NOTE 8 - PENSION AND OTHER POSTRETIREMENT PLANS

The following summarizes the significant pension and other postretirement plans of United:

Pension Plans

United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U.S. non-pilot employees. Each of these plans provide benefits based on a combination of years of benefit accruals service and an employee’s final average compensation. Additional benefit accruals were frozen under the plan covering certain pilot employees during 2005 and management and administrative employees as of December 31, 2013 at which time any existing accrued benefits for those employees were preserved. Benefit accruals for certain non-pilot employees under its other primary defined benefit pension plan continue. United maintains additional defined benefit pension plans, which cover certain international employees.

Other Postretirement Plans

We maintain postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance benefits to certain retirees participating in the plan. Benefits provided are subject to applicable contributions, co-payments, deductible and other limits as described in the specific plan documentation.

Changes in benefits that either qualified as curtailments (which reduced prior actuarial losses) or negative plan amendments are detailed in the tables below. Actuarial assumption changes are reflected as a component of the net actuarial gains/(losses) during 2014 and 2013. These amounts will be amortized over the average remaining service life of the covered active employees or the average life expectancy of inactive participants and will impact 2014 and 2013 pension and retiree medical expense as described below.

The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):


	Pension Benefits
	Year Ended December 31, 2014		Year Ended December 31, 2013
Accumulated benefit obligation:	$	4,068	$	3,383


Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	4,000	$	4,526
Service cost		98		121
Interest cost		201		191
Actuarial (gain) loss		807		(464)
Gross benefits paid and settlements		(281)		(269)
Curtailments		—		(84)
Other		(22)		(21)

Projected benefit obligation at end of year	$	4,803	$	4,000


Change in plan assets:
Fair value of plan assets at beginning of year	$	2,397	$	2,157
Actual gain on plan assets		151		239
Employer contributions		307		277
Gross benefits paid and settlements		(281)		(269)
Other		(12)		(7)

Fair value of plan assets at end of year	$	2,562	$	2,397

Funded status—Net amount recognized	$	(2,241)	$	(1,603)


	Pension Benefits
	December 31, 2014		December 31, 2013
Amounts recognized in the consolidated balance sheets consist of:
Noncurrent asset	$	2	$	49
Current liability		(17)		(2)
Noncurrent liability		(2,226)		(1,650)

Total liability	$	(2,241)	$	(1,603)

Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss	$	(982)	$	(162)
Prior service loss		(1)		—

Total accumulated other comprehensive loss	$	(983)	$	(162)


	Other Postretirement Benefits
	Year Ended December 31, 2014		Year Ended December 31, 2013
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,819	$	2,743
Service cost		19		52
Interest cost		88		110
Plan participants’ contributions		67		67
Actuarial (gain) loss		262		(640)
Federal subsidy		4		7
Plan amendments		(3)		(331)
Curtailments		8		8
Gross benefits paid		(212)		(197)

Benefit obligation at end of year	$	2,052	$	1,819

Change in plan assets:
Fair value of plan assets at beginning of year	$	57	$	58
Actual return on plan assets		1		1
Employer contributions		144		128
Plan participants’ contributions		67		67
Benefits paid		(212)		(197)
Fair value of plan assets at end of year		57		57

Funded status—Net amount recognized	$	(1,995)	$	(1,762)


	Other Postretirement Benefits
	December 31, 2014		December 31, 2013
Amounts recognized in the consolidated balance sheets consist of:
Current liability	$	(62)	$	(59)
Noncurrent liability		(1,933)		(1,703)

Total liability	$	(1,995)	$	(1,762)

Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial gain	$	233	$	555
Prior service credit		278		306

Total accumulated other comprehensive income	$	511	$	861

The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets at December 31 (in millions):


	2014		2013
Projected benefit obligation	$	4,625	$	3,820
Accumulated benefit obligation		3,930		3,245
Fair value of plan assets		2,387		2,176

Net periodic benefit cost for the years ended December 31 included the following components (in millions):


	2014				2013				2012
	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Service cost	$	98	$	19	$	121	$	52	$	99	$	50
Interest cost		201		88		191		110		184		124
Expected return on plan assets		(180)		(2)		(163)		(2)		(138)		(2)
Curtailment loss		—		—		2		2		—		—
Amortization of prior service credits		—		(31)		—		(3)		(1)		—
Settlement (gain) loss		1		—		(10)		—		1		—
Amortization of unrecognized actuarial (gain) loss		12		(47)		48		3		21		(3)

Net periodic benefit cost	$	132	$	27	$	189	$	162	$	166	$	169

The estimated amounts that will be amortized in 2015 out of accumulated other comprehensive income (loss) into net periodic benefit cost are as follows (in millions):


	Pension Benefits		Other Postretirement Benefits
Actuarial (gain) loss	$	87	$	(22)
Prior service credit		—		(32)

The assumptions used for the benefit plans were as follows:


	Pension Benefits
Assumptions used to determine benefit obligations	2014	2013
Discount rate	4.20%	5.09%
Rate of compensation increase	3.66%	3.49%

Assumptions used to determine net expense
Discount rate	5.10%	4.48%
Expected return on plan assets	7.36%	7.56%
Rate of compensation increase	3.50%	2.48%


	Other Postretirement Benefits
Assumptions used to determine benefit obligations	2014		2013
Discount rate		4.07%		4.94%

Assumptions used to determine net expense
Discount rate		4.94%		4.12%
Expected return on plan assets		4.00%		4.00%
Health care cost trend rate assumed for next year		7.00%		7.25%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023)		5.00%		5.00%

During 2014, the Company experienced changes in its benefit obligations related to changes in discount rates and mortality tables in its pension plans and other postretirement benefit plans. The Company used the Society of Actuaries’ 2014 mortality tables, modified to reflect the Social Security Administration Trustee’s Report on current projections regarding expected longevity improvements.

The Company selected the 2014 discount rate for most of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2014, that would provide the necessary cash flows to match projected benefit payments.

We develop our expected long-term rate of return assumption for such plans based on historical experience and by evaluating input from the trustee managing the plans’ assets. Our expected long-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review our actual asset allocation and the pension plans’ investments are periodically rebalanced to our targeted allocation when considered appropriate. United’s plan assets are allocated within the following guidelines:


	Percent of Total	Expected Long-Term Rate of Return

Equity securities	40-54 %	10 %
Fixed-income securities	26-34	4
Alternatives	14-20	7
Other	4-8	6

One-hundred percent of other postretirement plan assets are invested in a deposit administration fund.

Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement plans. A 1% change in the assumed health care trend rate for the Company would have the following additional effects (in millions):


	1% Increase		1% Decrease
Effect on total service and interest cost for the year ended December 31, 2014	$	13	$	(11)
Effect on postretirement benefit obligation at December 31, 2014		254		(220)

A one percentage point decrease in the weighted average discount rate would increase the postretirement benefit liability by approximately $247 million and increase the estimated 2014 benefits expense by approximately $10 million.

Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:


Level 1		Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value
Level 2		Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs
Level 3		Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities

Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows:

(a) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities; and

(b) Income approach. Techniques to convert future amounts to a single current value based on market expectations (including present value techniques, option-pricing and excess earnings models).

The following tables present information about United’s pension and other postretirement plan assets at December 31 (in millions):


	2014								2013
Pension Plan Assets:	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Equity securities funds	$	1,181	$	388	$	793	$	—	$	1,158	$	389	$	769	$	—
Fixed-income securities		813		—		813		—		702		—		698		4
Alternatives		359		—		148		211		405		—		199		206
Insurance contract		21		—		—		21		26		—		—		26
Other investments		188		—		165		23		106		—		106		—

Total	$	2,562	$	388	$	1,919	$	255	$	2,397	$	389	$	1,772	$	236

Other Postretirement Benefit Plan Assets:
Deposit administration fund	$	57	$	—	$	—	$	57	$	57	$	—	$	—	$	57

Equity and Fixed-Income Securities. Equity securities include investments in both developed market and emerging market equity securities. Fixed-income securities include primarily U.S. and non-U.S. government fixed-income securities and U.S. and non-U.S corporate fixed-income securities.

Insurance Contract and Deposit Administration Fund. Each of these investments are stable value investment products structured to provide investment income.

Alternatives. Alternative investments consist primarily of investments in hedge funds, real estate and private equity interests.

Other investments. Other investments consist primarily of investments in currency and commodity commingled funds.

The reconciliation of United’s defined benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31, 2014 and 2013 is as follows (in millions):


	2014		2013
Balance at beginning of year	$	293	$	256
Actual return on plan assets:
Sold during the year		7		15
Held at year end		6		7
Purchases, sales, issuances and settlements (net)		6		15

Balance at end of year	$	312	$	293

Funding requirements for tax-qualified defined benefit pension plans are determined by government regulations. United’s contributions reflected above have satisfied its required contributions through the 2014 calendar year. In 2015, employer anticipated contributions to all of United’s pension and postretirement plans are at least $400 million and approximately $120 million, respectively.

The estimated future benefit payments, net of expected participant contributions, in United’s pension plans and other postretirement benefit plans as of December 31, 2014 are as follows (in millions):


	Pension		Other Postretirement		Other Postretirement— subsidy receipts
2015	$	299	$	125	$	6
2016		283		126		7
2017		294		129		8
2018		291		132		9
2019		293		135		9
Years 2020 – 2024		1,581		732		56

Defined Contribution Plans

Depending upon the employee group, employer contributions consist of matching contributions and/or non-elective employer contributions. United’s employer contribution percentages vary from 1% to 16% of eligible earnings depending on the terms of each plan. United recorded contributions to its defined contribution plans of $503 million, $433 million and $330 million in the years ended December 31, 2014, 2013 and 2012, respectively.

Multi-Employer Plans

United’s participation in the IAM National Pension Plan (“IAM Plan”) for the annual period ended December 31, 2014 is outlined in the table below. There have been no significant changes that affect the comparability 2014 and 2013 contributions. The risks of participating in these multi-employer plans are different from single-employer plans, as United may be subject to additional risks that others do not meet their obligations, which in certain circumstances could revert to United. The IAM Plan reported $368 million in employers’ contributions for the year ended December 31, 2013. For 2013, the Company’s contributions to the IAM Plan represented more than 5% of total contributions to the IAM Plan.


Pension Fund		IAM National Pension Fund
EIN/ Pension Plan Number		51-6031295 - 002
Pension Protection Act Zone Status (2014 and 2013)		Green Zone. Plans in the green zone are at least 80 percent funded.
FIP/RP Status Pending/Implemented		No
United’s Contributions		$39 million, $38 million and $36 million in the years ended December 31, 2014, 2013 and 2012, respectively
Surcharge Imposed		No
Expiration Date of Collective Bargaining Agreement		N/A

At the date the financial statements were issued, Forms 5500 were not available for the plan year ending in 2014.

Profit Sharing

Substantially all employees participated in profit sharing, which depending on the work group and the Company’s earnings thresholds, determines profit sharing payments based on receiving a portion of 5% to 20% of total pre-tax earnings, excluding special items, profit sharing expense and share-based compensation expense, to eligible employees. Eligible U.S. co-workers in each participating work group received a profit sharing payout using a formula based on the ratio of each qualified co-worker’s annual eligible earnings to the eligible earnings of all qualified co-workers in all domestic work groups. The international profit sharing plan paid eligible non-U.S. co-workers based on the calculation under the U.S. profit sharing plan for management and administrative employees. The Company recorded profit sharing and related payroll tax expense of $235 million, $190 million and $119 million in 2014, 2013 and 2012, respectively. Profit sharing expense is recorded as a component of Salaries and related costs in the Company’s consolidated statements of operations.