We sponsor or participate in programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. The accounting for pension and postretirement healthcare plans includes numerous assumptions, such as: discount rates; expected long-term investment returns on plan assets; future salary increases; employee turnover; mortality; and retirement ages. These assumptions most significantly impact our U.S. domestic pension plan.

A summary of our retirement plans costs over the past three years is as follows (in millions):

PENSION PLANS. A majority of our employees are covered by the FedEx Corporation Employees' Pension Plan (“FedEx Plan”), a defined benefit pension plan sponsored by our parent, FedEx. The plan covers certain U.S. employees age 21 and over, with at least one year of service. Pension benefits for most employees are accrued under a cash balance formula we call the Portable Pension Account. Under the Portable Pension Account, the retirement benefit is expressed as a dollar amount in a notional account that grows with annual credits based on pay, age and years of credited service, and interest on the notional account balance. The Portable Pension Account benefit is payable as a lump sum or an annuity at retirement at the election of the employee. The plan interest credit rate varies from year to year based on a U.S. Treasury index and corporate bond rates. Prior to 2009, certain employees earned benefits using a traditional pension formula (based on average earnings and years of service). Benefits under this formula were capped on May 31, 2008 for most employees. We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. Our employees comprise approximately 72% of the participants in the FedEx Plan. For more information about this plan and the related accounting assumptions, refer to the financial statements of FedEx included in its Form 10-K for the year ended May 31, 2014.

PENSION PLAN ASSUMPTIONS. Our pension cost is materially affected by the discount rate used to measure pension obligations, the level of plan assets available to fund those obligations and the expected long-term rate of return on plan assets.

We use a measurement date of May 31 for our pension and postretirement healthcare plans. Management reviews the assumptions used to measure pension costs on an annual basis. Economic and market conditions at the measurement date impact these assumptions from year to year. Actuarial gains or losses are generated for changes in assumptions and to the extent that actual results differ from those assumed. These actuarial gains and losses are amortized over the remaining average service lives of our active employees if they exceed a corridor amount in the aggregate.

		Pension Plans
		2014		2013		2012

Discount rate used to determine benefit obligation		4.60	%	4.79	%	4.44	%
Discount rate used to determine net periodic benefit cost		4.79		4.44		5.76
Rate of increase in future compensation levels
	used to determine benefit obligation	4.56		4.54		4.62
Rate of increase in future compensation levels
	used to determine net periodic benefit cost	4.54		4.62		4.58
Expected long-term rate of return on assets		7.75		8.00		8.00

We incurred a net periodic benefit cost of $258 million in 2014, $420 million in 2013 and $308 million in 2012, for our participation in the FedEx Plan. Pension costs in 2014 were lower than 2013 due to the favorable impact of a higher discount rate at our May 31, 2013 measurement date and higher returns on plan assets. Pension costs in 2013 were higher than 2012 due to the negative impact of a significantly lower discount rate at our May 31, 2012 measurement date.

Information regarding the funded status of the FedEx Plan at May 31 was as follows (in millions):

Certain of our employees participate in a nonqualified defined benefit pension plan sponsored by FedEx. Our participants in this nonqualified defined benefit plan make up approximately 31% of the participants in the plan. FedEx has accumulated benefit obligations (“ABOs”) aggregating approximately $236 million at May 31, 2014 and $274 million at May 31, 2013 and PBOs aggregating approximately $237 million at May 31, 2014 and $278 million at May 31, 2013 related to this plan. This plan is not funded because such funding provides no current tax deduction and would be deemed current compensation to plan participants.

DEFINED CONTRIBUTION PLANS. Defined contribution plans are in place covering a majority of U.S. employees and certain international employees. Most U.S. employees are covered under the FedEx 401(k) plan. Pilots are covered under a 401(a) money purchase pension plan, as well as their own 401(k) plan. Expense for our employees under these plans was $237 million in 2014, $233 million in 2013 and $220 million in 2012.

PENSION PLANS. We also sponsor nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. The nonqualified benefit plans are not funded because such funding provides no current tax deduction and would be deemed current compensation to plan participants. The international defined benefit pension plans provide benefits primarily based on earnings and years of service and are funded in compliance with local laws and practices. Beginning April 6, 2012, the United Kingdom pension plan formula changed for future benefit accruals to a cash balance formula, which is expressed as an amount in a notional account that grows with annual credits based on pay and interest on the notional account balance and is converted to a pension with an insurance company at retirement. Prior benefits were accrued using a traditional pension formula (based on final earnings and years of service). In addition, employees earning benefits under the cash balance design are eligible to contribute into a defined contribution plan where the company matches 200% of the employee's contribution up to 6%. For the plans sponsored by us, our assets are primarily invested in equities and fixed income securities. Fair value disclosures have not been provided for these international defined benefit pension plans since the assets are primarily managed at an individual country level. The amount of assets in these plans having significant unobservable inputs (Level 3), if any, would be immaterial to our financial statements.

POSTRETIREMENT HEALTHCARE PLANS. We sponsor a plan offering medical, dental and vision coverage to eligible U.S. retirees and their eligible dependents. For Medicare eligible non-pilot retirees and their eligible dependents, we only provide a fixed subsidy toward a Health Reimbursement Account (HRA) with Extend Health, which may be used for the premium payment for a Medigap policy. U.S. employees become eligible for these benefits at age 55 and older, if they have permanent, continuous service of at least 10 years after attainment of age 45 if hired prior to January 1, 1988, or at least 20 years after attainment of age 35 if hired on or after January 1, 1988. Postretirement healthcare benefits are capped at 150% of the 1993 per capita projected employer cost, which has been reached and therefore, these benefits are not subject to additional future inflation.

The accounting guidance related to postretirement benefits requires recognition in the balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in accumulated other comprehensive income (“AOCI”) of unrecognized gains or losses and prior service costs or credits. The funded status is measured as the difference between the fair value of the plan's assets and the PBO or APBO of the plan.

For the plans currently sponsored by us, the following table provides a reconciliation of the changes in the pension and postretirement healthcare plans’ benefit obligations and fair value of assets for our employees over the two-year period ended May 31, 2014 and a statement of the funded status as of May 31, 2014 and 2013 (in millions):

			Pension Plans				Postretirement Healthcare Plans
			2014		2013		2014		2013
Accumulated Benefit Obligation ("ABO")			$	722	$	627
Changes in Projected Benefit Obligation ("PBO") and
	Accumulated Postretirement Benefit Obligation ("APBO")
PBO/APBO at the beginning of year			$	763	$	659	$	659	$	644
	Service cost			39		32		30		33
	Interest cost			29		27		32		29
	Actuarial loss (gain)			20		71		5		(25)
	Benefits paid			(22)		(20)		(60)		(52)
	Settlements			(2)		(1)		-		-
	Participant contributions			3		3		33		26
	Other			45		(8)		-		4
PBO/APBO at the end of year			$	875	$	763	$	699	$	659

Change in Plan Assets
Fair value of plan assets at the beginning of year			$	386	$	322	$	-	$	-
	Actual return on plan assets			24		54		-		-
	Company contributions			36		39		27		26
	Benefits paid			(22)		(20)		(60)		(52)
	Settlements			(2)		(1)		-		-
	Other			41		(8)		33		26
Fair value of plan assets at the end of year			$	463	$	386	$	-	$	-

Funded Status of the Plans			$	(412)	$	(377)	$	(699)	$	(659)

Amount Recognized in the Balance Sheet at May 31:
	Noncurrent asset		$	5
	Current pension, postretirement healthcare and other
		benefit obligations		(10)	$	(11)	$	(31)	$	(30)
	Noncurrent pension, postretirement healthcare and other
		benefit obligations		(407)		(366)		(668)		(629)
Net amount recognized			$	(412)	$	(377)	$	(699)	$	(659)

Amounts Recognized in AOCI and not yet reflected in
	Net Periodic Benefit Cost:
		Net actuarial loss (gain)	$	229	$	207	$	(13)	$	(18)
		Prior service (credit) cost and other		(28)		(27)		1		1
Total			$	201	$	180	$	(12)	$	(17)

Amounts Recognized in AOCI and not yet reflected in
	Net Periodic Benefit Cost expected to be amortized in
	next year's Net Periodic Benefit Cost:
		Net actuarial loss	$	11	$	10	$	-	$	-
		Prior service credit and other		(3)		(3)		-		-
Total			$	8	$	7	$	-	$	-

The following table presents plans sponsored by us on a disaggregated basis to show those plans (as a group) in an unfunded position. The fair value of plan assets for pension plans with a PBO or ABO in excess of plan assets at May 31 were as follows (in millions):

			PBO Exceeds the Fair Value of Plan Assets
			2014		2013

Pension Benefits
	Fair value of plan assets		$	99	$	386
	PBO			(516)		(763)
	Net funded status		$	(417)	$	(377)

			ABO Exceeds the Fair Value of Plan Assets
			2014		2013

Pension Benefits
	ABO⁽¹⁾		$	364	$	599

	Fair value of plan assets			98		357
	PBO			(515)		(733)
	Net funded status		$	(417)	$	(376)

⁽¹⁾		ABO not used in determination of funded status.

In the plans currently sponsored by us, net periodic benefit cost for FedEx Express employees for the three years ended May 31 were as follows (in millions):

Amounts recognized in OCI for the years ended May 31 were as follows (in millions):

			2014								2013
			Pension Plans				Postretirement Healthcare Plans				Pension Plans				Postretirement Healthcare Plans
			Gross Amount		Net of Tax Amount		Gross Amount		Net of Tax Amount		Gross Amount		Net of Tax Amount		Gross Amount		Net of Tax Amount

Net loss (gain) and other
	arising during period		$	17	$	10	$	2	$	1	$	38	$	26	$	(15)	$	(20)
Amortizations:
	Actuarial (losses) gains
		and other		(7)		(5)		-		-		(7)		(4)		-		-
Total recognized in OCI			$	10	$	5	$	2	$	1	$	31	$	22	$	(15)	$	(20)

The weighted-average actuarial assumptions for the plans sponsored by us were as follows:

		Pension Plans						Postretirement Healthcare Plans
		2014		2013		2012		2014		2013		2012

Discount rate used to determine benefit obligation		3.59	%	3.66	%	4.08	%	4.74	%	4.91	%	4.55	%
Discount rate used to determine net periodic benefit cost		3.66		4.08		4.79		4.91		4.55		5.67
Rate of increase in future compensation levels
	used to determine benefit obligation	3.38		3.30		3.00		-		-		-
Rate of increase in future compensation levels
	used to determine net periodic benefit cost	3.30		3.00		4.02		-		-		-
Expected long-term rate of return on assets		5.14		6.41		6.52		-		-		-

Benefit payments for FedEx Express employees in the plans sponsored by us, which reflect expected future service, are expected to be paid as follows for the years ending May 31 (in millions):

We expect to make pension plan contributions in 2015 approximating $37 million. These estimates are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates.

Future medical benefit claims costs are estimated to increase at an annual rate of 7.5% during 2015, decreasing to an annual growth rate of 4.5% in 2029 and thereafter. A 1% change in these annual trend rates would not have a significant impact on the APBO at May 31, 2014 or 2014 benefit expense because the level of these benefits is capped.