Defined Benefit Pension Plans

Con-way's defined benefit pension plans include qualified plans that are eligible for certain beneficial treatment under the Internal Revenue Code ("IRC"), as well as non-qualified plans that do not meet IRC criteria. Con-way's qualified defined benefit pension plans (collectively, the "Qualified Pension Plans") consist mostly of a primary qualified defined benefit pension plan (the "Primary DB Plan"). Con-way's other qualified defined benefit pension plans (collectively, the "Legacy DB Plans") relate to former businesses. In the fourth quarter of 2014, Con-way settled the obligation for one of these Legacy DB Plans with the combination of a single-premium non-participating annuity and lump-sum payments. Accordingly, Con-way recognized a $36.2 million reduction in the plan obligation and related assets, and a $16.0 million settlement loss.

Con-way's non-qualified defined benefit pension plans (collectively, the "Non-Qualified Pension Plans") consist mostly of a primary non-qualified supplemental defined benefit pension plan (the "Supplemental DB Plan"). The Supplemental DB Plan provides additional benefits for certain employees who are affected by IRC limitations on compensation eligible for benefits available under the qualified Primary DB Plan.

Some of Con-way's foreign subsidiaries sponsor defined benefit pension plans. These international defined benefit pension plans are excluded from the disclosures below due to their immateriality.

Benefits

As a result of plan amendments in previous years, no additional benefits accrue under these plans and already-accrued benefits will not be adjusted for future increases in compensation.

Funded Status of Defined Benefit Pension Plans

The following table reports the changes in the projected benefit obligation, the fair value of plan assets and the determination of the amounts recognized in the consolidated balance sheets for Con-way's defined benefit pension plans at December 31:



	Qualified Pension Plans						Non-Qualified Pension Plans
(Dollars in thousands)	2014			2013			2014			2013
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	1,523,531		$	1,680,603		$	70,814		$	78,218
Interest cost on projected benefit obligation	75,030			70,022			3,451			3,213
Plan settlement	(36,237		)	—			—			—
Actuarial loss (gain)	254,379			(177,347		)	9,182			(5,508		)
Benefits paid	(54,536		)	(49,747		)	(5,101		)	(5,109		)
Projected and accumulated benefit obligation at end of year	$	1,762,167		$	1,523,531		$	78,346		$	70,814
Change in plan assets:
Fair value of plan assets at beginning of year	$	1,438,865		$	1,281,261		$	—		$	—
Actual return on plan assets	211,322			152,014			—			—
Con-way contributions	142,280			55,337			5,101			5,109
Plan settlement	(36,237		)	—			—			—
Benefits paid	(54,536		)	(49,747		)	(5,101		)	(5,109		)
Fair value of plan assets at end of year	$	1,701,694		$	1,438,865		$	—		$	—
Funded status of the plans	$	(60,473	)	$	(84,666	)	$	(78,346	)	$	(70,814	)
Amounts recognized in the balance sheet consist of:
Long-term assets	$	18,110		$	15,018		$	—		$	—
Current liabilities	—			—			(5,148		)	(5,145		)
Long-term liabilities	(78,583		)	(99,684		)	(73,198		)	(65,669		)
Net amount recognized	$	(60,473	)	$	(84,666	)	$	(78,346	)	$	(70,814	)
Plans with a projected and accumulated benefit obligation in excess of plan assets:
Projected and accumulated benefit obligation	$	1,740,798		$	1,502,541		$	78,346		$	70,814
Fair value of plan assets	1,622,215			1,402,857			—			—
Weighted-average assumptions as of December 31:
Discount rate	4.20		%	5.05		%	4.20		%	5.05		%

The actuarial loss in 2014 was primarily due to the decrease in discount rate and also included the impact of updated mortality assumptions used to estimate life expectancies of plan participants.

The amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit expense, consist of the following:



	Qualified Pension Plans						Non-Qualified Pension Plans
(Dollars in thousands)	2014			2013			2014			2013
Actuarial loss	$	(524,414	)	$	(413,879	)	$	(35,673	)	$	(27,367	)
Prior-service cost	(40,809		)	(42,428		)	(99		)	(104		)
	$	(565,223	)	$	(456,307	)	$	(35,772	)	$	(27,471	)

The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost in 2015 are as follows:



(Dollars in thousands)	Qualified Pension Plans		Non-Qualified Pension Plans
Reclassification of actuarial loss to net periodic benefit expense (income)	$	12,494	$	1,184
Reclassification of prior-service cost to net periodic benefit expense (income)	$	1,619	$	5

Net Periodic Benefit Expense (Income) for Defined Benefit Pension Plans

Net periodic benefit expense (income) and amounts recognized in other comprehensive income or loss for the years ended December 31 includes the following:



	Qualified Pension Plans									Non-Qualified Pension Plans
(Dollars in thousands)	2014			2013			2012			2014			2013			2012
Net periodic benefit expense (income):
Interest cost on benefit obligation	$	75,030		$	70,022		$	70,168		$	3,451		$	3,213		$	3,438
Expected return on plan assets	(93,085		)	(91,324		)	(84,411		)	—			—			—
Amortization of actuarial loss	9,642			18,272			19,432			876			1,118			958
Amortization of prior-service cost	1,619			1,670			14			5			5			—
Curtailment loss	—			1,197			—			—			—			44
Settlement loss	15,965			—			—			—			—			—
Net periodic benefit expense (income)	$	9,171		$	(163	)	$	5,203		$	4,332		$	4,336		$	4,440
Amounts recognized in other comprehensive income or loss:
Actuarial loss (gain)	$	136,142		$	(238,037	)	$	(720	)	$	9,182		$	(5,508	)	$	3,574
Prior-service cost	—			—			44,961			—			—			109
Reclassification of actuarial loss to net periodic benefit expense (income)	(25,607		)	(18,272		)	(19,432		)	(876		)	(1,118		)	(1,002		)
Reclassification of prior-service cost to net periodic benefit expense (income)	(1,619		)	(2,867		)	(14		)	(5		)	(5		)	—
Loss (gain) recognized in other comprehensive income or loss	$	108,916		$	(259,176	)	$	24,795		$	8,301		$	(6,631	)	$	2,681
Weighted-average assumptions used to calculate net cost:
Discount rate	5.05		%	4.25		%	4.65		%	5.05		%	4.25		%	4.65		%
Expected long-term rate of return on plan assets	6.53		%	7.10		%	7.65		%	—		%	—		%	—		%

Expected benefit payments for the defined benefit pension plans are summarized below. These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.



(Dollars in thousands)	Qualified Pension Plans		Non-Qualified Pension Plans
Year ending December 31:
2015	$	61,381	$	5,148
2016	65,705		5,191
2017	70,081		5,257
2018	74,579		5,240
2019	79,480		5,234
2020-2024	465,421		25,705

Plan Assets

Investment Policies and Strategies

Assets of the Qualified Pension Plans are managed pursuant to a long-term allocation strategy that seeks to mitigate the Plans' funded status volatility by increasing the Plans' exposure to fixed income investments over time. This strategy was developed by analyzing a variety of diversified asset-class combinations in conjunction with the projected liabilities of the Qualified Pension Plans. In 2014, the Plans lowered their percentage of investments in equity securities and increased their percentage of investments in fixed-income securities.

The Plans' current investment strategy is to achieve a mix of approximately 76% in fixed-income securities and 24% of investments in equity securities. The target allocations for fixed-income securities includes 7% in global opportunistic fixed-income. The target allocations for equity securities include 12% in U.S. large companies, 2% in U.S. small companies, and 10% in international companies. Investments in equity securities are allocated between growth- and value-style investment strategies and are diversified across industries and investment managers. Investments in fixed-income securities consist primarily of high-quality U.S. and global corporate or government debt instruments in a variety of industries. The Plans' investments in equity and fixed-income securities consist of individual securities held in managed separate accounts as well as commingled investment funds.

The Plans' investment strategy does not include a meaningful long-term investment allocation to cash and cash equivalents; however, the Plan's cash allocation may rise periodically in response to timing considerations regarding contributions, investments, and the payment of benefits and eligible plan expenses. Additionally, the level of cash and cash equivalents may reflect the un-invested balance of each manager's allocated portfolio balance. This "un-invested cash" is typically held in a short-term fund that invests in money-market instruments, including commercial paper and other liquid short-term interest-bearing instruments.

The Plans' investment policy does not allow investment managers to use market-timing strategies or financial derivative instruments for speculative purposes. However, financial derivative instruments are used to manage risk and achieve stated investment objectives regarding duration, yield curve, credit and equity exposures. Generally, the investment managers are prohibited from short selling, trading on margin, and trading commodities, warrants or other options, except when acquired as a result of the purchase of another security, or in the case of options, when sold as part of a covered position. Con-way's investment policies also restrict the investment managers from accumulating concentrations by issuer, country or industry segment.

The assumption of 5.15% for the overall expected long-term rate of return in 2015 was developed using asset allocation, return, risk (defined as standard deviation), and correlation expectations. The return expectations are created using long-term historical returns and current market expectations for inflation, interest rates and economic growth.

Categories and Fair-Value Measurements of Plan Assets

The following table summarizes the fair value of Con-way's pension plan assets within the fair-value hierarchy:



	December 31, 2014
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Cash and cash equivalents
Short-term investment fund [a]	$	48,296	$	—	$	48,296	$	—
Equity
U.S. large companies
S&P 500 futures [b]	2,309		2,309		—		—
Growth [c]	102,653		102,653		—		—
Value [c]	99,466		99,466		—		—
U.S. small companies
Value [c]	32,298		32,298		—		—
International
Growth [c]	92,259		92,259		—		—
Value fund [a]	72,336		—		72,336		—
Fixed-income securities
Global long-term debt instruments [d]	1,252,077		131,997		1,120,080		—
Total	$	1,701,694	$	460,982	$	1,240,712	$	—



	December 31, 2013
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Cash and cash equivalents
Short-term investment fund [a]	$	65,100	$	—	$	65,100	$	—
Equity
U.S. large companies
S&P 500 futures [b]	3,482		3,482		—		—
Growth [c]	99,050		99,050		—		—
Value [c]	101,154		101,154		—		—
U.S. small companies
Value [c]	57,403		57,403		—		—
International
Growth [c]	91,058		91,058		—		—
Value fund [a]	94,927		—		94,927		—
Fixed-income securities
U.S. long-term debt instruments [d]	832,915		91,824		741,091		—
Real estate
Private fund [e]	40,412		—		—		40,412
Hedge fund
Multi-Strategy [f]	53,364		—		—		53,364
Total	$	1,438,865	$	443,971	$	901,118	$	93,776


[a]	These funds are not publicly traded and do not have readily determinable fair values. Accordingly, they are valued at their net asset value per share. The underlying investments in the funds consist primarily of publicly traded securities with quoted market prices.


[b]	Gains from S&P 500 futures held in a separately managed account.


[c]	Publicly traded equity securities are valued at their closing market prices.


[d]	Global and U.S. debt securities are valued at their quoted market price, while corporate-debt instruments are generally valued using observable bid-ask spreads or broker-provided pricing.

[e]

The fair value of the private real estate fund is based on the fair values of the underlying assets, which consist of commercial and residential properties valued using periodic appraisals. The fund maintains a redemption plan whereby redemption requests must be received in writing 45 days prior to the end of the quarter. If the fund is unable to satisfy all redemption requests, partial redemptions may be made on a prorated basis.


[f]	The fair value of the hedge fund is based on the fair value of the underlying assets, which consists of individual equities, convertible securities, futures, forward contracts, currency forwards, swaps, high-yield debt portfolios, options, other derivative instruments, and cash which are all valued monthly by an administrator engaged by the fund.

The following table summarizes the change in fair value for pension assets valued using Level 3 inputs:



(Dollars in thousands)	Private real estate fund			Hedge fund			Total
Balance at December 31, 2012	$	36,911		$	50,149		$	87,060
Actual return on plan assets relating to assets still held at the reporting date	3,501			3,215			6,716
Balance at December 31, 2013	40,412			53,364			93,776
Actual return on plan assets relating to assets sold during the period	1,588			1,169			2,757
Redemption	(42,000		)	(51,882		)	(93,882		)
Asset reclassification [a]	—			(2,651		)	(2,651		)
Balance at December 31, 2014	$	—		$	—		$	—


[a]	A full redemption for the assets invested in the hedge fund was made in 2014; however, a hold requirement requires that a portion of the assets be withheld until final completion of the fund's audit. The remaining assets of $2.7 million are invested by the hedge fund in cash and cash equivalents.

Funding

Con-way's funding practice is to evaluate its tax and cash position, as well as the Qualified Pension Plans' funded status, in determining its planned contributions. Con-way estimates that it will contribute about $30 million to its Qualified Pension Plans in 2015; however, this could change based on variations in interest rates, asset returns, Pension Protection Act requirements and other factors.

Postretirement Medical Plan

Con-way sponsors a postretirement medical plan that provides health benefits to certain non-contractual employees at least 55 years of age with at least 10 years of service (the "Postretirement Plan"). The Postretirement Plan does not provide employer-subsidized retiree medical benefits for employees hired on or after January 1, 1993.

On October 31, 2013, Con-way amended the Postretirement Plan to provide a set benefit to certain retirees, at least 65 years of age, effective in 2014. Accordingly, a remeasurement was performed, reducing the projected benefit obligation by $28.3 million with an offsetting prior-service credit of $19.2 million and an actuarial gain of $9.1 million recognized in other comprehensive income (loss).

Funded Status of Postretirement Medical Plan

The following sets forth the changes in the benefit obligation and the determination of the amounts recognized in the consolidated balance sheets for the Postretirement Plan at December 31:



(Dollars in thousands)	2014			2013
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	61,917		$	102,291
Service cost – benefits earned during the year	950			1,459
Interest cost on projected benefit obligation	2,734			3,434
Plan amendments	—			(19,243		)
Actuarial loss (gain)	8,918			(21,143		)
Participant contributions	2,191			2,009
Benefits paid	(5,677		)	(6,890		)
Projected and accumulated benefit obligation at end of year	$	71,033		$	61,917
Funded status of the plan	$	(71,033	)	$	(61,917	)
Amounts recognized in the balance sheet consist of :
Current liabilities	$	(4,389	)	$	(4,462	)
Long-term liabilities	(66,644		)	(57,455		)
Net amount recognized	$	(71,033	)	$	(61,917	)
Discount rate assumption as of December 31	3.75		%	4.50		%

The amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit expense consist of the following:



(Dollars in thousands)	2014		2013
Actuarial gain	$	8,508	$	19,537
Prior-service credit	16,503		19,366
	$	25,011	$	38,903

The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost are as follows:



(Dollars in thousands)	2015
Reclassification of prior-service credits to net periodic benefit expense	$	2,455
Reclassification of actuarial gain to net periodic benefit expense	$	265

Net Periodic Benefit Expense for Postretirement Medical Plan

Net periodic benefit expense and amounts recognized in other comprehensive income or loss for the years ended December 31 includes the following:



(Dollars in thousands)	2014			2013			2012
Net periodic benefit expense (income):
Service cost - benefits earned during the year	$	950		$	1,459		$	1,679
Interest cost on benefit obligation	2,734			3,434			4,318
Amortization of actuarial gain	(2,111		)	(1		)	—
Amortization of prior-service credit	(2,863		)	(1,457		)	(1,206		)
Net periodic benefit expense (income)	$	(1,290	)	$	3,435		$	4,791
Amounts recognized in other comprehensive income or loss:
Actuarial loss (gain)	$	8,918		$	(21,143	)	$	1,979
Prior-service cost	—			(19,243		)	—
Reclassification of actuarial gain to net periodic benefit expense	2,111			1			—
Reclassification of prior-service credit to net periodic benefit expense	2,863			1,457			1,206
Loss (gain) recognized in other comprehensive income or loss	$	13,892		$	(38,928	)	$	3,185
Discount rate assumption used to calculate interest cost through October 31	4.50		%	3.60		%	4.30		%
Discount rate assumption used to calculate interest cost from November 1 through December 31	4.50		%	4.25		%	4.30		%

Expected benefit payments, which reflect expected future service, as appropriate, are summarized below. These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.



(Dollars in thousands)	Benefit Payments
Year ending December 31:
2015	$	4,389
2016	4,582
2017	4,980
2018	5,373
2019	5,626
2020-2024	27,946

The assumed health-care cost trend rates used to determine the benefit obligation are as follows:



	2014
Health-care cost trend rate assumed for next year	7.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.50	%
Year that the rate reaches the ultimate trend rate	2027

Assumed health-care cost trends affect the amounts recognized for Con-way's postretirement benefits. A one-percentage-point change in the assumed health-care cost trend rate would not have a material effect on the service and interest cost components of net periodic benefit costs or on the accumulated postretirement benefit obligation.