Postretirement Plans | 12 Months Ended |
Dec. 31, 2014 |
Postretirement Plans | Note 9 – Postretirement Plans |
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Defined Benefit Pension Plans and Retiree Medical and Life Insurance Plans |
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Many of our employees are covered by qualified defined benefit pension plans and we provide certain health care and life insurance benefits to eligible retirees (collectively, postretirement benefit plans). We also sponsor nonqualified defined benefit pension plans to provide for benefits in excess of qualified plan limits. Non-union represented employees hired after December 2005 do not participate in our qualified defined benefit pension plans, but are eligible to participate in a qualified defined contribution plan in addition to our other retirement savings plans. They also have the ability to participate in our retiree medical plans, but we do not subsidize the cost of their participation in those plans as we do with employees hired before January 1, 2006. Over the last few years, we have negotiated similar changes with various labor organizations such that new union represented employees do not participate in our defined benefit pension plans. In June 2014, we amended certain of our qualified and nonqualified defined benefit pension plans for non-union employees to freeze future retirement benefits. Currently, the calculation of retirement benefits under the affected defined benefit pension plans is determined by a formula that takes into account the participants’ years of credited service and average compensation. The freeze will take effect in two stages. Beginning on January 1, 2016, the pay-based component of the formula used to determine retirement benefits will be frozen so that future pay increases, annual incentive bonuses or other amounts earned for or related to periods after December 31, 2015 will not be used to calculate retirement benefits. On January 1, 2020, the service-based component of the formula used to determine retirement benefits will also be frozen so that participants will no longer earn further credited service for any period after December 31, 2019. When the freeze is complete, the majority of our salaried employees will have transitioned to an enhanced defined contribution retirement savings plan. |
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We have made contributions to trusts established to pay future benefits to eligible retirees and dependents, including Voluntary Employees’ Beneficiary Association trusts and 401(h) accounts, the assets of which will be used to pay expenses of certain retiree medical plans. We use December 31 as the measurement date. Benefit obligations as of the end of each year reflect assumptions in effect as of those dates. Net periodic benefit cost is based on assumptions in effect at the end of the respective preceding year. |
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The rules related to accounting for postretirement benefit plans under GAAP require us to recognize on a plan-by-plan basis the funded status of our postretirement benefit plans as either an asset or a liability on our Balance Sheets. There is a corresponding non-cash adjustment to accumulated other comprehensive loss, net of tax benefits recorded as deferred tax assets, in stockholders’ equity. The funded status is measured as the difference between the fair value of the plan’s assets and the benefit obligation of the plan. |
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The net periodic benefit cost recognized each year included the following (in millions): |
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| | Qualified Defined | | | | | | | Retiree Medical and | | | | | | | | | |
Benefit Pension Plans (a) | | | | | | | | | |
| Life Insurance Plans | | | | | | | | |
| | 2014 | | | 2013 | | | 2012 | | | | | | | 2014 | | | 2013 | | | 2012 | | | | | | | | | |
Service cost | | $ | 903 | | | $ | 1,142 | | | $ | 1,055 | | | | | | | $ | 22 | | | $ | 27 | | | $ | 28 | | | | | | | | | |
Interest cost | | | 1,912 | | | | 1,800 | | | | 1,884 | | | | | | | | 123 | | | | 116 | | | | 131 | | | | | | | | | |
Expected return on plan assets | | | (2,693) | | | | (2,485) | | | | (2,187) | | | | | | | | (146) | | | | (145) | | | | (131) | | | | | | | | | |
Recognized net actuarial losses | | | 1,173 | | | | 1,410 | | | | 1,116 | | | | | | | | 23 | | | | 44 | | | | 32 | | | | | | | | | |
Amortization of net prior service (credit) cost | | | (151) | | | | 81 | | | | 73 | | | | | | | | 4 | | | | (17) | | | | (12) | | | | | | | | | |
Total net periodic benefit cost | | $ | 1,144 | | | $ | 1,948 | | | $ | 1,941 | | | | | | | $ | 26 | | | $ | 25 | | | $ | 48 | | | | | | | | | |
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(a) | Total net periodic benefit cost associated with our qualified defined benefit plans represents pension expense calculated in accordance with GAAP (FAS pension expense). We are required to calculate pension expense in accordance with both GAAP and CAS rules, each of which results in a different calculated amount of pension expense. The CAS pension cost is recovered through the pricing of our products and services on U.S. Government contracts and, therefore, is recognized in net sales and cost of sales for products and services. We include the difference between FAS pension expense and CAS pension cost, referred to as the FAS/CAS pension adjustment, as a component of other unallocated, net on our Statements of Earnings. The FAS/CAS pension adjustment, which was income of $376 million in 2014 and expense of $482 million in 2013 and $830 million in 2012, effectively adjusts the amount of CAS pension cost in the business segment operating profit so that pension expense recorded on our Statements of Earnings is equal to FAS pension expense. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table provides a reconciliation of benefit obligations, plan assets and unfunded status related to our qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions): |
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| | Qualified Defined Benefit | | | | | | | Retiree Medical and | | | | | | | | | | | | | | | | | |
Pension Plans | | | | | | | | | | | | | | | | | |
| Life Insurance Plans | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Change in benefit obligation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | | $ 42,161 | | | | $46,017 | | | | | | | | $ 2,823 | | | | $3,184 | | | | | | | | | | | | | | | | | |
Service cost | | | 903 | | | | 1,142 | | | | | | | | 22 | | | | 27 | | | | | | | | | | | | | | | | | |
Interest cost | | | 1,912 | | | | 1,800 | | | | | | | | 123 | | | | 116 | | | | | | | | | | | | | | | | | |
Benefits paid (a) | | | (2,399) | | | | (2,023) | | | | | | | | (352) | | | | (353) | | | | | | | | | | | | | | | | | |
Actuarial losses (gains) | | | 4,493 | | | | (4,882) | | | | | | | | (40) | | | | (319) | | | | | | | | | | | | | | | | | |
New longevity assumptions | | | 3,390 | | | | — | | | | | | | | 266 | | | | — | | | | | | | | | | | | | | | | | |
Plan amendments (b) | | | (4,578) | | | | 107 | | | | | | | | 5 | | | | — | | | | | | | | | | | | | | | | | |
Medicare Part D subsidy | | | — | | | | — | | | | | | | | 26 | | | | 10 | | | | | | | | | | | | | | | | | |
Participants’ contributions | | | — | | | | — | | | | | | | | 161 | | | | 158 | | | | | | | | | | | | | | | | | |
Ending balance | | | $ 45,882 | | | | $42,161 | | | | | | | | $ 3,034 | | | | $2,823 | | | | | | | | | | | | | | | | | |
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Change in plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance at fair value | | | $ 33,010 | | | | $30,924 | | | | | | | | $ 1,921 | | | | $1,964 | | | | | | | | | | | | | | | | | |
Actual return on plan assets | | | 2,062 | | | | 1,859 | | | | | | | | 126 | | | | 44 | | | | | | | | | | | | | | | | | |
Benefits paid (a) | | | (2,399) | | | | (2,023) | | | | | | | | (352) | | | | (353) | | | | | | | | | | | | | | | | | |
Company contributions | | | 2,000 | | | | 2,250 | | | | | | | | 50 | | | | 98 | | | | | | | | | | | | | | | | | |
Medicare Part D subsidy | | | — | | | | — | | | | | | | | 26 | | | | 10 | | | | | | | | | | | | | | | | | |
Participants’ contributions | | | — | | | | — | | | | | | | | 161 | | | | 158 | | | | | | | | | | | | | | | | | |
Ending balance at fair value | | | $ 34,673 | | | | $33,010 | | | | | | | | $ 1,932 | | | | $1,921 | | | | | | | | | | | | | | | | | |
Unfunded status of the plans | | | $ (11,209) | | | | $ (9,151) | | | | | | | | $(1,102) | | | | $ (902) | | | | | | | | | | | | | | | | | |
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(a) | Benefits paid in 2014 for qualified defined benefit pension plans include $427 million in the form of lump-sum settlement payments to former employees who had not commenced receiving their vested benefit payments. The corresponding benefit obligation that was released was $529 million. The settlement payments had no impact on our 2014 FAS pension expense and CAS pension cost. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | The June 2014 plan amendment which resulted in freezing the pay-based component of the formula used to determine retirement benefits under the affected plans reduced our qualified defined benefit pension obligations by $4.6 billion, which resulted in a corresponding reduction, net of tax, in the accumulated other comprehensive loss (AOCL) component of stockholders’ equity. This amount is being recognized as a reduction of net periodic benefit cost (i.e., amortization of net prior service credit) over the estimated remaining service period of the covered employees, which is approximately 10 years and began in the third quarter of 2014. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table provides amounts recognized on our Balance Sheets related to our qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions): |
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| | Qualified Defined Benefit | | | | | | | Retiree Medical and | | | | | | | | | | | | | | | | | |
Pension Plans | | | | | | | | | | | | | | | | | |
| Life Insurance Plans | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Prepaid pension asset | | | $ 204 | | | | $ 210 | | | | | | | | $ — | | | | $ — | | | | | | | | | | | | | | | | | |
Accrued postretirement benefit liabilities | | | (11,413) | | | | (9,361) | | | | | | | | (1,102) | | | | (902) | | | | | | | | | | | | | | | | | |
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Accumulated other comprehensive loss (pre-tax) related to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial losses | | | 20,794 | | | | 13,453 | | | | | | | | 741 | | | | 516 | | | | | | | | | | | | | | | | | |
Prior service (credit) cost | | | (3,985) | | | | 443 | | | | | | | | 14 | | | | 13 | | | | | | | | | | | | | | | | | |
Total (a) | | | $16,809 | | | | $13,896 | | | | | | | | $ 755 | | | | $ 529 | | | | | | | | | | | | | | | | | |
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(a) | Accumulated other comprehensive loss related to postretirement benefit plans, after tax, of $11.8 billion and $9.6 billion at December 31, 2014 and 2013 (Note 10) includes $16.8 billion ($10.8 billion after tax) and $13.9 billion ($9.0 billion after tax) for qualified defined benefit pension plans, $755 million ($488 million after tax) and $529 million ($342 million after tax) for retiree medical and life insurance plans and $692 million ($460 million after tax) and $508 million ($328 million after tax) for other plans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The accumulated benefit obligation (ABO) for all qualified defined benefit pension plans was $45.2 billion and $37.5 billion at December 31, 2014 and 2013, of which $45.0 billion and $37.3 billion related to plans where the ABO was in excess of plan assets. The ABO represents benefits accrued without assuming future compensation increases to plan participants. Certain key information related to our qualified defined benefit pension plans as of December 31, 2014 and 2013 is as follows (in millions): |
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| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Plans where ABO was in excess of plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Projected benefit obligation | | $ | 45,741 | | | $ | 41,984 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Less: fair value of plan assets | | | 34,328 | | | | 32,623 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unfunded status of plans (a) | | | (11,413 | ) | | | (9,361) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Plans where ABO was less than plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Projected benefit obligation | | | 141 | | | | 177 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Less: fair value of plan assets | | | 345 | | | | 387 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Funded status of plans (b) | | $ | 204 | | | $ | 210 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(a) | Represent accrued pension liabilities, which are included on our Balance Sheets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | Represent prepaid pension assets, which are included on our Balance Sheets in other noncurrent assets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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We also sponsor nonqualified defined benefit plans to provide benefits in excess of qualified plan limits. The aggregate liabilities for these plans at both December 31, 2014 and 2013 were $1.1 billion and $1.0 billion, which also represent the plans’ unfunded status. We have set aside certain assets totaling $397 million and $373 million as of December 31, 2014 and 2013 in a separate trust which we expect to be used to pay obligations under our nonqualified defined benefit plans. In accordance with GAAP, those assets may not be used to offset the amount of the benefit obligation similar to the postretirement benefit plans in the table above. The unrecognized net actuarial losses at December 31, 2014 and 2013 were $662 million and $480 million. The unrecognized prior service credit at December 31, 2014 was $121 million and at December 31, 2013 was not material. The expense associated with these plans totaled $115 million in 2014, $108 million in 2013 and $107 million in 2012. We also sponsor a small number of other postemployment plans and foreign benefit plans. The aggregate liability for the other postemployment plans was $88 million and $108 million as of December 31, 2014 and 2013. The expense for the other postemployment plans, as well as the liability and expense associated with the foreign benefit plans, was not material to our results of operations, financial position or cash flows. The actuarial assumptions used to determine the benefit obligations and expense associated with our nonqualified defined benefit plans and postemployment plans are similar to those assumptions used to determine the benefit obligations and expense related to our qualified defined benefit pension plans and retiree medical and life insurance plans as described below. |
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The following table provides the amounts recognized in other comprehensive income (loss) related to postretirement benefit plans, net of tax, for the years ended December 31, 2014, 2013 and 2012 (in millions): |
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| | Incurred but Not Yet | | | | | | | | | Recognition of | | | | | | | |
Recognized in Net | | | | | | | |
Periodic Benefit Cost | Previously | | | | | | |
| Deferred Amounts | | | | | | |
| | 2014 | | | 2013 | | | 2012 | | | | | | | | | 2014 | | | 2013 | | | 2012 | | | | | | | |
| | Gains (losses) | | | | | | | | | (Gains) losses | | | | | | | |
Actuarial gains and losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Qualified defined benefit pension plans | | $ | (5,505) | | | $ | 2,751 | | | $ | (2,933 | ) | | | | | | | | $ | 758 | | | $ | 911 | | | $ | 721 | | | | | | | |
Retiree medical and life insurance plans | | | (160) | | | | 140 | | | | (104 | ) | | | | | | | | | 15 | | | | 28 | | | | 21 | | | | | | | |
Other plans | | | (245) | | | | 46 | | | | (98 | ) | | | | | | | | | 33 | | | | 34 | | | | 77 | | | | | | | |
| | | (5,910) | | | | 2,937 | | | | (3,135 | ) | | | | | | | | | 806 | | | | 973 | | | | 819 | | | | | | | |
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| | Credit (cost) | | | | | | | | | (Credit) cost | | | | | | | |
Prior service credit and cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Qualified defined benefit pension plans | | | 2,959 | | | | (69) | | | | (73 | ) | | | | | | | | | (98) | | | | 53 | | | | 47 | | | | | | | |
Retiree medical and life insurance plans | | | (3) | | | | — | | | | 4 | | | | | | | | | | 3 | | | | (11) | | | | (8) | | | | | | | |
Other plans | | | 84 | | | | — | | | | — | | | | | | | | | | (5) | | | | — | | | | — | | | | | | | |
| | | 3,040 | | | | (69) | | | | (69 | ) | | | | | | | | | (100) | | | | 42 | | | | 39 | | | | | | | |
| | $ | (2,870) | | | $ | 2,868 | | | $ | (3,204 | ) | | | | | | | | $ | 706 | | | $ | 1,015 | | | $ | 858 | | | | | | | |
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We expect that approximately $1.3 billion, or about $850 million net of tax, of actuarial losses and prior service credit related to postretirement benefit plans included in accumulated other comprehensive loss at the end of 2014 to be recognized in net periodic benefit cost during 2015. Of this amount, $1.2 billion, or $781 million net of tax, primarily relates to actuarial losses associated with our qualified defined benefit plans and is included in our expected 2015 pension expense of $1.1 billion. |
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Actuarial Assumptions |
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The actuarial assumptions used to determine the benefit obligations at December 31 of each year and to determine the net periodic benefit cost for each subsequent year, were as follows: |
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| | Qualified Defined Benefit | | | | | | | Retiree Medical and | | | | | | | | | |
Pension Plans | | | | | | | | | |
| Life Insurance Plans | | | | | | | | |
| | 2014 | | | 2013 | | | 2012 | | | | | | | 2014 | | | 2013 | | | 2012 | | | | | | | | | |
Discount rate | | | 4.00% | | | | 4.75% | | | | 4.00% | | | | | | | | 3.75% | | | | 4.50% | | | | 3.75% | | | | | | | | | |
Expected long-term rate of return on assets | | | 8.00% | | | | 8.00% | | | | 8.00% | | | | | | | | 8.00% | | | | 8.00% | | | | 8.00% | | | | | | | | | |
Rate of increase in future compensation levels | | | 4.30% | | | | 4.30% | | | | 4.30% | | | | | | | | | | | | | | | | | | | | | | | | | |
Health care trend rate assumed for next year | | | | | | | | | | | | | | | | | | | 8.50% | | | | 8.75% | | | | 9.00% | | | | | | | | | |
Ultimate health care trend rate | | | | | | | | | | | | | | | | | | | 5.00% | | | | 5.00% | | | | 5.00% | | | | | | | | | |
Year that the ultimate health care trend rate is reached | | | | | | | | | | | | | | | | | | | 2029 | | | | 2029 | | | | 2029 | | | | | | | | | |
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The decrease in the discount rate from December 31, 2013 to December 31, 2014 resulted in an increase in the projected benefit obligations of our qualified defined benefit pension plans of approximately $4.8 billion at December 31, 2014. The increase in the discount rate from December 31, 2012 to December 31, 2013 resulted in a decrease in the projected benefit obligations of our qualified defined benefit pension plans of approximately $4.4 billion at December 31, 2013. |
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The long-term rate of return assumption represents the expected long-term rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. That assumption is based on several factors including historical market index returns, the anticipated long-term allocation of plan assets, the historical return data for the trust funds, plan expenses and the potential to outperform market index returns. |
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Plan Assets |
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Investment policies and strategies – Lockheed Martin Investment Management Company (LMIMCo), our wholly-owned subsidiary, has the fiduciary responsibility for making investment decisions related to the assets of our postretirement benefit plans. LMIMCo’s investment objectives for the assets of these plans are (1) to minimize the net present value of expected funding contributions; (2) to ensure there is a high probability that each plan meets or exceeds our actuarial long- term rate of return assumptions; and (3) to diversify assets to minimize the risk of large losses. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. |
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Investment policies and strategies governing the assets of the plans are designed to achieve investment objectives within prudent risk parameters. Risk management practices include the use of external investment managers; the maintenance of a portfolio diversified by asset class, investment approach and security holdings; and the maintenance of sufficient liquidity to meet benefit obligations as they come due. |
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LMIMCo’s investment policies require that asset allocations of postretirement benefit plans be maintained within the following approximate ranges: |
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Asset Class | | Asset Allocation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ranges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | 0-20% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity | | 15-65% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed income | | 10-60% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Alternative investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Private equity funds | | 0-15% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate funds | | 0-10% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Hedge funds | | 0-20% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commodities | | 0-25% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Fair value measurements – The rules related to accounting for postretirement benefit plans under GAAP require certain fair value disclosures related to postretirement benefit plan assets, even though those assets are not included on our Balance Sheets. The following table presents the fair value of the assets (in millions) of our qualified defined benefit pension plans and retiree medical and life insurance plans by asset category and their level within the fair value hierarchy, which has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs. |
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| | December 31, 2014 | | | | | | | December 31, 2013 | |
| | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
Cash and cash equivalents (a) | | $ | 2,968 | | | $ | 2,968 | | | | $ — | | | $ | — | | | | | | | $ | 2,176 | | | $ | 2,176 | | | | $ — | | | $ | — | |
Equity (a): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. equity securities | | | 6,431 | | | | 6,363 | | | | 67 | | | | 1 | | | | | | | | 5,368 | | | | 5,274 | | | | 94 | | | | — | |
International equity securities | | | 5,566 | | | | 5,525 | | | | 31 | | | | 10 | | | | | | | | 5,008 | | | | 4,912 | | | | 89 | | | | 7 | |
Commingled equity funds | | | 6,078 | | | | 2,047 | | | | 4,031 | | | | — | | | | | | | | 6,037 | | | | 1,212 | | | | 4,825 | | | | — | |
Fixed income (a): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | | 4,242 | | | | — | | | | 4,201 | | | | 41 | | | | | | | | 2,986 | | | | — | | | | 2,943 | | | | 43 | |
U.S. Government securities | | | 4,579 | | | | — | | | | 4,579 | | | | — | | | | | | | | 6,553 | | | | — | | | | 6,553 | | | | — | |
U.S. Government-sponsored enterprise securities | | | 613 | | | | — | | | | 613 | | | | — | | | | | | | | 1,451 | | | | — | | | | 1,451 | | | | — | |
Other fixed income investments | | | 1,807 | | | | 39 | | | | 1,759 | | | | 9 | | | | | | | | 1,388 | | | | — | | | | 1,293 | | | | 95 | |
Alternative investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Private equity funds | | | 2,952 | | | | — | | | | — | | | | 2,952 | | | | | | | | 2,601 | | | | — | | | | — | | | | 2,601 | |
Real estate funds | | | 762 | | | | — | | | | 33 | | | | 729 | | | | | | | | 601 | | | | — | | | | 29 | | | | 572 | |
Hedge funds | | | 570 | | | | — | | | | 66 | | | | 504 | | | | | | | | 551 | | | | — | | | | 46 | | | | 505 | |
Commodities (a) | | | 2 | | | | 2 | | | | — | | | | — | | | | | | | | 156 | | | | 156 | | | | — | | | | — | |
Total | | $ | 36,570 | | | $ | 16,944 | | | | $15,380 | | | $ | 4,246 | | | | | | | $ | 34,876 | | | $ | 13,730 | | | | $17,323 | | | $ | 3,823 | |
Receivables, net | | | 35 | | | | | | | | | | | | | | | | | | | | 55 | | | | | | | | | | | | | |
Total | | $ | 36,605 | | | | | | | | | | | | | | | | | | | $ | 34,931 | | | | | | | | | | | | | |
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(a) | Cash and cash equivalents, equity securities, fixed income securities and commodities included derivative assets and liabilities whose fair values were not material as of December 31, 2014 and 2013. LMIMCo’s investment policies restrict the use of derivatives to either establish long exposures for purposes of expediency or capital efficiency or to hedge risks to the extent of a plan’s current exposure to such risks. Most derivative transactions are settled on a daily basis. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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As of December 31, 2014 and 2013, the assets associated with our foreign defined benefit pension plans were not material and have not been included in the table above. |
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The following table presents the changes during 2014 and 2013 in the fair value of plan assets categorized as Level 3 in the preceding table (in millions): |
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| | Private | | | Real | | | Hedge | | | Other | | | Total | | | | | | | | | | | | | | | | | |
| Estate | | | | | | | | | | | | | | | | | |
Equity | | Funds | | | | | | | | | | | | | | | | |
| Funds | | | | | | | | | | | | | | | | | |
Funds | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2013 | | | $2,461 | | | | $504 | | | | $ 806 | | | | $131 | | | $ | 3,902 | | | | | | | | | | | | | | | | | |
Actual return on plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized gains, net | | | 144 | | | | 43 | | | | 21 | | | | 4 | | | | 212 | | | | | | | | | | | | | | | | | |
Unrealized gains, net | | | 42 | | | | 19 | | | | 104 | | | | 1 | | | | 166 | | | | | | | | | | | | | | | | | |
Purchases, sales and settlements, net | | | -46 | | | | (3 | ) | | | (394 | ) | | | 2 | | | | (441) | | | | | | | | | | | | | | | | | |
Transfers into (out of) Level 3, net | | | — | | | | 9 | | | | (32 | ) | | | 7 | | | | (16) | | | | | | | | | | | | | | | | | |
Balance at December 31, 2013 | | | $2,601 | | | | $572 | | | | $ 505 | | | | $145 | | | | $3,823 | | | | | | | | | | | | | | | | | |
Actual return on plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized gains, net | | | 182 | | | | 43 | | | | 34 | | | | 1 | | | | 260 | | | | | | | | | | | | | | | | | |
Unrealized gains (losses), net | | | 38 | | | | 22 | | | | (11 | ) | | | (21 | ) | | | 28 | | | | | | | | | | | | | | | | | |
Purchases, sales and settlements, net | | | 131 | | | | 92 | | | | (24 | ) | | | 8 | | | | 207 | | | | | | | | | | | | | | | | | |
Transfers out of Level 3, net | | | — | | | | — | | | | — | | | | (72 | ) | | | (72) | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 | | | $2,952 | | | | $729 | | | | $ 504 | | | | $ 61 | | | | $4,246 | | | | | | | | | | | | | | | | | |
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Valuation techniques – Cash equivalents are mostly comprised of short-term money-market instruments and are valued at cost, which approximates fair value. |
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U.S. equity securities and international equity securities categorized as Level 1 are traded on active national and international exchanges and are valued at their closing prices on the last trading day of the year. For U.S. equity securities and international equity securities not traded on an active exchange, or if the closing price is not available, the trustee obtains indicative quotes from a pricing vendor, broker or investment manager. These securities are categorized as Level 2 if the custodian obtains corroborated quotes from a pricing vendor or categorized as Level 3 if the custodian obtains uncorroborated quotes from a broker or investment manager. |
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Commingled equity funds are investment vehicles valued using the Net Asset Value (NAV) provided by the fund managers. The NAV is the total value of the fund divided by the number of shares outstanding. Commingled equity funds are categorized as Level 1 if traded at their NAV on a nationally recognized securities exchange or categorized as Level 2 if the NAV is corroborated by observable market data (e.g., purchases or sales activity) and we are able to redeem our investment in the near-term. |
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Fixed income investments categorized as Level 2 are valued by the trustee using pricing models that use verifiable observable market data (e.g., interest rates and yield curves observable at commonly quoted intervals and credit spreads), bids provided by brokers or dealers or quoted prices of securities with similar characteristics. Fixed income investments are categorized at Level 3 when valuations using observable inputs are unavailable. The trustee obtains pricing based on indicative quotes or bid evaluations from vendors, brokers or the investment manager. |
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Private equity funds, real estate funds and hedge funds are valued using the NAV based on valuation models of underlying securities which generally include significant unobservable inputs that cannot be corroborated using verifiable observable market data. Valuations for private equity funds and real estate funds are determined by the general partners. Depending on the nature of the assets, the general partners may use various valuation methodologies, including the income and market approaches in their models. The market approach consists of analyzing market transactions for comparable assets while the income approach uses earnings or the net present value of estimated future cash flows adjusted for liquidity and other risk factors. Hedge funds are valued by independent administrators using various pricing sources and models based on the nature of the securities. Private equity funds, real estate funds and hedge funds are generally categorized as Level 3 as we cannot fully redeem our investment in the near-term. |
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Commodities are traded on an active commodity exchange and are valued at their closing prices on the last trading day of the year. |
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Contributions and Expected Benefit Payments |
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The funding of our qualified defined benefit pension plans is determined in accordance with ERISA, as amended by the PPA, and in a manner consistent with CAS and Internal Revenue Code rules. In 2014, we made contributions of $2.0 billion related to our qualified defined benefit pension plans. We do not plan to make contributions to our qualified defined benefit pension plans in 2015 through 2017 because none are required using current assumptions. |
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The following table presents estimated future benefit payments, which reflect expected future employee service, as of December 31, 2014 (in millions): |
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| | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 - 2024 | | | | | | | | | | | | | |
Qualified defined benefit pension plans | | $ | 2,070 | | | $ | 2,150 | | | $ | 2,230 | | | $ | 2,320 | | | $ | 2,420 | | | | $13,430 | | | | | | | | | | | | | |
Retiree medical and life insurance plans | | | 190 | | | | 200 | | | | 200 | | | | 210 | | | | 210 | | | | 1,020 | | | | | | | | | | | | | |
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Defined Contribution Plans |
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We maintain a number of defined contribution plans, most with 401(k) features, that cover substantially all of our employees. Under the provisions of our 401(k) plans, we match most employees’ eligible contributions at rates specified in the plan documents. Our contributions were $385 million in 2014, $383 million in 2013 and $380 million in 2012, the majority of which were funded in our common stock. Our defined contribution plans held approximately 41.7 million and 44.7 million shares of our common stock as of December 31, 2014 and 2013. |