Defined Benefit Postretirement Plans and Defined Contribution Plan

We have noncontributory defined benefit pension plans covering substantially all domestic employees as well as international employees located in the U.K. Benefits under these plans are based on plan provisions specific to each plan.

We also have defined benefit plans for other postretirement benefits covering our U.S. employees. Health care benefits are provided through comprehensive hospital, surgical and major medical benefit provisions subject to various cost-sharing features. Life insurance benefits are provided to certain retiree beneficiaries. Other postretirement benefits are not funded in advance.

Obligations and funded status – The accumulated benefit obligation for all defined benefit pension plans was $1,403 million and $1,359 million as of December 31, 2014 and 2013.

As of December 31, 2014 and 2013, our U.S. plans had accumulated benefit obligations in excess of plan assets. Summary information for these defined benefit pension plans follows.



	December 31,
(In millions)	2014			2013
Projected benefit obligation	$	(894	)	$	(933	)
Accumulated benefit obligation	(793		)	(791		)
Fair value of plan assets	574			625

The following summarizes the obligations and funded status for our defined benefit pension and other postretirement plans.



	Pension Benefits
	2014						2013						Other Benefits
(In millions)	U.S.			Int’l			U.S.			Int’l			2014			2013
Change in benefit obligations:
Beginning balance	$	933		$	649		$	1,146		$	565		$	279		$	311
Service cost	31			16			33			22			3			4
Interest cost	35			27			40			24			13			12
Plan amendment^(a)	—			—			—			—			(42		)	—
Actuarial loss (gain)^(b)	174			46			(140		)	40			42			(31		)
Foreign currency exchange rate changes	—			(39		)	—			11			—			—
Divestiture^(c)	—			(29		)	—			—			—			—
Benefits paid	(279		)	(19		)	(146		)	(13		)	(16		)	(17		)
Ending balance	$	894		$	651		$	933		$	649		$	279		$	279
Change in fair value of plan assets:
Beginning balance	$	625		$	597		$	630		$	500		$	—		$	—
Actual return on plan assets	59			59			65			74			—			—
Employer contributions	169			37			76			23			—			—
Foreign currency exchange rate changes	—			(39		)	—			13			—			—
Divestiture^(c)	—			(13		)	—			—			—			—
Benefits paid	(279		)	(19		)	(146		)	(13		)	—			—
Ending balance	$	574		$	622		$	625		$	597		$	—		$	—
Funded status of plans at December 31	$	(320	)	$	(29	)	$	(308	)	$	(52	)	$	(279	)	$	(279	)
Amounts recognized in the consolidated balance sheets:
Current liabilities	(11		)	—			(16		)	—			(19		)	(19		)
Noncurrent liabilities	(309		)	(29		)	(292		)	(52		)	(260		)	(260		)
Accrued benefit cost	$	(320	)	$	(29	)	$	(308	)	$	(52	)	$	(279	)	$	(279	)
Pretax amounts in accumulated other comprehensive loss:
Net loss (gain)	$	283		$	91		$	262		$	59		$	34		$	(8	)
Prior service cost (credit)	10			8			15			9			(41		)	(5		)


^(a)	Represents a change in plan design related to the health care benefits provided under the postretirement plan.


^(b)	Includes the increase in the U.S. pension and postretirement benefit obligations of $13 million and $15 million respectively, due to the adoption of the 2014 mortality table.


^(c)	Related to the sale of our Norway business in the fourth quarter of 2014.

Components of net periodic benefit cost from continuing operations and other comprehensive (income) loss – The following summarizes the net periodic benefit costs and the amounts recognized as other comprehensive (income) loss for our defined benefit pension and other postretirement plans.



	Pension Benefits
	Year Ended December 31,																		Other Benefits
	2014						2013						2012						Year Ended December 31,
(In millions)	U.S.			Int’l			U.S.			Int’l			U.S.			Int’l			2014			2013			2012
Components of net periodic benefit cost:
Service cost	$	31		$	16		$	33		$	17		$	31		$	15		$	3		$	4		$	4
Interest cost	35			27			40			23			42			22			13			12			14
Expected return on plan assets	(34		)	(32		)	(43		)	(24		)	(43		)	(23		)	—			—			—
Amortization:
- prior service cost (credit)	5			1			6			1			7			1			(6		)	(6		)	(7		)
- actuarial loss	29			1			43			4			48			4			—			—			—
Net settlement loss^(a)	99			—			45			—			45			—			—			—			—
Net periodic benefit cost^(b)	$	165		$	13		$	124		$	21		$	130		$	19		$	10		$	10		$	11
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss (pretax):
Actuarial loss (gain)^(c)	$	149		$	33		$	(161	)	$	(15	)	$	172		$	14		$	42		$	(31	)	$	7
Amortization of actuarial (loss) gain	(128		)	(1		)	(88		)	(4		)	(93		)	(4		)	—			—			—
Prior service cost (credit)	—			—			—			—			—			1			(42		)	—			—
Amortization of prior service credit (cost)	(5		)	(1		)	(6		)	(1		)	(7		)	(1		)	6			6			7
Total recognized in other comprehensive (income) loss	$	16		$	31		$	(255	)	$	(20	)	$	72		$	10		$	6		$	(25	)	$	14
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	181		$	44		$	(131	)	$	1		$	202		$	29		$	16		$	(15	)	$	25


^(a)	Settlement losses are recorded when lump sum payments from a plan in a period exceed the plan’s total service and interest costs for the period. Such settlements occurred in one or more of our U.S. pension plans in all periods presented.


^(b)	Net periodic benefit cost reflects a calculated market-related value of plan assets which recognizes changes in fair value over three years.


^(c)	Includes the impact of the sale of our Norway business in the fourth quarter of 2014.

The estimated net loss and prior service cost for our defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2015 are $27 million and $6 million. The estimated net loss and prior service credit for our other defined benefit postretirement plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2015 are $1 million and $4 million.

Plan assumptions – The following summarizes the assumptions used to determine the benefit obligations at December 31, and net periodic benefit cost for the defined benefit pension and other postretirement plans for 2014, 2013 and 2012.



	Pension Benefits
	2014				2013				2012				Other Benefits
(In millions)	U.S.		Int’l		U.S.		Int’l		U.S.		Int’l		2014		2013		2012
Weighted average assumptions used to determine benefit obligation:
Discount rate	3.71	%	3.70	%	4.28	%	4.60	%	3.44	%	4.40	%	4.01	%	4.85	%	4.06	%
Rate of compensation increase	4.00	%	3.60	%	5.00	%	4.90	%	5.00	%	4.50	%	4.00	%	5.00	%	5.00	%
Weighted average assumptions used to determine net periodic benefit cost:
Discount rate	3.98	%	4.60	%	3.79	%	4.40	%	4.21	%	4.70	%	4.69	%	4.06	%	4.90	%
Expected long-term return on plan assets	6.75	%	5.70	%	7.25	%	4.90	%	7.75	%	5.20	%	—		—		—
Rate of compensation increase	5.00	%	4.90	%	5.00	%	4.50	%	5.00	%	4.30	%	5.00	%	5.00	%	5.00	%

Expected long-term return on plan assets

U.S. plan – The expected long-term return on plan assets assumption for our U.S. funded plan is determined based on an asset rate-of-return modeling tool developed by a third-party investment group. The tool utilizes underlying assumptions based on actual returns by asset category and inflation and takes into account our U.S. pension plan’s asset allocation to derive an expected long-term rate of return on those assets.

International plans – To determine the expected long-term return on plan assets assumption for our international plans, we consider the current level of expected returns on risk-free investments (primarily government bonds), the historical levels of the risk premiums associated with the other applicable asset categories and the expectations for future returns of each asset class. The expected return for each asset category is then weighted based on the actual asset allocation in our international pension plans to develop the overall expected long-term return on plan assets assumption.

Assumed weighted average health care cost trend rates



	2014		2013		2012
Initial health care trend rate	6.88	%	6.89	%	7.24	%
Ultimate trend rate	5.00	%	5.00	%	5.00	%
Year ultimate trend rate is reached	2024		2020		2019

Prior to a recent plan amendment, the assumed health care cost trend rates had a significant effect on the amounts reported for our defined benefit retiree health care plans. After the plan amendment, the employer provided subsidy for post-65 retiree health care coverage will only increase by the consumer price index (not to exceed 4 percent) each year. Company contributions would be funded to a Health Reimbursement Account on the retiree’s behalf to subsidize the retiree’s cost of obtaining health care benefits through a private exchange. Therefore, a one-percentage-point change in health care cost trend rates would not have a material impact on either the service and interest cost components and the postretirement benefit obligations.

Plan investment policies and strategies – The investment policies for our U.S. and international pension plan assets reflect the funded status of the plans and expectations regarding our future ability to make further contributions. Long-term investment goals are to: (1) manage the assets in accordance with the legal requirements of all applicable laws; (2) produce investment returns which meet or exceed the rates of return achievable in the capital markets while maintaining the risk parameters set by the plan's investment committees and protecting the assets from any erosion of purchasing power; and (3) position the portfolios with a long-term risk/return orientation.

U.S. plan – The plan’s current targeted asset allocation is comprised of 55 percent equity securities and 45 percent other fixed income securities. Over time, as the plan’s funded ratio (as defined by the investment policy) improves, in order to reduce volatility in returns and to better match the plan’s liabilities, the allocation to equity securities will decrease while the amount allocated to fixed income securities will increase. The plan's assets are managed by a third-party investment manager. Investment performance and risk is measured and monitored on an ongoing basis through quarterly investment meetings and periodic asset and liability studies.

International plan – Our international plan's target asset allocation is comprised of 62.5 percent equity securities and 37.5 percent fixed income securities. The plan assets are invested in eight separate portfolios, mainly pooled fund vehicles, managed by several professional investment managers. The investment managers' performance is measured independently by a third-party asset servicing consulting firm. Overall, investment performance and risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews and periodic asset and liability studies.

Fair value measurements – Plan assets are measured at fair value. The following provides a description of the valuation techniques employed for each major plan asset class at December 31, 2014 and 2013.

Cash and cash equivalents – Cash and cash equivalents are valued using a market approach and are considered Level 1. This investment also includes a cash reserve account (a collective short-term investment fund) that is valued using an income approach and is considered Level 2.

Equity securities – Investments in common stock, preferred stock, and real estate investment trusts ("REIT") are valued using a market approach at the closing price reported in an active market and are therefore considered Level 1. Private equity investments include interests in limited partnerships which are valued based on the sum of the estimated fair values of the investments held by each partnership. These private equity investments are considered Level 3.

Mutual funds – Investments in mutual funds are valued using a market approach. The shares or units held are traded on the public exchanges and are therefore considered Level 1.

Pooled funds – Investments in pooled funds are valued using a market approach at the net asset value ("NAV") of units held. The various funds consist of either an equity or fixed income investment portfolio with underlying investments held in U.S. and non-U.S. securities. Nearly all of the underlying investments are publicly-traded. The majority of the pooled funds are benchmarked against a relative public index. These are considered Level 2.

Fixed income securities – Fixed income securities are valued using a market approach. U.S. treasury notes and exchange traded funds ("ETFs") are valued at the closing price reported in an active market, and are considered Level 1. Corporate bonds and other bonds are valued using calculated yield curves created by models that incorporate various market factors and are considered Level 2. The investment in the commingled fund is valued using the NAV of units held, and is considered Level 2. The commingled fund consists of an equity and fixed income portfolio with underlying investments held in U.S. and non-U.S. securities.

Other – Other investments are composed of an international insurance carrier contract and the majority of the underlying investments consist of a mix of non-U.S. publicly traded equity securities valued at the closing price reported in an active market and fixed income securities valued using calculated yield curves. This asset is considered Level 2. The other investments, an unallocated annuity contract, two limited liability companies and real estate are considered Level 3, as inputs to determine fair value are unobservable and significant to the overall fair value measurement.

The following tables present the fair values of our defined benefit pension plan's assets, by level within the fair value hierarchy, as of December 31, 2014 and 2013.



	December 31, 2014
(In millions)	Level 1				Level 2				Level 3				Total
	U.S.		Int’l		U.S.		Int’l		U.S.		Int’l		U.S.		Int’l
Cash and cash equivalents	$	26	$	1	$	—	$	—	$	—	$	—	$	26	$	1
Equity securities:
Common and preferred stock^(a)	230		—		—		—		—		—		230		—
Private equity	—		—		—		—		25		—		25		—
Mutual and pooled funds^(b)	—		221		—		164		—		—		—		385
Fixed income securities:
U.S. treasury notes and ETFs	33		—		—		—		—		—		33		—
Corporate and other bonds^(c)	—		—		190		—		—		—		190		—
Commingled and pooled funds^(d)	—		—		40		236		—		—		40		236
Other	—		—		—		—		30		—		30		—
Total investments, at fair value	$	289	$	222	$	230	$	400	$	55	$	—	$	574	$	622



	December 31, 2013
(In millions)	Level 1				Level 2				Level 3				Total
	U.S.		Int’l		U.S.		Int’l		U.S.		Int’l		U.S.		Int’l
Cash and cash equivalents	$	19	$	1	$	1	$	—	$	—	$	—	$	20	$	1
Equity securities:
Common and preferred stock^(a)	292		—		—		—		—		—		292		—
REIT and private equity	2		—		—		—		23		—		25		—
Mutual and pooled funds^(b)	—		219		—		186		—		—		—		405
Fixed income securities:													—		—
U.S. treasury notes and ETFs	65		—		—		—		—		—		65		—
Corporate and other bonds^(c)	—		—		172		—		—		—		172		—
Commingled and pooled funds^(d)	—		—		17		178		—		—		17		178
Other	—		—		—		13		34		—		34		13
Total investments, at fair value	$	378	$	220	$	190	$	377	$	57	$	—	$	625	$	597


^(a)	Primarily investments held in U.S. and non-U.S. common stocks in diverse industries.


^(b)	Mutual funds - Primarily investments held in U.S. and non-U.S. common stocks in diverse industries.

Pooled funds - Primarily investments held in non-U.S. publicly traded common stocks in diverse industries.


^(c)	Corporate bonds - Primarily investments held in U.S. and non-U.S. corporate bonds in diverse industries.

Other bonds - Primarily consist of securities issued by governmental agencies and municipalities.


^(d)	Pooled funds - Primarily investments held in U.S. and non-U.S. publicly traded investment grade government and corporate bonds.

The activity during the year ended December 31, 2014 and 2013, for the assets using Level 3 fair value measurements was immaterial.

Cash flows

Estimated future benefit payments – The following gross benefit payments, which were estimated based on actuarial assumptions applied at December 31, 2014 and reflect expected future services, as appropriate, are to be paid in the years indicated.



	Pension Benefits				Other
(In millions)	U.S.		Int’l		Benefits
2015	$	80	$	15	$	19
2016	78		17		19
2017	83		19		19
2018	79		22		19
2019	74		23		19
2020 through 2024	299		128		93

Contributions to defined benefit plans – We expect to make contributions to the funded pension plans of up to $95 million in 2015. Cash contributions to be paid from our general assets for the unfunded pension and postretirement plans are expected to be approximately $11 million and $19 million in 2015.

Contributions to defined contribution plan – We contribute to a defined contribution plan for eligible employees. Contributions to this plan totaled $24 million, $26 million and $25 million in 2014, 2013 and 2012.