Employee Retirement Benefits

We sponsor a qualified defined benefit pension plan. During 2008, we changed the form of retirement benefit we offer some associates to a company match on contributions to a 401(k) plan from the defined benefit pension plan. We froze entry into the pension plan for new associates as of June 30, 2008, and only participants 40 years of age or older as of August 31, 2008, could elect to continue to participate. For participants remaining in the pension plan, we continue to contribute to fund future benefit obligations. Benefits for the defined benefit pension plan are based on years of credited service and compensation level. Contributions are based on the prescribed method defined in the Pension Protection Act. Our pension expense is based on certain actuarial assumptions and also is composed of several components that are determined using the projected unit credit actuarial cost method. During the fourth quarters of 2012 and 2011, we offered limited opportunities for distribution of vested balances to terminated participants in the qualified pension plan. The qualified plan was amended to allow for distribution of vested balances to terminated participants on an ongoing basis.

We also sponsor a defined contribution plan (401(k) plan). Matching contributions totaled $10 million, $9 million and $8 million during the years 2013, 2012 and 2011, respectively. Associates who are not accruing benefits under the pension plan are eligible to receive the company match of up to 6 percent of cash compensation. We also pay all operating expenses for the 401(k) plan. Participants vest in the company match for the 401(k) plan after three years of eligible service.

We maintain a supplemental executive retirement plan (SERP) with a benefit obligation of $9 million at both

year-end 2013 and 2012, which are included in the obligation and expense amounts. The company also makes available to a select group of associates the CFC Top Hat Savings Plan, a nonqualified deferred compensation plan.

Defined Benefit Pension Plan Assumptions

We evaluate our pension plan assumptions annually and update them as necessary. This is a summary of the weighted-average assumptions used to determine our benefit obligations at December 31 for the plans:



	Qualified Pension Plan				SERP
	2013		2012		2013		2012
Discount rate	5.15	%	4.20	%	4.80	%	3.95	%
Rate of compensation increase	2.75-3.25		2.75-3.25		2.75-3.25		2.75-3.25

To determine the discount rate for each plan, a hypothetical diversified portfolio of actual domestic Aa rated bonds was chosen to provide payments approximately matching the plan’s expected benefit payments. A single interest rate for each plan was determined based on the anticipated yield of the constructed portfolio. Based on this analysis, we increased the rate from the prior year by 0.95 percentage points for the qualified pension plan and by 0.85 percentage points for the SERP due to market interest rate conditions at year-end 2013. Compensation increase assumptions reflect anticipated rates of inflation, real return on wage growth and merit and promotional increases.

This is a summary of the weighted-average assumptions used to determine our net expense for the plans:



	Qualified Pension Plan						SERP
	2013		2012		2011		2013		2012		2011
Discount rate	4.20	%	5.10	%	5.85	%	3.95	%	4.75	%	5.55	%
Expected return on plan assets	7.50		7.50		7.50		n/a		n/a		n/a
Rate of compensation increase	2.75-3.25		3.50-5.50		3.50-5.50		2.75-3.25		3.50-5.50		3.50-5.50

The discount rate was decreased by 0.90 percentage points for the qualified pension plan and 0.80 percentage points for the SERP due to market interest rate conditions at the beginning of 2013. The discount rate assumptions for our benefit obligation generally track with high grade corporate bond yields chosen in our hypothetical portfolio, and yearly adjustments reflect any changes to those bond yields. We believe the expected return on plan assets is representative of the expected long-term rate of return on these assets which is consistent with 2013 expectations of interest rates and based partially on the fact that the plan’s common stock holdings pay dividends. We believe this rate is representative of the expected long-term rate of return on these plan assets. We review historical actual return on plan assets when determining our expected long-term rate of return. Total portfolio return for 2013 was 24.0 percent. Our compensation increase assumptions in 2013 reflect anticipated rates of inflation, real return on wage growth and merit and promotional increases.

Benefit obligation activity using an actuarial measurement date for our qualified plan and SERP at December 31 follows:



(In millions)	At December 31,
	2013			2012
Change in projected benefit obligation:
Benefit obligation, January 1	$	320		$	281
Service cost	13			12
Interest cost	13			14
Actuarial (gain) loss	(34		)	28
Benefits paid	(28		)	(15		)
Projected benefit obligation, December 31	$	284		$	320

Accumulated benefit obligation	$	257		$	282

Change in plan assets:
Fair value of plan assets, January 1	$	238		$	216
Actual return on plan assets	55			23
Employer contribution	15			14
Benefits paid	(28		)	(15		)
Fair value of plan assets, December 31	$	280		$	238

Funded status, December 31	$	(4	)	$	(82	)

A reconciliation follows of the funded status for our qualified plan and SERP at the end of the measurement period to the amounts recognized in the consolidated balance sheets at December 31:



(In millions)	At December 31,
	2013			2012
Pension amounts recognized in the consolidated balance sheets:
Other assets	$	4		$	—
Other liabilities	(8		)	(82		)
Net amount recognized	$	(4	)	$	(82	)

Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	$	18		$	100
Prior service cost	—			1
Total	$	18		$	101

The change in the amount recognized in other comprehensive income is largely due to the increase in discount rate and corresponding increases in assumed lump sum rates.

Below are the components of our net periodic benefit cost, as well as other changes in plan assets and benefit obligations recognized in other comprehensive income for our qualified plan and SERP at December 31:



(In millions)	Years ended December 31,
	2013			2012			2011
Net periodic benefit cost:
Service cost	$	13		$	12		$	11
Interest cost	13			14			14
Expected return on plan assets	(17		)	(16		)	(16		)
Amortization of actuarial loss and prior service cost	9			8			4
Other	2			0			0
Net periodic benefit cost	$	20		$	18		$	13



(In millions)	Years ended December 31,
	2013			2012			2011
Other changes in plan assets and benefit obligations recognized in
other comprehensive income:
Current year actuarial (gain) loss	$	(72	)	$	20		$	30
Amortization of actuarial loss	(10		)	(6		)	(4		)
Amortization of prior service cost	(1		)	(1		)	(1		)
Total recognized in other comprehensive (income) loss	$	(83	)	$	13		$	25

The total recognized in net periodic benefit cost and other comprehensive income was a net benefit of $63 million for the year ended December 31, 2013. We recognized $31 million and $38 million in net periodic benefit cost and other comprehensive income for the years ended December 31, 2012 and 2011, respectively. The change in the amount recognized in other comprehensive income from 2012 is largely due to increases in discount and lump sum rates and a greater than anticipated return on plan assets. The estimated costs to be amortized from AOCI into net periodic benefit cost over the next year for our plans are a $2 million actuarial loss and less than $1 million in prior service cost.

Defined Benefit Pension Plan Assets

The pension plan assets are managed to maximize total return over the long term while providing sufficient liquidity and current return to satisfy the cash flow requirements of the plan. The plan’s day-to-day investment decisions are managed by our internal investment department; however, overall investment strategies are discussed with our employee benefits committee.

Excluding cash, during 2013 we held approximately 80 percent of our pension portfolio in domestic common equity investments, which reflect the long-term time horizon of pension obligations. The remainder of the portfolio consists of 12 percent in states, municipalities and taxable political subdivisions fixed-maturity investments and 8 percent in domestic corporate fixed-maturity investments. Our common equity portfolio consists of 22 percent in the financial sector, 22 percent in the information technology sector, 12 percent in the healthcare sector and 12 percent in the industrial sector during 2013. No additional sectors accounted for 10 percent or more of our common equity portfolio balance at year-end 2013. We had $19 million of cash on hand at December 31, 2013, to cover

end-of-year retirements. We have purchased more fixed maturities over the past several years to increase the duration of the fixed-maturity portfolio, diversify the types of credit risk and to better match our liability risks, which is consistent with our investment strategy. Our fixed-maturity bond portfolio is investment grade. The plan does not engage in derivative transactions.

Investments in securities are valued based on the fair value hierarchy outlined in Note 3, Fair Value Measurements. The pension plan did not have any liabilities carried at fair value during the years ended December 31, 2013 and 2012. There have been no transfers between Level 1 and Level 2 for the years ended December 31, 2013 and 2012. The following table shows the fair value hierarchy for those assets measured at fair value on a recurring basis at December 31, 2013 and 2012. Excluded from the table below is cash on hand of $19 million and $3 million at December 31, 2013 and 2012.



(In millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At December 31, 2013			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Fixed maturities, available for sale:
States, municipalities and political subdivisions	$	—	$	32	$	—	$	32
Corporate securities	—		21		—		21
Total fixed maturities, available for sale	—		53		—		53
Common equities, available for sale	208		—		—		208
Total	$	208	$	53	$	—	$	261

At December 31, 2012
Fixed maturities, available for sale:
States, municipalities and political subdivisions	$	—	$	36	$	—	$	36
Corporate securities	—		24		—		24
Total fixed maturities, available for sale	—		60		—		60
Common equities, available for sale	175		—		—		175
Total	$	175	$	60	$	—	$	235

Our pension plan assets included 467,113 and 567,113 shares of the company’s common stock at December 31, 2013 and 2012, which had a fair value of $24 million and $22 million at December 31, 2013 and 2012, respectively. The defined benefit pension plan did not purchase any shares of our common stock during 2013 and 2012. During 2013, the pension plan sold 100,000 shares of the company’s common stock for a realized gain of $5 million. No shares of our common stock were sold during 2012. The company paid $1 million in cash dividends on our common stock to the pension plan in both 2013 and 2012.

We contributed $5 million to our qualified plan during the first quarter of 2014 and expect to pay out $2 million of benefit payments from the SERP during 2014. We expect to make the following benefit payments for our qualified plan and SERP, reflecting expected future service:



(In millions)	Years ended December 31,
	2014		2015		2016		2017		2018		2019 - 2023
Expected future benefit payments	$	23	$	25	$	28	$	26	$	24	$	136