Benefit Plans and Other Postretirement Benefits

NRG sponsors and operates defined benefit pension and other postretirement plans. As part of the GenOn acquisition, discussed in Note 3, Business Acquisitions and Dispositions, NRG assumed GenOn's defined benefit pension plans and other postretirement benefit plans, and GenOn's benefit plan obligations were recorded at fair value at the time of the acquisition. NRG expects to contribute $29 million to the Company's pension plans in 2015.

NRG pension benefits are available to eligible non-union and union employees through various defined benefit pension plans. These benefits are based on pay, service history and age at retirement. Most pension benefits are provided through tax-qualified plans. Certain executive pension benefits that cannot be provided by the tax-qualified plans are provided through unfunded non-tax-qualified plans. NRG also provides postretirement health and welfare benefits for certain groups of employees. Cost sharing provisions vary by the terms of any applicable collective bargaining agreements.

As part of the change in control associated with the GenOn acquisition, NRG decided to terminate/settle the nonqualified legacy GenOn Benefit Restoration Plan and Supplemental Executive Retirement Plan. Final settlement payments totaling $12 million were paid to remaining participants during 2014.

NRG Defined Benefit Plans

The annual net periodic benefit cost/(credit) related to NRG's pension and other postretirement benefit plans include the following components:



	Year Ended December 31,
	Pension Benefits
	2014			2013			2012
	(In millions)
Service cost benefits earned	$	30		$	30		$	14
Interest cost on benefit obligation	53			47			23
Expected return on plan assets	(62		)	(55		)	(23		)
Amortization of unrecognized net (gain)/loss	(6		)	9			4
Curtailment	—			(1		)	—
Net periodic benefit cost	$	15		$	30		$	18



	Year Ended December 31,
	Other Postretirement Benefits
	2014			2013		2012
	(In millions)
Service cost benefits earned	$	3		$	4	$	2
Interest cost on benefit obligation	9			9		6
Amortization of unrecognized prior service credit	(17		)	—		—
Amortization of unrecognized net loss	—			—		1
Net periodic benefit (credit)/cost	$	(5	)	$	13	$	9

A comparison of the pension benefit obligation, other postretirement benefit obligations and related plan assets for NRG's plans on a combined basis is as follows:



	As of December 31,
	Pension Benefits						Other Postretirement Benefits
	2014			2013			2014			2013
	(In millions)
Benefit obligation at January 1	$	1,060		$	1,147		$	191		$	220
Obligations resulting from the EME acquisition	43			—			16			—
Service cost	30			30			3			4
Interest cost	53			47			9			9
Plan amendments	—			5			(18		)	(4		)
Actuarial (gain)/loss	174			(125		)	46			(29		)
Employee and retiree contributions	—			—			3			2
Benefit payments	(55		)	(43		)	(12		)	(11		)
Curtailment	—			(1		)	—			—
Benefit obligation at December 31	1,305			1,060			238			191
Fair value of plan assets at January 1	880			757			—			—
Actual return on plan assets	85			116			—			—
Employee contributions	—			—			3			2
Employer contributions	78			50			9			9
Benefit payments	(55		)	(43		)	(12		)	(11		)
Fair value of plan assets at December 31	988			880			—			—
Funded status at December 31 — excess of obligation over assets	$	(317	)	$	(180	)	$	(238	)	$	(191	)

Amounts recognized in NRG's balance sheets were as follows:



	As of December 31,
	Pension Benefits				Other Postretirement Benefits
	2014		2013		2014		2013
	(In millions)
Current liabilities	$	—	$	12	$	10	$	9
Non-current liabilities	317		168		228		182

Amounts recognized in NRG's accumulated OCI that have not yet been recognized as components of net periodic benefit cost were as follows:



	As of December 31,
	Pension Benefits					Other Postretirement Benefits
	2014		2013			2014			2013
	(In millions)
Net loss/(gain)	$	101	$	(57	)	$	34		$	(12	)
Prior service cost/(credit)	4		4			(7		)	(6		)

Other changes in plan assets and benefit obligations recognized in OCI were as follows:



	Year Ended December 31,
	Pension Benefits					Other Postretirement Benefits
	2014		2013			2014			2013
	(In millions)
Net actuarial loss/(gain)	$	152	$	(188	)	$	46		$	(29	)
Amortization of net actuarial loss/(gain)	6		(9		)	—			—
Prior service cost/(credit)	—		5			(18		)	(4		)
Amortization of prior service cost	—		—			17			—
Curtailment	—		1			—			—
Total recognized in other comprehensive loss/(income)	$	158	$	(191	)	$	45		$	(33	)
Total recognized in net periodic pension cost/(credit) and other comprehensive loss/(income)	$	173	$	(161	)	$	40		$	(20	)

The change in net actuarial loss(gain) from 2013 to 2014 primarily reflects the use of an updated mortality table and the change in discount rates described below. The Company's estimated unrecognized loss and unrecognized prior service cost for NRG's pension plan that will be amortized from accumulated OCI to net periodic cost over the next fiscal year is approximately $2 million. The Company's estimated unrecognized loss and unrecognized prior service credit for NRG's postretirement plan that will be amortized from accumulated OCI to net periodic cost over the next fiscal year is $1 million and $(4) million, respectively.

The following table presents the balances of significant components of NRG's pension plan:



	As of December 31,
	Pension Benefits
	2014		2013
	(In millions)
Projected benefit obligation	$	1,305	$	1,060
Accumulated benefit obligation	1,172		967
Fair value of plan assets	988		880

NRG's market-related value of its plan assets is the fair value of the assets. The fair values of the Company's pension plan assets by asset category and their level within the fair value hierarchy are as follows:



	Fair Value Measurements as of December 31, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Total
	(In millions)
Common/collective trust investment — U.S. equity	$	—	$	287	$	287
Common/collective trust investment — non-U.S. equity	—		149		149
Common/collective trust investment — global equity	—		96		96
Common/collective trust investment — fixed income	—		431		431
Partnerships/joint ventures	—		21		21
Short-term investment fund	4		—		4
Total	$	4	$	984	$	988



	Fair Value Measurements as of December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Total
	(In millions)
Common/collective trust investment — U.S. equity	$	—	$	370	$	370
Common/collective trust investment — non-U.S. equity	—		212		212
Common/collective trust investment — fixed income	—		296		296
Short-term investment fund	2		—		2
Total	$	2	$	878	$	880

In accordance with ASC 820, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety. The fair value of the common/collective trusts is valued at fair value which is equal to the sum of the market value of all of the fund's underlying investments, and is categorized as Level 2. Partnerships/joint ventures Level 2 investments consist primarily of a partnership which invests in emerging market equity securities. There are no investments categorized as Level 3.

The following table presents the significant assumptions used to calculate NRG's benefit obligations:



	As of December 31,
	Pension Benefits				Other Postretirement Benefits
Weighted-Average Assumptions	2014		2013		2014		2013
Discount rate	4.16	%	4.99	%	4.20	%	5.06	%
Rate of compensation increase	3.45	%	3.65	%	N/A		N/A
Health care trend rate	—		—		8.6% grading to 5.0% in 2023		8.5% grading to 5.5% in 2019

The following table presents the significant assumptions used to calculate NRG's benefit expense:



	As of December 31,
	Pension Benefits						Other Postretirement Benefits
Weighted-Average Assumptions	2014		2013		2012		2014		2013		2012
Discount rate	4.99	%	4.16	%	4.95	%	5.06	%	4.31	%	5.15	%
Expected return on plan assets	6.81	%	7.12	%	6.96	%	—		—		—
Rate of compensation increase	3.65	%	3.57	%	4.34	%	—		—		—
Health care trend rate	—		—		—		8.5% grading to 5.5% in 2019		8.3% grading to 5.3% in 2019		8.0% grading to 5.0% in 2019

NRG uses December 31 of each respective year as the measurement date for the Company's pension and other postretirement benefit plans. The Company sets the discount rate assumptions on an annual basis for each of NRG's defined benefit retirement plans as of December 31. The discount rate assumptions represent the current rate at which the associated liabilities could be effectively settled at December 31. The Company utilizes the Aon Hewitt AA Above Median, or AA-AM, yield curve to select the appropriate discount rate assumption for each retirement plan. The AA-AM yield curve is a hypothetical AA yield curve represented by a series of annualized individual spot discount rates from 6 months to 99 years. Each bond issue used to build this yield curve must be non-callable, and have an average rating of AA when averaging available Moody's Investor Services, Standard & Poor's and Fitch ratings.

NRG employs a total return investment approach, whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The Investment Committee reviews the asset mix periodically and as the plan assets increase in future years, the Investment Committee may examine other asset classes such as real estate or private equity. NRG employs a building block approach to determining the long-term rate of return assumption for plan assets, with proper consideration given to diversification and rebalancing. Historical markets are studied and long-term historical relationships between equities and fixed income are preserved, consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are reviewed to check for reasonableness and appropriateness.

The target allocations of NRG's pension plan assets were as follows for the year ended December 31, 2014:



U.S. equity	29	%
Non-U.S. equity	19	%
Global equity	10	%
U.S. fixed income	42	%

Plan assets are currently invested in a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S., non-U.S. and global equities, as well as among growth, value, small and large capitalization stocks.

NRG's expected future benefit payments for each of the next five years, and in the aggregate for the five years thereafter, are as follows:



			Other Postretirement Benefit
	Pension Benefit Payments		Benefit Payments		Medicare Prescription Drug Reimbursements
	(In millions)
2015	$	54	$	10	$	—
2016	59		11		—
2017	61		11		—
2018	66		12		—
2019	72		13		—
2020-2024	424		71		1

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effect:



	1-Percentage- Point Increase		1-Percentage- Point Decrease
	(In millions)
Effect on total service and interest cost components	$	2	$	(1	)
Effect on postretirement benefit obligation	24		(19		)

STP Defined Benefit Plans

NRG has a 44% undivided ownership interest in STP, as discussed further in Note 27, Jointly Owned Plants. STPNOC, which operates and maintains STP, provides its employees a defined benefit pension plan as well as postretirement health and welfare benefits. Although NRG does not sponsor the STP plan, it reimburses STPNOC for 44% of the contributions made towards its retirement plan obligations. For each of the years ending December 31, 2014 and 2013, NRG reimbursed STPNOC $14 million towards its defined benefit plans. In 2015, NRG expects to reimburse STPNOC $10.4 million for its contributions towards the plans.

The Company has recognized the following in its statement of financial position, statement of operations and accumulated OCI related to its 44% interest in STP:



	As of December 31,
	Pension Benefits						Other Postretirement Benefits
	2014			2013			2014			2013
	(In millions)
Funded status — STPNOC benefit plans	$	(71	)	$	(42	)	$	(30	)	$	(52	)
Net periodic benefit costs	6			11			3			8
Other changes in plan assets and benefit obligations recognized in other comprehensive income	37			(31		)	(29		)	(10		)

Defined Contribution Plans

NRG's employees are also eligible to participate in defined contribution 401(k) plans. Upon completion of the GenOn acquisition, NRG assumed GenOn's defined contribution 401(k) plans and amended the plan covering the majority of employees with NRG 401(k) plan features, effective January 1, 2013. On July 5, 2013, the GenOn defined contribution 401(k) plans were merged into the NRG 401(k) plan.

The Company's contributions to these plans were as follows:



	Year Ended December 31,
	2014		2013		2012^(a)
	(In millions)
Company contributions to defined contribution plans	$	47	$	34	$	24


(a)	Includes contributions to former GenOn plans for the period of December 15, 2012 to December 31, 2012.