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Employee Benefit Plans
12 Months Ended
Dec. 27, 2013
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract]  
Employee Benefit Plans
Employee Benefit Plans

The Company sponsors defined benefit pension plans principally for salaried, management personnel.  For employees hired on or before December 31, 2002, the plans provide eligible employees with retirement benefits based predominantly on years of service and compensation rates near retirement.  For employees hired in 2003 or thereafter, benefits are determined based on a cash balance formula, which provides benefits by utilizing interest and pay credits based upon age, service and compensation. In addition to these plans, the Company sponsors a self-insured, post-retirement medical plan and a life insurance plan that provide benefits to full-time, salaried, management employees, hired prior to January 1, 2003, upon their retirement if certain eligibility requirements are met.  Prior to 2011, the post-retirement medical plan was partially funded by all participating retirees, with retiree contributions adjusted annually.  Beginning in 2011, Medicare-eligible retirees are covered by a health reimbursement arrangement, which is an employer-funded account that can be used for reimbursement of eligible medical expenses. Non-Medicare eligible retirees are covered by a self-insured program. The life insurance plan is non-contributory.
 
The Company engages independent, external actuaries to compute the amounts of liabilities and expenses related to these plans subject to the assumptions that the Company selects. In order to perform this valuation, the actuaries are provided with the details of the population covered at the beginning of the year, summarized in the table below, and projects that population forward to the end of the year.
NOTE 8.  Employee Benefit Plans, continued

 
Summary of Participants as of
 
January 1, 2013
 
Pension Plans
 
Post-retirement Medical Plan
Active Employees
5,153

 
2,176

Retirees and Beneficiaries
11,569

 
12,277

Other(a)
5,715

 
112

Total
22,437

 
14,565


(a) For pension plans, the other category consists mostly of terminated but vested former employees.  For post-retirement plans, the other category consists of employees on long-term disability that have not yet retired.
 
The benefit obligation for these plans represents the liability of the Company for current and retired employees and is affected primarily by the following:
service cost (benefits attributed to employee service during the period);
interest cost (interest on the liability due to the passage of time);
actuarial gains/losses (experience during the year different from that assumed and changes in plan assumptions); and
benefits paid to participants.

Cash Flows

Plan assets are amounts that have been segregated and restricted to provide qualified pension plan benefits and include amounts contributed by the Company and amounts earned from invested contributions, net of benefits paid. Qualified pension plan obligations are funded in accordance with prescribed regulatory requirements and with an objective of meeting minimum funding requirements necessary to avoid restrictions on flexibility of plan operation and benefit payments.  During 2012, the Company made a contribution of $275 million to its qualified pension plans, of which $25 million was the required minimum contribution. At this time, the Company anticipates that no further contributions to its qualified pension plans will be required in 2014. The Company funds the cost of the post-retirement medical and life insurance benefits as well as nonqualified pension benefits on a pay-as-you go basis.

Future expected benefit payments are as follows:
 
Expected Cash Flows
(Dollars in Millions)
Pension Benefits
 
Post-retirement Benefits
2014
$
167

 
$
38

2015
171

 
36

2016
173

 
34

2017
176

 
32

2018
179

 
31

2019-2023
910

 
126

Total
$
1,776

 
$
297


NOTE 8.  Employee Benefit Plans, continued

Plan Assets
 
The CSX Investment Committee (the “Investment Committee”), whose members were selected by the Chief Financial Officer and approved by the Chief Executive Officer, is responsible for oversight and investment of plan assets.  The Investment Committee utilizes an investment asset allocation strategy that is monitored on an ongoing basis and that is updated periodically in consideration of plan or employee changes, or changing market conditions. These studies provide an extensive modeling of asset investment return in conjunction with projected plan liabilities and seek to evaluate how to maximize return within the constraints of acceptable risk. The current asset allocation targets 60% equity investments and 40% fixed income investments and cash.  Within equity, a further target is currently established for 40% of total plan assets in domestic equity and 20% in international equity.  Allocations are evaluated for levels within 3% of targeted allocations and are adjusted quarterly as necessary. 

The distribution of pension plan assets as of the measurement date is shown in the table below, and these assets are netted against the pension liabilities on the balance sheet.

 
December 2013
 
December 2012
 
 
 
Percent of
 
 
 
Percent of
(Dollars in Millions)
Amount
 
Total Assets
 
Amount
 
Total Assets
Equity
$
1,619

 
65
%
 
$
1,408

 
61
%
Fixed Income
795

 
32

 
829

 
36

Cash and Cash Equivalents
86

 
3

 
57

 
3

Total
$
2,500

 
100
%
 
$
2,294

 
100
%

 
Under the supervision of the Investment Committee, individual investments or fund managers are selected in accordance with standards of prudence applicable to asset diversification and investment suitability.  The Company also selects fund managers with differing investment styles and benchmarks their investment returns against appropriate indices.  Fund investment performance is continuously monitored.  Acceptable performance is determined in the context of the long-term return objectives of the fund and appropriate asset class benchmarks.

Within the Company's equity funds, the U.S. stock segment includes diversification among large and small capitalization stocks.  Guidelines established with individual managers limit investment by industry sectors, individual stock issuer concentration and the use of derivatives and CSX securities.
 
Fixed income securities guidelines established with individual managers specify the types of allowable investments, such as government, corporate and asset-backed bonds, and limit diversification between domestic and foreign investments and the use of derivatives.  Additionally, guidelines stipulate minimum credit quality constraints and any prohibited securities.
 
For detailed information regarding the fair value of pension assets, see Note 13, Fair Value Measurements.

NOTE 8.  Employee Benefit Plans, continued

Benefit Obligation, Plan Assets and Funded Status

Changes in benefit obligation and the fair value of plan assets for the 2013 and 2012 calendar plan years are as follows:

 
Pension Benefits
 
Post-retirement Benefits
 
Plan Year
 
Plan Year
 
Plan Year
 
Plan Year
(Dollars in Millions)
2013
 
2012
 
2013
 
2012
Actuarial Present Value of Benefit Obligation
 
 
 
 
 
 
 
Accumulated Benefit Obligation
$
2,538

 
$
2,806

 
N/A

 
N/A

Projected Benefit Obligation
2,679

 
2,954

 
$
350

 
$
415

 
 
 
 
 
 
 
 
Change in Projected Benefit Obligation:
 

 
 

 
 

 
 

Projected Benefit Obligation at Beginning of Plan Year
$
2,954

 
$
2,668

 
$
415

 
$
388

Service Cost
49

 
44

 
3

 
4

Interest Cost
108

 
123

 
13

 
16

Plan Participants' Contributions

 

 
8

 
8

Plan Amendments

 

 

 
(1
)
Actuarial (Gain) Loss
(275
)
 
274

 
(49
)
 
43

Benefits Paid
(157
)
 
(155
)
 
(40
)
 
(43
)
Benefit Obligation at End of Plan Year
$
2,679

 
$
2,954

 
$
350

 
$
415

 
 
 
 
 
 
 
 
Change in Plan Assets:
 

 
 

 
 

 
 

Fair Value of Plan Assets at Beginning of Plan Year
$
2,294

 
$
1,850

 
$

 
$

Actual Return on Plan Assets
350

 
311

 

 

Qualified Employer Contributions

 
275

 

 

Non-qualified Employer Contributions
13

 
13

 
32

 
35

Plan Participants' Contributions

 

 
8

 
8

Benefits Paid
(157
)
 
(155
)
 
(40
)
 
(43
)
Fair Value of Plan Assets at End of Plan Year
2,500

 
2,294

 

 

Funded Status at End of Plan Year
$
(179
)
 
$
(660
)
 
$
(350
)
 
$
(415
)

NOTE 8.  Employee Benefit Plans, continued

For qualified plan funding purposes, assets and discounted liabilities are measured in accordance with ERISA, as well as other related provisions of the Internal Revenue Code and related regulations.  Under these funding provisions and the alternative measurements available thereunder, the Company estimates its unfunded obligation for qualified plans on an annual basis.
 
In accordance with Compensation-Retirement Benefits Topic in the ASC, an employer must recognize the funded status of a pension or other post-retirement benefit plan by recording a liability (underfunded plan) or asset (overfunded plan) for the difference between the projected benefit obligation (or the accumulated post-retirement benefit obligation for a postretirement benefit plan) and the fair value of plan assets at the plan measurement date.  Amounts related to pension and post-retirement benefits recorded in other long-term assets, labor and fringe benefits payable and other long-term liabilities on the balance sheet are as follows:
 
Pension Benefits
 
Post-retirement Benefits
 
December
 
December
 
December
 
December
(Dollars in Millions)
2013
 
2012
 
2013
 
2012
Amounts Recorded in Consolidated
 
 
 
 
 
 
 
Balance Sheets:
 
 
 
 
 
 
 
Long-term Assets (a)
$
44

 
$
3

 
$

 
$

Current Liabilities
(14
)
 
(15
)
 
(38
)
 
(41
)
Long-term Liabilities
(209
)
 
(648
)
 
(312
)
 
(374
)
Net Amount Recognized in
 

 
 

 
 

 
 

Consolidated Balance Sheet
$
(179
)
 
$
(660
)
 
$
(350
)
 
$
(415
)


(a)
Long-term assets relate to two of the qualified pension plans whose assets exceed projected benefit obligations.

The funded status, or amount by which the benefit obligation exceeds the fair value of plan assets, represents a liability. At December 2013, the status of CSX plans only with a net liability is disclosed below. The total fair value of all plans as of December 2013 was $2.5 billion, which includes the qualified pension plans with net assets.

 
Aggregate
Aggregate
(Dollars in Millions)
Fair Value
Projected
Benefit Obligations in Excess of Plan Assets
of Plan Assets
Benefit Obligation
Projected Benefit Obligation
$
69

$
(292
)
Accumulated Benefit Obligation
69

(280
)



NOTE 8.  Employee Benefit Plans, continued

Net Benefit Expense

The following table describes the components of expense/(income) related to net benefit expense recorded in labor and fringe on the income statement.
 
Pension Benefits
Fiscal Years
 
Post-retirement Benefits
Fiscal Years
(Dollars in Millions)
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Service Cost
$
49

 
$
44

 
$
40

 
$
3

 
$
4

 
$
2

Interest Cost
108

 
123

 
121

 
13

 
16

 
11

Expected Return on Plan Assets
(162
)
 
(166
)
 
(157
)
 

 

 

Amortization of Net Loss
100

 
82

 
71

 
14

 
9

 
7

Amortization of Prior Service Cost

 

 

 
(1
)
 
(1
)
 
(1
)
Net Periodic Benefit Expense
95

 
83

 
75

 
29

 
28

 
19

Settlement Gain(a)
(2
)
 
(2
)
 
(2
)
 

 

 

Total Expense
$
93

 
$
81

 
$
73

 
$
29

 
$
28

 
$
19


(a)
Settlement gains were recognized as one of the pension plan's lump-sum payments exceeded the sum of the service cost and interest cost recognized.  The gain is the recognition of a portion of its accumulated other comprehensive income related to that plan.

Pension and Other Post-Employment Benefits Adjustments

The following table shows the pre-tax change in other comprehensive loss (income) attributable to the components of net expense and the change in benefit obligation for CSX for pension and other post-employment benefits.
(Dollars in Millions)
Pension Benefits
 
Post-retirement Benefits
Components of Other Comprehensive
December
 
December
 
December
 
December
Loss (Income)
2013
 
2012
 
2013
 
2012
Recognized in the balance sheet
 
 
 
 
 
 
 
(Gains) Losses
$
(462
)
 
$
130

 
$
(48
)
 
$
43

Prior service credits

 

 

 
(1
)
Expense (Income) recognized in the income statement
 

 
 

 
 

 
 

Amortization of net losses (a)
$
100

 
$
82

 
$
14

 
$
9

Settlement gain
(2
)
 
(2
)
 

 

Amortization of prior service costs (b)

 

 
(1
)
 
(1
)

(a)
Amortization of net losses estimated to be expensed for 2014 is $57 million and $6 million for pension benefits and post-retirement benefits, respectively. The decrease in amortization is largely related to the impact of increasing discount rates.
(b)
Amortization of prior service costs estimated to be expensed in 2014 are less than $1 million for pension benefits. The estimated post-retirement benefits amount to be credited to expense for 2014 is $1 million.

NOTE 8.  Employee Benefit Plans, continued

As of December 2013, the balances of pre-tax amounts to be amortized that are included in accumulated other comprehensive loss (a component of shareholders’ equity) are as follows:
 
Pension
Benefits
 
Post-retirement
Benefits
Losses
$
658

 
$
73

Prior Service Costs (Credits)
1

 
(3
)
Total
$
659

 
$
70



Assumptions

The expected long-term average rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for benefits included in the projected benefit obligation. In estimating that rate, the Company gives appropriate consideration to the returns being earned by the plan assets in the funds and the rates of return expected to be available for reinvestment as well as the current and projected asset mix of the funds.  Management balances market expectations obtained from various investment managers and economists with both market and actual plan historical returns to develop a reasonable estimate of the expected long-term rate of return on assets.  As this assumption is long-term, it is adjusted less frequently than other assumptions used in pension accounting. 

Weighted-average assumptions used in accounting for the plans were as follows:
 
Pension Benefits
 
Post-retirement Benefits
 
2013
 
2012
 
2013
 
2012
Expected Long-term Return on Plan Assets:
 
 
 
 
 
 
 
Benefit Cost for Plan Year
7.75
%
 
8.00
%
 
N/A

 
N/A

Benefit Obligation at End of Plan Year
7.50
%
 
7.75
%
 
N/A

 
N/A

 
 
 
 
 
 
 
 
Discount Rates:
 
 
 
 
 
 
 
Benefit Cost for Plan Year
3.75
%
 
4.75
%
 
3.20
%
 
4.25
%
Benefit Obligation at End of Plan Year
4.75
%
 
3.75
%
 
4.25
%
 
3.20
%
 
 
 
 
 
 
 
 
Salary Scale Inflation
3.75
%
 
3.75
%
 
N/A

 
N/A



NOTE 8.  Employee Benefit Plans, continued

The net post-retirement benefit obligation for salaried, management personnel was determined using the following assumptions for the health care cost trend rate for medical plans. While it is expected that rates will decrease to 5% by 2020 for Medicare and 2021 for Non-Medicare eligible individuals, there may be yearly fluctuations. Additionally, there are cost differentials between Medicare and Non-Medicare eligible individuals which are reflected below.
 
Post-retirement Benefits
 
2013
 
2012
Health Care Cost Trend Rate:
 
 
 
Components of Benefit Cost:  Non-Medicare Eligible
8.5%
 
8.5%
Components of Benefit Cost:  Medicare Eligible
8.0%
 
8.0%
Benefit Obligations:  Non-Medicare Eligible
8.0%
 
8.5%
Benefit Obligations:  Medicare Eligible
7.5%
 
8.0%


For every 1% change in the assumed health care cost trend rate, service and interest cost will change by less than $1 million on a pre-tax basis on the consolidated income statements. For every 1% change in the health care cost trend rate, the Company’s benefit obligation will change by less than $1 million on the consolidated balance sheets.

Other Plans

Under collective bargaining agreements, the Company participates in a multi-employer benefit plan, which provides certain post-retirement health care and life insurance benefits to eligible contract employees. Premiums under this plan are expensed as incurred and amounted to $41 million, $46 million and $48 million in 2013, 2012 and 2011, respectively.

The Company maintains savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements.  Expense associated with these plans was $37 million, $29 million and $28 million for 2013, 2012 and 2011, respectively.