Note J. Benefit Plans

Pension and Postretirement Health Care Benefit Plans

CNA sponsors noncontributory defined benefit pension plans, primarily through the CNA Retirement Plan, covering certain eligible employees. These plans are closed to new entrants.

Effective January 1, 2000, the CNA Retirement Plan was closed to new participants. Existing participants at that time were given a choice to either continue to accrue benefits under the CNA Retirement Plan or to cease accruals at December 31, 1999. Employees who chose to continue to accrue benefits under the plan will receive a benefit based on their years of credited service and highest 60 months of compensation at termination. Compensation is defined as regular salary, eligible bonuses and overtime. Employees who elected to cease accruals at December 31, 1999 received the present value of their accrued benefit in an accrued pension account that is credited with interest based on the annual rate of interest on 30-year Treasury securities. These employees also receive certain enhanced employer contributions in the CNA Savings and Capital Accumulation Plan.

CNA's funding policy for defined benefit pension plans is to make contributions in accordance with applicable governmental regulatory requirements with consideration of the funded status of the plans.

During 2014, the CNA Retirement Plan offered a limited-time lump sum settlement payment opportunity to the majority of the terminated vested participants of the plan. The lump sum settlements reduce the Company’s risk and volatility related to funding the CNA Retirement Plan. The number of participants that elected to accept the lump sum opportunity was approximately 20% of the then total participants in the plan. The settlement payments of $253 million were made from CNA Retirement Plan assets. The $84 million settlement charge recorded by the Company in the fourth quarter of 2014 represents recognition of a portion of the unrecognized actuarial losses previously reflected in AOCI. This settlement charge is included in Other operating expenses within the Corporate & Other Non-Core segment.

CNA provides certain health care benefits to eligible retired employees, their covered dependents and their beneficiaries primarily through the CNA Health and Group Benefits Program. These postretirement benefits have largely been eliminated for active employees.

In the second quarter of 2014, the Company eliminated certain postretirement medical benefits associated with the CNA Health and Group Benefits Program. This change was a negative plan amendment which resulted in an $86 million curtailment gain reported in Other operating expenses within the Corporate & Other Non-Core segment. In connection with the plan amendment, the Company remeasured the plan benefit obligation which resulted in a decrease in the discount rate used to determine the benefit obligation from 3.60% to 3.10%.

The following table provides a reconciliation of benefit obligations and plan assets for the years ended December 31, 2014 and 2013.

Funded Status



	Pension Benefits						Postretirement Benefits
(In millions)	2014			2013			2014			2013
Benefit obligation at January 1	$	2,943		$	3,271		$	40		$	47
Changes in benefit obligation:
Service cost	9			12			—			1
Interest cost	132			121			1			1
Participants' contributions	—			—			5			5
Plan amendments	(3		)	—			(7		)	—
Actuarial (gain) loss	367			(289		)	1			(3		)
Benefits paid	(165		)	(165		)	(11		)	(12		)
Settlements	(257		)	(8		)	—			—
Foreign currency translation and other	(7		)	1			—			1
Benefit obligation at December 31	3,019			2,943			29			40
Fair value of plan assets at January 1	2,656			2,425			—			—
Change in plan assets:
Actual return on plan assets	216			311			—			—
Company contributions	12			92			6			7
Participants' contributions	—			—			5			5
Benefits paid	(165		)	(165		)	(11		)	(12		)
Settlements	(257		)	(8		)	—			—
Foreign currency translation and other	(6		)	1			—			—
Fair value of plan assets at December 31	2,456			2,656			—			—
Funded status	$	(563	)	$	(287	)	$	(29	)	$	(40	)
Amounts recognized on the Consolidated Balance Sheets at December 31:
Other assets	$	9		$	9		$	—		$	—
Other liabilities	(572		)	(296		)	(29		)	(40		)
Net amount recognized	$	(563	)	$	(287	)	$	(29	)	$	(40	)
Amounts recognized in Accumulated other comprehensive income, not yet recognized in net periodic cost (benefit):
Prior service credit	$	—		$	—		$	(9	)	$	(98	)
Net actuarial loss	974			745			8			8
Net amount recognized	$	974		$	745		$	(1	)	$	(90	)

The accumulated benefit obligation for all defined benefit pension plans was $2,962 million and $2,889 million at December 31, 2014 and 2013.

The components of net periodic cost (benefit) are presented in the following table.

Net Periodic Cost (Benefit)



Years ended December 31
(In millions)	2014			2013			2012
Pension cost (benefit)
Service cost	$	9		$	12		$	12
Interest cost on projected benefit obligation	132			121			135
Expected return on plan assets	(191		)	(181		)	(171		)
Amortization of net actuarial loss	25			47			39
Settlement loss	84			3			—
Net periodic pension cost (benefit)	$	59		$	2		$	15

Postretirement cost (benefit)
Service cost	$	—		$	1		$	—
Interest cost on projected benefit obligation	1			1			2
Amortization of prior service credit	(10		)	(18		)	(18		)
Amortization of net actuarial loss	1			2			1
Curtailment gain	(86		)	—			—
Net periodic postretirement cost (benefit)	$	(94	)	$	(14	)	$	(15	)

The amounts recognized in Other comprehensive income are presented in the following table.



Years ended December 31
(In millions)	2014			2013			2012
Pension and postretirement benefits
Amounts arising during the period	$	(337	)	$	422		$	(195	)
Curtailment and other	(81		)	—			—
Settlement	84			—			—
Reclassification adjustment relating to prior service credit	(10		)	(18		)	(18		)
Reclassification adjustment relating to actuarial loss	26			49			40
Total increase (decrease) in Other comprehensive income	$	(318	)	$	453		$	(173	)

The table below presents the estimated amounts to be recognized from AOCI into net periodic cost (benefit) during 2015.



(In millions)	Pension Benefits		Postretirement Benefits
Amortization of prior service credit	$	—	$	(2	)
Amortization of net actuarial loss	38		1
Total estimated amounts to be recognized	$	38	$	(1	)

Actuarial assumptions used for the CNA Retirement Plan and CNA Health and Group Benefits Program to determine benefit obligations are set forth in the following table.

Actuarial Assumptions for Benefit Obligations



December 31	2014		2013
Pension benefits
Discount rate	3.850	%	4.650	%
Expected long term rate of return	7.500		7.500
Rate of compensation increases	3.920		3.990
Postretirement benefits
Discount rate	2.500	%	3.600	%

Actuarial assumptions used for the CNA Retirement Plan and CNA Health and Group Benefits Program to determine net cost or benefit are set forth in the following table.

Actuarial Assumptions for Net Cost or Benefit



Years ended December 31	2014		2013		2012
Pension benefits
Discount rate	4.650	%	3.800	%	4.600	%
Expected long term rate of return	7.500		7.750		8.000
Rate of compensation increases	3.990		4.066		4.125
Postretirement benefits
Discount rate	3.600%/3.100%		2.800	%	3.750	%

In determining the expected long term rate of return on plan assets assumption for the CNA Retirement Plan, CNA considered the historical performance of the benefit plan investment portfolio as well as long term market return expectations based on the investment mix of the portfolio.

The CNA Health and Group Benefits Program has limited its share of the health care trend rate to a cost-of-living adjustment of 4% per year. For all participants, the employer subsidy on health care costs will not increase by more than 4% per year. As a result, the assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the CNA Health and Group Benefits Program was 4% per year in 2014, 2013 and 2012.

CNA employs a total return approach whereby a mix of equity, limited partnerships and fixed maturity securities are used to maximize the long term return of retirement plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The target allocation of plan assets is 40% to 60% invested in equity securities and limited partnerships, with the remainder primarily invested in fixed maturity securities. The intent of this strategy is to minimize the Company's expense related to funding the plan by generating investment returns that exceed the growth of the plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. In addition, alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At December 31, 2014, the plan had committed approximately $107 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships. Derivatives may be used to gain market exposure in an efficient and timely manner. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

Pension plan assets measured at fair value on a recurring basis as well as cash are summarized below.



December 31, 2014
(In millions)	Level 1		Level 2		Level 3		Total Assets at Fair Value
Assets
Fixed maturity securities:
Corporate and other bonds	$	—	$	463	$	15	$	478
States, municipalities and political subdivisions	—		80		—		80
Asset-backed:
Residential mortgage-backed	—		123		—		123
Commercial mortgage-backed	—		75		—		75
Other asset-backed	—		12		—		12
Total asset-backed	—		210		—		210
U.S. Treasury and obligations of government-sponsored enterprises	25		—		—		25
Total fixed maturity securities	25		753		15		793
Equity securities	389		118		—		507
Derivative financial instruments	1		—		—		1
Short term investments	33		101		—		134
Limited partnerships:
Hedge funds	—		562		303		865
Private equity	—		—		113		113
Total limited partnerships	—		562		416		978
Other assets	—		30		—		30
Cash	13		—		—		13
Total assets	$	461	$	1,564	$	431	$	2,456



December 31, 2013
(In millions)	Level 1		Level 2		Level 3		Total Assets at Fair Value
Assets
Fixed maturity securities:
Corporate and other bonds	$	—	$	505	$	15	$	520
States, municipalities and political subdivisions	—		73		—		73
Asset-backed:
Residential mortgage-backed	—		130		—		130
Commercial mortgage-backed	—		106		—		106
Other asset-backed	—		12		—		12
Total asset-backed	—		248		—		248
Total fixed maturity securities	—		826		15		841
Equity securities	480		117		8		605
Derivative financial instruments	2		—		—		2
Short term investments	45		49		—		94
Limited partnerships:
Hedge funds	—		647		322		969
Private equity	—		—		114		114
Total limited partnerships	—		647		436		1,083
Other assets	—		31		—		31
Total assets	$	527	$	1,670	$	459	$	2,656

The limited partnership investments are recorded at fair value, which represents the plan's share of net asset value of each partnership, as determined by the General Partner. Level 2 includes limited partnership investments which can be redeemed at net asset value in 90 days or less. Level 3 includes limited partnership investments with withdrawal provisions greater than 90 days, or for which withdrawals are not permitted until the termination of the partnership. Within hedge fund strategies, approximately 57% are equity related, 37% pursue a multi-strategy approach and 6% are focused on distressed investments at December 31, 2014.

For a discussion of the fair value levels and the valuation methodologies used to measure fixed maturity securities, equities, derivatives and short term investments, see Note D to the Consolidated Financial Statements.