RETIREMENT BENEFITS:

Savings and Profit Sharing Plans

We and our subsidiaries sponsor defined contribution savings and profit sharing plans, which collectively cover virtually all eligible employees. Employer matching contributions are calculated using a formula based on employee contributions. We and our subsidiaries made matching contributions of $59 million, $47 million and $30 million to these 401(k) savings plans for the years ended December 31, 2014, 2013 and 2012, respectively.

Pension and Other Postretirement Benefit Plans

Panhandle

Panhandle offered postretirement health care and life insurance plans that were available to substantially all of its employees, pending the retiree meeting certain age and service requirements.

Sunoco, Inc.

Sunoco, Inc. sponsors a defined benefit pension plan, which was frozen for most participants on June 30, 2010. On October 31, 2014, Sunoco, Inc. terminated the plan and anticipates approval for the distribution of assets from the plan, pending approval from the Pension Benefit Guaranty Corporation and the IRS, in the fourth quarter of 2015.

Sunoco, Inc. also has a plan which provides health care benefits for substantially all of its current retirees. The cost to provide the postretirement benefit plan is shared by Sunoco, Inc. and its retirees. Access to postretirement medical benefits was phased out or eliminated for all employees retiring after July 1, 2010. In March, 2012, Sunoco, Inc. established a trust for its postretirement benefit liabilities. Sunoco made a tax-deductible contribution of approximately $200 million to the trust. The funding of the trust eliminated substantially all of Sunoco, Inc.’s future exposure to variances between actual results and assumptions used to estimate retiree medical plan obligations.

Obligations and Funded Status

Pension and other postretirement benefit liabilities are accrued on an actuarial basis during the years an employee provides services. The following table contains information at the dates indicated about the obligations and funded status of pension and other postretirement plans on a combined basis:



	December 31, 2014									December 31, 2013
	Pension Benefits									Pension Benefits
	Funded Plans			Unfunded Plans			Other Postretirement Benefits			Funded Plans			Unfunded Plans			Other Postretirement Benefits
Change in benefit obligation:
Benefit obligation at beginning of period	$	632		$	61		$	223		$	1,117		$	78		$	296
Service cost	—			—			—			3			—			—
Interest cost	28			3			5			33			2			6
Amendments	—			—			1			—			—			2
Benefits paid, net	(45		)	(9		)	(28		)	(99		)	(16		)	(26		)
Actuarial (gain) loss and other	130			10			2			(74		)	(3		)	(14		)
Settlements	(27		)	—			—			(95		)	—			—
Dispositions	—			—			(1		)	(253		)	—			(41		)
Benefit obligation at end of period	718			65			202			632			61			223

Change in plan assets:
Fair value of plan assets at beginning of period	600			—			284			906			—			312
Return on plan assets and other	70			—			6			43			—			17
Employer contributions	—			—			8			—			—			8
Benefits paid, net	(45		)	—			(28		)	(99		)	—			(26		)
Settlements	(27		)	—			—			(95		)	—			—
Dispositions	—			—			(5		)	(155		)	—			(27		)
Fair value of plan assets at end of period	598			—			265			600			—			284

Amount underfunded (overfunded) at end of period	$	120		$	65		$	(63	)	$	32		$	61		$	(61	)

Amounts recognized in the consolidated balance sheets consist of:
Non-current assets	$	—		$	—		$	90		$	—		$	—		$	86
Current liabilities	—			(9		)	(2		)	—			(9		)	(2		)
Non-current liabilities	(120		)	(56		)	(25		)	(32		)	(52		)	(23		)
	$	(120	)	$	(65	)	$	63		$	(32	)	$	(61	)	$	61

Amounts recognized in accumulated other comprehensive loss (pre-tax basis) consist of:
Net actuarial gain	$	18		$	7		$	(20	)	$	(86	)	$	(4	)	$	(25	)
Prior service cost	—			—			17			—			—			18
	$	18		$	7		$	(3	)	$	(86	)	$	(4	)	$	(7	)

The following table summarizes information at the dates indicated for plans with an accumulated benefit obligation in excess of plan assets:



	December 31, 2014					December 31, 2013
	Pension Benefits					Pension Benefits
	Funded Plans		Unfunded Plans		Other Postretirement Benefits	Funded Plans		Unfunded Plans	Other Postretirement Benefits
Projected benefit obligation	$	718	$	65	N/A	$	632	61	N/A
Accumulated benefit obligation	718		65		202	632		61	$	223
Fair value of plan assets	598		—		265	600		—	284

Components of Net Periodic Benefit Cost



	December 31, 2014						December 31, 2013
	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Net periodic benefit cost:
Service cost	$	—		$	—		$	3		$	—
Interest cost	31			5			35			6
Expected return on plan assets	(40		)	(8		)	(54		)	(9		)
Prior service cost amortization	—			1			—			1
Actuarial loss amortization	(1		)	(1		)	2			—
Settlements	(4		)	—			(2		)	—
	(14		)	(3		)	(16		)	(2		)
Regulatory adjustment⁽¹⁾	—			—			5			—
Net periodic benefit cost	$	(14	)	$	(3	)	$	(11	)	$	(2	)

⁽¹⁾

Southern Union, the predecessor of Panhandle, historically recovered certain qualified pension benefit plan and other postretirement benefit plan costs through rates charged to utility customers in its distribution operations. Certain utility commissions require that the recovery of these costs be based on the Employee Retirement Income Security Act of 1974, as amended, or other utility commission specific guidelines. The difference between these regulatory-based amounts and the periodic benefit cost calculated pursuant to GAAP is deferred as a regulatory asset or liability and amortized to expense over periods in which this difference will be recovered in rates, as promulgated by the applicable utility commission.

Assumptions

The weighted-average assumptions used in determining benefit obligations at the dates indicated are shown in the table below:



	December 31, 2014				December 31, 2013
	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Discount rate	3.62	%	2.24	%	4.65	%	2.33	%
Rate of compensation increase	N/A		N/A		N/A		N/A

The weighted-average assumptions used in determining net periodic benefit cost for the periods presented are shown in the table below:



	December 31, 2014				December 31, 2013
	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Discount rate	4.65	%	3.02	%	3.50	%	2.68	%
Expected return on assets:
Tax exempt accounts	7.50	%	7.00	%	7.50	%	6.95	%
Taxable accounts	N/A		4.50	%	N/A		4.42	%
Rate of compensation increase	N/A		N/A		N/A		N/A

The long-term expected rate of return on plan assets was estimated based on a variety of factors including the historical investment return achieved over a long-term period, the targeted allocation of plan assets and expectations concerning future returns in the marketplace for both equity and fixed income securities. Current market factors such as inflation and interest rates are evaluated before long-term market assumptions are determined. Peer data and historical returns are reviewed to ensure reasonableness and appropriateness.

The assumed health care cost trend rates used to measure the expected cost of benefits covered by Panhandle and Sunoco, Inc.’s other postretirement benefit plans are shown in the table below:



	December 31,
	2014		2013
Health care cost trend rate	7.09	%	7.57	%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)	5.41	%	5.42	%
Year that the rate reaches the ultimate trend rate	2018		2018

Changes in the health care cost trend rate assumptions are not expected to have a significant impact on postretirement benefits.

Plan Assets

For the Panhandle plans, the overall investment strategy is to maintain an appropriate balance of actively managed investments with the objective of optimizing longer-term returns while maintaining a high standard of portfolio quality and achieving proper diversification. To achieve diversity within its other postretirement plan asset portfolio, Panhandle has targeted the following asset allocations: equity of 25% to 35%, fixed income of 65% to 75% and cash and cash equivalents of up to 10%.

The investment strategy of Sunoco, Inc. funded defined benefit plans is to achieve consistent positive returns, after adjusting for inflation, and to maximize long-term total return within prudent levels of risk through a combination of income and capital appreciation. The objective of this strategy is to reduce the volatility of investment returns and maintain a sufficient funded status of the plans. In anticipation of the pension plan termination, Sunoco, Inc. targeted the asset allocations to a more stable position by investing in growth assets and liability hedging assets.

The fair value of the pension plan assets by asset category at the dates indicated is as follows:



			Fair Value Measurements at December 31, 2014 Using Fair Value Hierarchy
	Fair Value as of December 31, 2014		Level 1		Level 2		Level 3
Asset category:
Cash and cash equivalents	$	25	$	25	$	—	$	—
Mutual funds⁽¹⁾	110		—		110		—
Fixed income securities	463		—		463		—
Total	$	598	$	25	$	573	$	—


⁽¹⁾	Primarily comprised of approximately 100% equities as of December 31, 2014.



			Fair Value Measurements at December 31, 2013 Using Fair Value Hierarchy
	Fair Value as of December 31, 2013		Level 1		Level 2		Level 3
Asset category:
Cash and cash equivalents	$	12	$	12	$	—	$	—
Mutual funds⁽¹⁾	368		—		281		87
Fixed income securities	220		—		220		—
Total	$	600	$	12	$	501	$	87


⁽¹⁾	Primarily comprised of approximately 41% equities, 45% fixed income securities, and 14% in other investments as of December 31, 2013.

The fair value of other postretirement plan assets by asset category at the dates indicated is as follows:



			Fair Value Measurements at December 31, 2014 Using Fair Value Hierarchy
	Fair Value as of December 31, 2014		Level 1		Level 2		Level 3
Asset category:
Cash and cash equivalents	$	9	$	9	$	—	$	—
Mutual funds⁽¹⁾	131		131		—		—
Fixed income securities	125		—		125		—
Total	$	265	$	140	$	125	$	—


⁽¹⁾	Primarily comprised of approximately 56% equities, 38% fixed income securities and 6% cash as of December 31, 2014.



			Fair Value Measurements at December 31, 2013 Using Fair Value Hierarchy
	Fair Value as of December 31, 2013		Level 1		Level 2		Level 3
Asset category:
Cash and cash equivalents	$	10	$	10	$	—	$	—
Mutual funds⁽¹⁾	130		112		18		—
Fixed income securities	144		—		144		—
Total	$	284	$	122	$	162	$	—


⁽¹⁾	Primarily comprised of approximately 41% equities, 48% fixed income securities, 6% cash, and 5% in other investments as of December 31, 2013.

The Level 1 plan assets are valued based on active market quotes. The Level 2 plan assets are valued based on the net asset value per share (or its equivalent) of the investments, which was not determinable through publicly published sources but was calculated consistent with authoritative accounting guidelines. See Note 2 for information related to the framework used to measure the fair value of its pension and other postretirement plan assets.

Contributions

We expect to contribute approximately $129 million to pension plans and approximately $10 million to other postretirement plans in 2015. The cost of the plans are funded in accordance with federal regulations, not to exceed the amounts deductible for income tax purposes.

Benefit Payments

Panhandle and Sunoco, Inc.’s estimate of expected benefit payments, which reflect expected future service, as appropriate, in each of the next five years and in the aggregate for the five years thereafter are shown in the table below:



	Pension Benefits
Years	Funded Plans		Unfunded Plans		Other Postretirement Benefits (Gross, Before Medicare Part D)
2015	$	717	$	9	$	28
2016	—		8		26
2017	—		7		25
2018	—		7		23
2019	—		6		22
2020 – 2024	—		23		65

The Medicare Prescription Drug Act provides for a prescription drug benefit under Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D.

Panhandle does not expect to receive any Medicare Part D subsidies in any future periods.