Note I. 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. 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.

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 effective December 31, 1999. Employees who chose to continue to accrue benefits under the plan will receive benefits in accordance with plan provisions. Employees who elected to cease accruals effective 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 401(k) Plus Plan.

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 reduced 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. 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.

In the second quarter of 2015, the Company eliminated future benefit accruals associated with the CNA Retirement Plan effective June 30, 2015. Employees who were continuing to accrue under the CNA Retirement Plan up until that date are entitled to an accrued benefit payable based on their eligible compensation and accrued service through June 30, 2015, in accordance with the terms of the CNA Retirement Plan. Starting with the first pay period after July 1, 2015, affected employees began receiving enhanced employer contributions in the CNA 401(k) Plus Plan similar to employees who elected to cease accruals effective December 31, 1999. Employees who elected to cease accruals effective December 31, 1999 are not affected by this curtailment. This curtailment resulted in a $55 million decrease in the CNA Retirement Plan benefit obligation liability and a reduction of the unrecognized actuarial losses included in AOCI. In connection with the curtailment, the Company remeasured the plan benefit obligation which resulted in an increase in the discount rate used to determine the benefit obligation from 3.85% to 4.00%.

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 presents a reconciliation of benefit obligations and plan assets.



	Pension Benefits						Postretirement Benefits
(In millions)	2015			2014			2015			2014
Benefit obligation as of January 1	$	3,019		$	2,943		$	29		$	40
Changes in benefit obligation:
Service cost	4			9			—			—
Interest cost	112			132			1			1
Participants' contributions	—			—			4			5
Plan amendments	(55		)	(3		)	—			(7		)
Actuarial (gain) loss	(79		)	367			(3		)	1
Benefits paid	(173		)	(165		)	(8		)	(11		)
Settlements	—			(257		)	—			—
Foreign currency translation and other	(7		)	(7		)	—			—
Benefit obligation as of December 31	2,821			3,019			23			29
Fair value of plan assets as of January 1	2,456			2,656			—			—
Change in plan assets:
Actual return on plan assets	(18		)	216			—			—
Company contributions	10			12			4			6
Participants' contributions	—			—			4			5
Benefits paid	(173		)	(165		)	(8		)	(11		)
Settlements	—			(257		)	—			—
Foreign currency translation and other	(8		)	(6		)	—			—
Fair value of plan assets as of December 31	2,267			2,456			—			—
Funded status	$	(554	)	$	(563	)	$	(23	)	$	(29	)
Amounts recognized on the Consolidated Balance Sheets as of December 31:
Other assets	$	12		$	9		$	—		$	—
Other liabilities	(566		)	(572		)	(23		)	(29		)
Net amount recognized	$	(554	)	$	(563	)	$	(23	)	$	(29	)
Amounts recognized in Accumulated other comprehensive income, not yet recognized in net periodic cost (benefit):
Prior service credit	$	—		$	—		$	(6	)	$	(9	)
Net actuarial loss	999			974			3			8
Net amount recognized	$	999		$	974		$	(3	)	$	(1	)

The accumulated benefit obligation for all defined benefit pension plans was $2,821 million and $2,962 million as of December 31, 2015 and 2014.

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



Years ended December 31
(In millions)	2015			2014			2013
Pension cost (benefit)
Service cost	$	4		$	9		$	12
Interest cost on projected benefit obligation	112			132			121
Expected return on plan assets	(174		)	(191		)	(181		)
Amortization of net actuarial loss	34			25			47
Settlement loss	—			84			3
Net periodic pension cost (benefit)	$	(24	)	$	59		$	2

Postretirement cost (benefit)
Service cost	$	—		$	—		$	1
Interest cost on projected benefit obligation	1			1			1
Amortization of prior service credit	(3		)	(10		)	(18		)
Amortization of net actuarial loss	1			1			2
Curtailment gain	—			(86		)	—
Net periodic postretirement cost (benefit)	$	(1	)	$	(94	)	$	(14	)

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



Years ended December 31
(In millions)	2015			2014			2013
Pension and postretirement benefits
Amounts arising during the period	$	(111	)	$	(337	)	$	422
Curtailment and other	56			(81		)	—
Settlement	—			84			—
Reclassification adjustment relating to prior service credit	(3		)	(10		)	(18		)
Reclassification adjustment relating to actuarial loss	35			26			49
Total increase (decrease) in Other comprehensive income	$	(23	)	$	(318	)	$	453

The table below presents the estimated amounts to be recognized from AOCI into net periodic cost (benefit) during 2016.



(In millions)	Pension Benefits		Postretirement Benefits
Amortization of prior service credit	$	—	$	(2	)
Amortization of net actuarial loss	37		—
Total estimated amounts to be recognized	$	37	$	(2	)

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



December 31	2015		2014
Pension benefits
Discount rate	4.150	%	3.850	%
Expected long term rate of return	7.500		7.500
Rate of compensation increases	N/A		3.920
Postretirement benefits
Discount rate	2.750	%	2.500	%

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



Years ended December 31	2015		2014		2013
Pension benefits
Discount rate	3.850%/4.000%		4.650	%	3.800	%
Expected long term rate of return	7.500		7.500		7.750
Rate of compensation increases	3.920		3.990		4.066
Postretirement benefits
Discount rate	2.500	%	3.600%/3.100%		2.800	%

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 and the expected investment horizon.

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 2015, 2014 and 2013.

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. Alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. 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.

As of December 31, 2015, the plan had committed approximately $98 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 presented in the following tables.



December 31, 2015
(In millions)	Level 1		Level 2		Level 3		Total Assets at Fair Value
Assets
Fixed maturity securities:
Corporate and other bonds	$	—	$	455	$	10	$	465
States, municipalities and political subdivisions	—		106		—		106
Asset-backed:
Residential mortgage-backed	—		133		—		133
Commercial mortgage-backed	—		69		—		69
Other asset-backed	—		11		—		11
Total asset-backed	—		213		—		213
U.S. Treasury and obligations of government-sponsored enterprises	—		—		—		—
Total fixed maturity securities	—		774		10		784
Equity securities	336		107		—		443
Derivative financial instruments	1		—		—		1
Short term investments	24		28		—		52
Limited partnerships:
Hedge funds	—		516		296		812
Private equity	—		—		123		123
Total limited partnerships	—		516		419		935
Other assets	—		52		—		52
Total assets	$	361	$	1,477	$	429	$	2,267



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

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% were equity related, 37% pursued a multi-strategy approach and 6% were focused on distressed investments as of December 31, 2015.

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 C to the Consolidated Financial Statements.