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 were 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 received benefits in accordance with plan provisions through June 30, 2015 as discussed further below. 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.

In 2016, the CNA Retirement Plan paid $88 million to settle its obligation to certain retirees through the purchase of a group annuity contract from a third party insurance company. This transaction reduced the plan’s projected benefit obligation by $86 million.

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%.

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.

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)	2016			2015			2016			2015
Benefit obligation as of January 1	$	2,821		$	3,019		$	23		$	29
Changes in benefit obligation:
Service cost	—			4			—			—
Interest cost	113			112			—			1
Participants' contributions	—			—			4			4
Plan amendments	—			(55		)	—			—
Actuarial (gain) loss	68			(79		)	(6		)	(3		)
Benefits paid	(173		)	(173		)	(7		)	(8		)
Foreign currency translation and other	(14		)	(7		)	1			—
Settlement through group annuity purchase	(86		)	—			—			—
Benefit obligation as of December 31	2,729			2,821			15			23
Fair value of plan assets as of January 1	2,267			2,456			—			—
Change in plan assets:
Actual return on plan assets	193			(18		)	—			—
Company contributions	9			10			3			4
Participants' contributions	—			—			4			4
Benefits paid	(173		)	(173		)	(7		)	(8		)
Foreign currency translation and other	(15		)	(8		)	—			—
Settlement through group annuity purchase	(88		)	—			—			—
Fair value of plan assets as of December 31	2,193			2,267			—			—
Funded status	$	(536	)	$	(554	)	$	(15	)	$	(23	)
Amounts recognized on the Consolidated Balance Sheets as of December 31:
Other assets	$	4		$	12		$	—		$	—
Other liabilities	(540		)	(566		)	(15		)	(23		)
Net amount recognized	$	(536	)	$	(554	)	$	(15	)	$	(23	)
Amounts recognized in Accumulated other comprehensive income, not yet recognized in net periodic cost (benefit):
Prior service credit	$	—		$	—		$	(4	)	$	(6	)
Net actuarial loss	999			999			(3		)	3
Net amount recognized	$	999		$	999		$	(7	)	$	(3	)

The accumulated benefit obligation for all defined benefit pension plans was $2,729 million and $2,821 million as of December 31, 2016 and 2015.

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



Years ended December 31
(In millions)	2016			2015			2014
Pension cost (benefit)
Service cost	$	—		$	4		$	9
Interest cost on projected benefit obligation	113			112			132
Expected return on plan assets	(160		)	(174		)	(191		)
Amortization of net actuarial loss	37			34			25
Settlement loss	—			—			84
Net periodic pension cost (benefit)	$	(10	)	$	(24	)	$	59

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

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



Years ended December 31
(In millions)	2016			2015			2014
Pension and postretirement benefits
Amounts arising during the period	$	(29	)	$	(111	)	$	(337	)
Curtailment and other	—			56			(81		)
Settlement	—			—			84
Reclassification adjustment relating to prior service credit	(2		)	(3		)	(10		)
Reclassification adjustment relating to actuarial loss	37			35			26
Settlement through group annuity purchase	(2		)	—			—
Total increase (decrease) in Other comprehensive income	$	4		$	(23	)	$	(318	)

The table below presents the estimated amounts to be recognized from AOCI into net periodic cost (benefit) during 2017.



(In millions)	Pension Benefits		Postretirement Benefits
Amortization of prior service credit	$	—	$	(2	)
Amortization of net actuarial loss	36		—
Total estimated amounts to be recognized	$	36	$	(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	2016		2015
Pension benefits
Discount rate	3.950	%	4.150	%
Expected long term rate of return	7.500		7.500
Postretirement benefits
Discount rate	2.750	%	2.750	%

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	2016		2015		2014
Pension benefits
Discount rate	4.150	%	3.850%/4.000%		4.650	%
Expected long term rate of return	7.500		7.500		7.500
Rate of compensation increases	N/A		3.920		3.990
Postretirement benefits
Discount rate	2.750	%	2.500	%	3.600%/3.100%

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 2016, 2015 and 2014.

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, 2016, the plan had committed approximately $113 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, 2016
(In millions)	Level 1		Level 2		Level 3		Total
Assets
Fixed maturity securities:
Corporate and other bonds	$	—	$	500	$	10	$	510
States, municipalities and political subdivisions	—		63		—		63
Asset-backed:
Residential mortgage-backed	—		109		—		109
Commercial mortgage-backed	—		66		—		66
Other asset-backed	—		4		—		4
Total asset-backed	—		179		—		179
Total fixed maturity securities	—		742		10		752
Equity securities	363		105		—		468
Derivative financial instruments	—		—		—		—
Short term investments	11		35		—		46
Other assets	—		37		—		37
Cash	14		—		—		14
Total assets measured at fair value	$	388	$	919	$	10	1,317
Total limited partnerships measured at net asset value ⁽¹⁾							876
Total plan assets							$	2,193



December 31, 2015
(In millions)	Level 1		Level 2		Level 3		Total Assets
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
Total fixed maturity securities	—		774		10		784
Equity securities	336		107		—		443
Derivative financial instruments	1		—		—		1
Short term investments	24		28		—		52
Other assets	—		52		—		52
Total assets measured at fair value	$	361	$	961	$	10	1,332
Total limited partnerships measured at net asset value ⁽¹⁾							935
Total plan assets							$	2,267

(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

The limited partnership investments held within the plan are recorded at fair value, which represents the plan's share of net asset value of each partnership, as determined by the general partner. Limited partnerships comprising 86% and 87% of the carrying value as of December 31, 2016 and 2015 employ hedge fund strategies that generate returns through investing in marketable securities in the public fixed income and equity markets and the remainder were primarily invested in private debt and equity. Within hedge fund strategies, approximately 57% were equity related, 38% pursued a multi-strategy approach and 5% were focused on distressed investments as of December 31, 2016.

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.