; and • make an additional solvency deficit reduction contribution to its Quebec pension plans of Cdn $75, payable over four years, for each metric ton of capacity reduced in Quebec, in the event of downtime of more than six consecutive months or nine cumulative months over a period of 18 months; The 2015 agreement effectively terminates the following undertakings, as of December 9, 2015: • the prohibition on the payment of dividends by our Canadian subsidiary at any time when the weighted average solvency ratio of the Quebec pension plans is less than 80%; • the requirement to invest a minimum of Cdn $75 million in strategic projects in Quebec over a five-year period; and • the obligation to create a diversification fund by contributing Cdn $2 million per year for five years for the benefit of the municipalities and workers in the Quebec operating regions. The 2015 agreement provides that the undertakings will remain in effect for so long as the Quebec funding relief regulations continue to apply to us, except that either we or the Government of Quebec may, subject to certain conditions, request a re-evaluation of our undertakings in the 2015 agreement should we continue to remain under the funding relief regulations. Concerning the original 2010 undertaking to make an additional solvency deficit reduction contribution for capacity reductions in Quebec or Ontario, it was determined that no additional contribution would be made in respect of any capacity reduction in Quebec before April 13, 2013. The extent of the application of the undertaking in respect of our Ontario capacity reductions that occurred while the Ontario undertaking remained in effect has yet to be settled. The undertaking with Ontario expired in December 2015. As a result of this undertaking to the provinces, we made additional contributions to the affected plans of Cdn $19 million in 2015, and we expect we will be required to make additional contributions of approximately Cdn $20 million for each of the next three years for past capacity reductions. Neither the 2015 agreement, nor the expiration of the Ontario undertaking, eliminate obligations already incurred under the original 2010 undertakings, including, but not limited to, obligations in respect of additional solvency deficit reduction contributions for past capacity reductions in Quebec or Ontario. As originally adopted, the funding relief regulations provided 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. This requirement was definitively removed in 2013, but under the Ontario regulations, the corresponding 2011 and 2012 amounts in respect of Ontario plans (Cdn $110 million in the aggregate) have been deferred to after the expiration of the funding relief regulations in 2020, and will then be payable over five years in equal monthly installments starting on December 31, 2021, but only up to the elimination of the then remaining deficit, if any. Solvency deficit The requirement to make supplemental contributions is based in part on the aggregate solvency ratio of the affected plans. 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 net 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, 2015 , a 1% decrease in the discount rate for solvency purposes would result in an approximate Cdn $450 million ( $320 million , based on the exchange rate in effect on December 31, 2015 ) increase in the solvency deficit. |