Note 13 - Employee Retirement Plans

12 Months Ended

Dec. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

13. Employee Retirement Plans

Defined Benefit Plans

We have defined benefit pension plans covering certain domestic and international employees.  Our funding policy has been to contribute, as necessary, an amount in excess of the minimum requirements in order to achieve the Company’s long-term funding targets.  In 2014, we made voluntary cash contributions of $85 million to our domestic defined benefit pension plan and contributed $45 million to our international pension plans.  In 2013, we did not contribute to our domestic defined benefit pension plan and contributed $5 million to our international pension plans.  Although we will not be subject to any mandatory contributions in 2015, we anticipate making voluntary cash contributions of up to $65 million to our domestic pension plan and up to $28 million to our international pension plans in 2015.

Corning offers postretirement plans that provide health care and life insurance benefits for retirees and eligible dependents.  Certain employees may become eligible for such postretirement benefits upon reaching retirement age and service requirements.  For current retirees (including surviving spouses) and active employees eligible for the salaried retiree medical program, we have placed a “cap” on the amount we will contribute toward retiree medical coverage in the future.  The cap is equal to 120% of our 2005 contributions toward retiree medical benefits.  Once our contributions toward salaried retiree medical costs reach this cap, impacted retirees will have to pay the excess amount in addition to their regular contributions for coverage.  This cap was attained for post-65 retirees in 2008 and has impacted their contribution rate in 2009 and going forward.  The pre-65 retirees triggered the cap in 2010, which has impacted their contribution rate in 2011 and going forward.  Furthermore, employees hired or rehired on or after January 1, 2007 will be eligible for Corning retiree medical benefits upon retirement; however, these employees will pay 100% of the cost.

Obligations and Funded Status

The change in benefit obligation and funded status of our employee retirement plans follows (in millions):

	Total pension benefits				Domestic pension benefits				International pension benefits
December 31,	2014		2013		2014		2013		2014		2013
Change in benefit obligation
Benefit obligation at beginning of year	$	3,300	$	3,630	$	2,844	$	3,198	$	456	$	432
Service cost		82		70		55		60		27		10
Interest cost		160		131		137		115		23		16
Plan participants’ contributions		1		1		1		1
Acquisitions		103								103
Amendments		25				25
Actuarial loss (gain)		394		(362)		327		(368)		67		6
Other		(3)		2				2		(3)
Benefits paid		(207)		(177)		(167)		(164)		(40)		(13)
Foreign currency translation		(46)		5						(46)		5
Benefit obligation at end of year	$	3,809	$	3,300	$	3,222	$	2,844	$	587	$	456
Change in plan assets
Fair value of plan assets at beginning of year	$	2,896	$	2,975	$	2,596	$	2,684	$	300	$	291
Actual gain on plan assets		355		71		287		65		68		6
Employer contributions		147		20		97		10		50		10
Plan participants’ contributions		1		1		1		1
Acquisitions		97								97
Benefits paid		(207)		(177)		(167)		(164)		(40)		(13)
Foreign currency translation		(26)		6						(26)		6
Fair value of plan assets at end of year	$	3,263	$	2,896	$	2,814	$	2,596	$	449	$	300
Funded status at end of year
Fair value of plan assets	$	3,263	$	2,896	$	2,814	$	2,596	$	449	$	300
Benefit obligations		(3,809)		(3,300)		(3,222)		(2,844)		(587)		(456)
Funded status of plans	$	(546)	$	(404)	$	(408)	$	(248)	$	(138)	$	(156)
Amounts recognized in the consolidated balance sheets consist of:
Noncurrent asset	$	47	$	23			$	15	$	47	$	8
Current liability		(41)		(15)	$	(30)		(10)		(11)		(5)
Noncurrent liability		(552)		(412)		(378)		(253)		(174)		(159)
Recognized liability	$	(546)	$	(404)	$	(408)	$	(248)	$	(138)	$	(156)
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss	$	308	$	132	$	278	$	83	$	30	$	49
Prior service cost (credit)		41		21		44		27		(3)		(6)
Amount recognized at end of year	$	349	$	153	$	322	$	110	$	27	$	43

The accumulated benefit obligation for defined benefit pension plans was $3.6 billion and $3.2 billion at December 31, 2014 and 2013, respectively.

	Postretirement benefits
December 31,	2014		2013
Change in benefit obligation
Benefit obligation at beginning of year	$	815	$	987
Service cost		11		13
Interest cost		38		39
Plan participants’ contributions		7		14
Amendments		(5)		(4)
Actuarial loss (gain)		49		(178)
Other				5
Benefits paid		(56)		(61)
Medicare subsidy received		3		1
Foreign currency translation				(1)
Benefit obligation at end of year	$	862	$	815
Funded status at end of year
Fair value of plan assets	$	0	$	0
Benefit obligations		(862)		(815)
Funded status of plans	$	(862)	$	(815)
Amounts recognized in the consolidated balance sheets consist of:
Current liability	$	(48)	$	(49)
Noncurrent liability		(814)		(766)
Recognized liability	$	(862)	$	(815)
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss	$	132	$	82
Prior service credit		(27)		(29)
Amount recognized at end of year	$	105	$	53

The following information is presented for pension plans where the projected benefit obligation as of December 31, 2014 and 2013 exceeded the fair value of plan assets (in millions):

	December 31,
	2014		2013
Projected benefit obligation	$	3,425	$	447
Fair value of plan assets	$	2,831	$	20

In 2014, the fair value of plan assets exceeded the projected benefit obligation for the United Kingdom, the South Korea and one of the France pension plans.

The following information is presented for pension plans where the accumulated benefit obligation as of December 31, 2014 and 2013 exceeded the fair value of plan assets (in millions):

	December 31,
	2014		2013
Accumulated benefit obligation	$	479	$	417
Fair value of plan assets	$	17	$	20

In 2014, the fair value of plan assets exceeded the accumulated benefit obligation for the United States, the United Kingdom, the South Korea and one of the France pension plans.

The components of net periodic benefit expense for our employee retirement plans follow (in millions):

	Total pension benefits			Domestic pension benefits			International pension benefits
December 31,	2014	2013	2012	2014	2013	2012	2014	2013	2012
Service cost	$  82	$   70	$  62	$  55	$  60	$  53	$ 27	$10	$  9
Interest cost	160	131	154	137	115	138	23	16	16
Expected return on plan assets	(174)	(169)	(161)	(159)	(158)	(151)	(15)	(11)	(10)
Amortization of prior service cost (credit)	6	5	8	7	6	9	(1)	(1)	(1)
Recognition of actuarial (gain) loss	29	(30)	217	4	(41)	187	25	11	30
Total net periodic benefit expense	$103	$     7	$280	$  44	$ (18)	$236	$ 59	$25	$44
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Curtailment effects	$  (3)						$  (3)
Settlements	(2)						(2)
Current year actuarial loss (gain)	212	$(264)	$257	$198	$(274)	$218	14	$10	$39
Recognition of actuarial gain (loss)	(29)	30	(217)	(4)	41	(187)	(25)	(11)	(30)
Current year prior service cost	25		3	25		3
Amortization of prior service (cost) credit	(6)	(5)	(8)	(7)	(6)	(9)	1	1	1
Total recognized in other comprehensive (income) loss	$197	$(239)	$  35	$212	$(239)	$  25	$(15)	$  0	$10
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$300	$(232)	$315	$256	$(257)	$261	$ 44	$25	$54

	Postretirement benefits
	2014		2013		2012
Service cost	$	11	$	13	$	13
Interest cost		38		39		45
Amortization of net loss				15		15
Amortization of prior service credit		(6)		(6)		(6)
Total net periodic benefit expense	$	43	$	61	$	67
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Current year actuarial loss (gain)	$	49	$	(178)	$	20
Amortization of actuarial loss				(15)		(16)
Current year prior service credit		(5)		(5)
Amortization of prior service credit		6		6		6
Total recognized in other comprehensive (income) loss	$	50	$	(192)	$	10
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	93	$	(131)	$	77

The Company expects to recognize $6 million of net prior service cost as a component of net periodic pension cost in 2015 for its defined benefit pension plans.  The Company expects to recognize $5 million of net loss and $6 million of net prior service credit as components of net periodic postretirement benefit cost in 2015.

Corning uses a hypothetical yield curve and associated spot rate curve to discount the plan’s projected benefit payments.  Once the present value of projected benefit payments is calculated, the suggested discount rate is equal to the level rate that results in the same present value.  The yield curve is based on actual high-quality corporate bonds across the full maturity spectrum, which also includes private placements as well as Eurobonds that are denominated in U.S. currency.  The curve is developed from yields on approximately 350-375 bonds from four grading sources, Moody’s, S&P, Fitch and the Dominion Bond Rating Service.  A bond will be included if at least half of the grades from these sources are Aa, non-callable bonds.  The very highest 10% yields and the lowest 40% yields are excluded from the curve to eliminate outliers in the bond population.

Mortality is one of the key assumptions used in valuing liabilities of retirement plans.  It is used to assign a probability of payment for future plan benefits that are contingent upon participants’ survival.  To make this assumption, benefit plan sponsors typically use a base mortality table and an improvement scale that adjusts the rates of mortality for future anticipated changes to historical death rates.  For the past seven years, Corning has utilized the RP 2000 mortality table with improvement Scale AA in performing valuations of its U.S. pension and OPEB liabilities.  On October 27, 2014, the Society of Actuaries (“SOA”) published new mortality tables for benefit plan sponsors to consider when measuring their benefit plan costs and obligations.  These tables reflect the fact that life expectancies have improved since the last comprehensive study of mortality data was released in 2000.  In the fourth quarter of 2014, Corning undertook a review of its mortality assumption for its U.S. benefit plans to determine if an update to our current mortality table was appropriate.  Based on the findings of this analysis, Corning believes that the RP-2014 table adjusted for Corning's experience with future improvements projected using scale BB-2D represents the best estimate of future mortality improvement for Corning’s U.S. benefit plans.   The impact of the mortality table change was an increase of $88 million to our pension obligation.

Measurement of postretirement benefit expense is based on assumptions used to value the postretirement benefit obligation at the beginning of the year.

The weighted-average assumptions used to determine benefit obligations at December 31 follow:

	Pension benefits
	Domestic			International			Postretirement benefits
	2014	2013	2012	2014	2013	2012	2014	2013	2012
Discount rate	4.00%	4.75%	3.75%	3.21%	4.08%	4.48%	4.00%	4.75%	4.00%
Rate of compensation increase	3.50%	4.00%	4.00%	3.88%	3.85%	3.45%

The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 follow:

	Pension benefits
	Domestic			International			Postretirement benefits
	2014	2013	2012	2014	2013	2012	2014	2013	2012
Discount rate	4.75%	3.75%	4.75%	4.08%	4.48%	4.40%	4.75%	4.00%	4.75%
Expected return on plan assets	6.25%	6.00%	6.00%	4.12%	3.73%	6.01%
Rate of compensation increase	4.00%	4.00%	4.25%	3.85%	3.45%	3.44%

The assumed rate of return was determined based on the current interest rate environment and historical market premiums relative to fixed income rates of equities and other asset classes.  Reasonableness of the results is tested using models provided by the plan actuaries.

Assumed health care trend rates at December 31	2014	2013
Health care cost trend rate assumed for next year	6.67%	7%
Rate that the cost trend rate gradually declines to	5%	5%
Year that the rate reaches the ultimate trend rate	2020	2020

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.  A one-percentage-point change in assumed health care cost trend rates would have the following effects (in millions):

	One-percentage-point increase	One-percentage-point decrease
Effect on annual total of service and interest cost	$  4	$  (3)
Effect on postretirement benefit obligation	$49	$(41)

Plan Assets

Corning’s expected long-term rates of return on plan assets reflect the average rates of earnings expected on the funds invested to provide for the benefits included in our domestic and international projected benefit obligations.  We based these rates on asset/liability forecast modeling, which is based on our current asset allocation, the return and standard deviation for each asset class, current market conditions and transitions from current conditions to long-term returns.

The Company’s overall investment strategy is to obtain sufficient return to offset or exceed inflation and provide adequate liquidity to meet the benefit obligations of the pension plan.  Investments are made in public securities to ensure adequate liquidity to support benefit payments.  Domestic and international stocks and bonds provide diversification to the portfolio.  The target allocation range for global equity investment is 20%-25% which includes large, mid and small cap companies and investments in both developed and emerging markets.  The target allocation for bond investments is 60%, which predominately includes corporate bonds.  Long duration fixed income assets are utilized to mitigate the sensitivity of funding ratios to changes in interest rates.  The target allocation range for non-public investments in private equity and real estate is 5%-15%, and is used to enhance returns and offer additional asset diversification.  The target allocation range for commodities is 0%-5%, which provides some inflation protection to the portfolio.

The following tables provide fair value measurement information for the Company’s major categories of our domestic defined benefit plan assets:

			Fair value measurements at reporting date using
(in millions)	December 31, 2014		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Equity securities:
U.S. companies	$	310	$	49	$	261
International companies		327		78		249
Fixed income:
U.S. corporate bonds		1,720		166		1,554
Private equity (1)		192					$	192
Real estate (2)		84						84
Cash equivalents		80		80
Commodities (3)		101				101
Total	$	2,814	$	373	$	2,165	$	276

(1)   This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in U.S. companies.  The inputs are valued by discounted cash flow analysis and comparable sale analysis.

(2)   This category includes industrial, office, apartments, hotels, infrastructure, and retail investments which are limited partnerships predominately in the U.S.  The inputs are valued by discounted cash flow analysis; comparable sale analysis and periodic external appraisals.

(3)   This category includes investments in energy, industrial metals, precious metals, agricultural and livestock primarily through futures, options, swaps, and exchange traded funds.

			Fair value measurements at reporting date using
(in millions)	December 31, 2013		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Equity securities:
U.S. companies	$	325	$	216	$	109
International companies		294		118		176
Fixed income:
U.S. corporate bonds		1,538		142		1,396
Private equity (1)		207					$	207
Real estate (2)		93						93
Cash equivalents		39		39
Commodities (3)		100				100
Total	$	2,596	$	515	$	1,781	$	300

(1) This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in U.S. companies.  The inputs are valued by discounted cash flow analysis and comparable sale analysis.

(2) This category includes industrial, office, apartments, hotels, infrastructure, and retail investments which are limited partnerships predominately in the U.S.  The inputs are valued by discounted cash flow analysis; comparable sale analysis and periodic external appraisals.

(3) This category includes investments in energy, industrial metals, precious metals, agricultural and livestock primarily through futures, options, swaps, and exchange traded funds.

The following tables provide fair value measurement information for the Company’s major categories of our international defined benefit plan assets:

			Fair value measurements at reporting date using
(in millions)	December 31, 2014		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Equity securities:
U.S. companies	$	6			$	6
International companies		22				22
Fixed income:
International fixed income		361	$	293		68
Insurance contracts		5					$	5
Mortgages		7						7
Cash equivalents		48		48
Total	$	449	$	341	$	96	$	12

			Fair value measurements at reporting date using
(in millions)	December 31, 2013		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Equity securities:
U.S. companies	$	6			$	6
International companies		22				22
Fixed income:
International fixed income		245	$	185		60
Insurance contracts		6					$	6
Mortgages
Cash equivalents		21		21
Total	$	300	$	206	$	88	$	6

The tables below set forth a summary of changes in the fair value of the defined benefit plans Level 3 assets for the years ended December 31, 2014 and 2013:

	Level 3 assets – Domestic				Level 3 assets – International
	Year ended December 2014				Year ended December 2014
(in millions)	Private equity		Real estate		Mortgages		Insurance contracts
Beginning balance at December 31, 2013	$	207	$	93	$	0	$	6
Actual return on plan assets relating to assets still held at the reporting date		31		8				1
Transfers in and/or out of level 3		(46)		(17)		7		(2)
Ending balance at December 31, 2014	$	192	$	84	$	7	$	5

	Level 3 assets – Domestic				Level 3 assets – International
	Year ended December 2013				Year ended December 2013
(in millions)	Private equity		Real estate		Mortgages		Insurance contracts
Beginning balance at December 31, 2012	$	221	$	103	$	0	$	6
Actual return on plan assets relating to assets still held at the reporting date		25		9
Transfers in and/or out of level 3		(39)		(19)
Ending balance at December 31, 2013	$	207	$	93	$	0	$	6

Credit Risk

61% of domestic plan assets are invested in long duration bonds.  The average rating for these bonds is A.  These bonds are subject to credit risk, such that a decline in credit ratings for the underlying companies, countries or assets (for asset-backed securities) would result in a decline in the value of the bonds.  These bonds are also subject to default risk.

Currency Risk

12% of domestic assets are valued in non-U.S. dollar denominated investments that are subject to currency fluctuations.  The value of these securities will decline if the U.S. dollar increases in value relative to the value of the currencies in which these investments are denominated.

Liquidity Risk

10% of the domestic securities are invested in Level 3 securities.  These are long-term investments in private equity and private real estate investments that may not mature or be sellable in the near-term without significant loss.

At December 31, 2014 and 2013, the amount of Corning common stock included in equity securities was not significant.

Cash Flow Data

In 2015, we anticipate making voluntary cash contributions of approximately $65 million to our domestic defined benefit plan and approximately $28 million to our international defined benefit plans.

The following reflects the gross benefit payments that are expected to be paid for our domestic and international defined benefit pension plans, the postretirement medical and life plans and the gross amount of annual Medicare Part D federal subsidy expected to be received (in millions):

	Expected benefit payments
	Domestic pension benefits	International pension benefits	Postretirement benefits	Expected federal subsidy payments postretirement benefits
2015	$   202	$  27	$  48	$  2
2016	$   185	$  22	$  49	$  2
2017	$   189	$  23	$  49	$  3
2018	$   194	$  26	$  48	$  3
2019	$   199	$  26	$  48	$  3
2020-2024	$1,091	$165	$239	$15

Other Benefit Plans

We offer defined contribution plans covering employees meeting certain eligibility requirements.  Total consolidated defined contribution plan expense was $62 million, $63 million and $50 million for the years ended December 31, 2014, 2013 and 2012, respectively.