12. Retirement Plans

We have funded noncontributory defined benefit pension plans for a significant portion of our employees. In addition, we have an unfunded supplemental pension plan covering certain employees, which provides incremental payments that would have been payable from our principal pension plans, were it not for limitations imposed by income tax regulations. The plans provide defined benefits based on years of service and final average salary. Additionally, we maintain an unfunded postretirement medical plan that provides health benefits to certain qualified retirees from ages 55 through 65. The measurement date for all retirement plans is December 31.

The following table summarizes the benefit obligations, the fair value of plan assets, and the funded status of our pension and postretirement medical plans:

	Funded						Unfunded						Postretirement
	Pension Plans						Pension Plan						Medical Plan
	2015			2014			2015			2014			2015			2014
	(In millions)
Change in benefit obligation
Balance at January 1	$	2,450		$	1,957		$	278		$	253		$	94		$	97
Service cost		51			45			16			12			4			4
Interest cost		93			91			9			9			3			3
Actuarial (gain) loss (a)		(156	)		470			(2	)		61			5			(4	)
Benefit payments (b)		(85	)		(77	)		(42	)		(57	)		(8	)		(6	)
Plan curtailments		(4	)		(3	)		—			—			—			—
Special termination benefits		1			2			—			—			—			—
Foreign currency exchange rate changes		(29	)		(35	)		—			—			—			—
Balance at December 31		2,321			2,450			259			278			98			94
Change in fair value of plan assets
Balance at January 1	$	2,251		$	2,145		$	—		$	—		$	—		$	—
Actual return on plan assets		28			151			—			—			—			—
Employer contributions		44			68			42			57			8			6
Benefit payments (b)		(85	)		(77	)		(42	)		(57	)		(8	)		(6	)
Foreign currency exchange rate changes		(32	)		(36	)		—			—			—			—
Balance at December 31		2,206			2,251			—			—			—			—
Funded status (plan assets greater (less) than benefit obligations) at December 31	$	(115	)	$	(199	)	$	(259	)	$	(278	)	$	(98	)	$	(94	)
Unrecognized net actuarial (gains) losses		775			859			105			135			—			(5	)

(a)	The change in discount rate and mortality assumptions in 2014 resulted in total actuarial losses of approximately $330 million and $125 million, respectively.

(b)	Benefit payments include lump-sum settlement payments of $41 million in 2015 and $55 million in 2014.

Amounts recognized in the Consolidated Balance Sheet at December 31 consisted of the following:

	Funded						Unfunded						Postretirement
	Pension Plans						Pension Plan						Medical Plan
	2015			2014			2015			2014			2015			2014
	(In millions)
Pension asset / (accrued benefit liability)	$	(115	)	$	(199	)	$	(259	)	$	(278	)	$	(98	)	$	(94	)
Accumulated other comprehensive loss, pre-tax (a)		775			859			105			135			—			(5	)

(a)	The after‑tax deficit reflected in Accumulated other comprehensive income (loss) was $563 million at December 31, 2015 (2014: $652 million).

At December 31, 2015, the accumulated benefit obligation for the funded and unfunded defined benefit pension plans was $2,223 million and $196 million, respectively (2014: $2,325 million and $214 million, respectively).

The net periodic benefit cost for funded and unfunded pension plans, and the postretirement medical plan, is as follows:

	Pension Plans									Postretirement Medical Plan
	2015			2014			2013			2015		2014		2013
	(In millions)
Service cost	$	67		$	57		$	73		$	4	$	4	$	4
Interest cost		102			100			89			3		3		3
Expected return on plan assets		(168	)		(161	)		(141	)		—		—		—
Amortization of unrecognized net actuarial losses		75			32			61			—		—		1
Settlement loss		17			24			—			—		—		—
Curtailment loss		—			—			1			—		—		—
Special termination benefit recognized		1			1			5			—		—		—
Net periodic benefit cost	$	94		$	53		$	88		$	7	$	7	$	8

For 2016, the pension and postretirement medical expense is estimated to be approximately $71 million, which includes approximately $64 million related to the amortization of unrecognized net actuarial losses.

The weighted average actuarial assumptions used for funded and unfunded pension plans were as follows:

	2015			2014			2013
Weighted average assumptions used to determine benefit obligations at December 31
Discount rate		4.1	%		3.8	%		4.6	%
Rate of compensation increase		4.5	%		5.0	%		4.4	%
Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31
Discount rate		3.8	%		4.6	%		4.0	%
Expected return on plan assets		7.5	%		7.5	%		7.5	%
Rate of compensation increase		5.0	%		4.4	%		4.3	%

The actuarial assumptions used for postretirement medical plan, as follows:

	2015			2014			2013
Assumptions used to determine benefit obligations at December 31
Discount rate		3.5	%		3.1	%		3.6	%
Initial health care trend rate		6.7	%		6.8	%		7.1	%
Ultimate trend rate		4.5	%		4.5	%		4.6	%
Year in which ultimate trend rate is reached		2038			2029			2027

The assumptions used to determine net periodic benefit cost for each year were established at the end of each previous year while the assumptions used to determine benefit obligations were established at each year‑end. The net periodic benefit cost and the actuarial present value of benefit obligations are based on actuarial assumptions that are reviewed on an annual basis. The discount rate is developed based on a portfolio of high‑quality, fixed income debt instruments with maturities that approximate the expected payment of plan obligations. The overall expected return on plan assets is developed from the expected future returns for each asset category, weighted by the target allocation of pension assets to that asset category.

Our investment strategy is to maximize long‑term returns at an acceptable level of risk through broad diversification of plan assets in a variety of asset classes. Asset classes and target allocations are determined by our investment committee and include domestic and foreign equities, fixed income, and other investments, including hedge funds, real estate and private equity. Investment managers are prohibited from investing in securities issued by the Corporation unless indirectly held as part of an index strategy. The majority of plan assets are highly liquid, providing ample liquidity for benefit payment requirements. The current target allocations for plan assets are 50% equity securities, 25% fixed income securities (including cash and short‑term investment funds) and 25% to all other types of investments. Asset allocations are rebalanced on a periodic basis throughout the year to bring assets to within an acceptable range of target levels.

The following tables provide the fair value of the financial assets of the funded pension plans as of December 31, 2015 and 2014 in accordance with the fair value measurement hierarchy described in Note 1, Nature of Operations, Basis of Presentation and Summary of Accounting Policies included herewith.

	Level 1		Level 2		Level 3		Total
	(In millions)
December 31, 2015
Cash and short-term investment funds	$	—	$	34	$	—	$	34
Equities:
U.S. equities (domestic)		556		—		—		556
International equities (non-U.S.)		159		266		—		425
Global equities (domestic and non-U.S.)		2		217		—		219
Fixed income:
Treasury and government issued (a)		—		213		—		213
Government related (b)		—		6		1		7
Mortgage-backed securities (c)		—		174		2		176
Corporate		—		157		—		157
Other:
Hedge funds		—		—		216		216
Private equity funds		—		—		122		122
Real estate funds		12		—		52		64
Diversified commodities funds		—		17		—		17
	$	729	$	1,084	$	393	$	2,206
December 31, 2014
Cash and short-term investment funds	$	6	$	47	$	—	$	53
Equities:
U.S. equities (domestic)		719		—		—		719
International equities (non-U.S.)		72		177		—		249
Global equities (domestic and non-U.S.)		10		218		—		228
Fixed income:
Treasury and government issued (a)		—		222		—		222
Government related (b)		—		7		1		8
Mortgage-backed securities (c)		—		147		1		148
Corporate		3		137		—		140
Other:
Hedge funds		—		—		302		302
Private equity funds		—		—		105		105
Real estate funds		12		—		48		60
Diversified commodities funds		—		17		—		17
	$	822	$	972	$	457	$	2,251

(a)	Includes securities issued and guaranteed by U.S. and non‑U.S. governments.

(b)	Primarily consists of securities issued by governmental agencies and municipalities.

(c)	Comprised of U.S. residential and commercial mortgage-backed securities.

Cash and short‑term investment funds consist of cash on hand and short-term investment funds that provide for daily investments and redemptions and are valued and carried at a $1 net asset value (NAV) per fund share. Cash on hand is classified as Level 1 and short‑term investment funds are classified as Level 2.

Equities consist of equity securities issued by U.S. and non‑U.S. corporations as well as commingled investment funds that invest in equity securities. Individually held equity securities, which are traded actively on exchanges and have readily available price quotes, are classified as Level 1. Commingled fund values, which are valued at the NAV per fund share derived from the quoted prices in active markets of the underlying securities, are classified as Level 2.

Fixed income investments consist of securities issued by the U.S. government, non‑U.S. governments, governmental agencies, municipalities and corporations, and agency and non-agency mortgage‑backed securities. This investment category also includes commingled investment funds that invest in fixed income securities. Individual fixed income securities are generally priced on the basis of evaluated prices from independent pricing services, which are monitored and provided by the third-party custodial firm responsible for safekeeping plan assets. Individual fixed income securities are classified as Level 2 or 3. Fixed income commingled fund values, which reflect the NAV per fund share derived indirectly from observable inputs or from quoted prices in less liquid markets of the underlying securities, are classified as Level 2.

Other investments consist of exchange‑traded real estate investment trust securities, as well as commingled fund and limited partnership investments in hedge funds, private equity, real estate and diversified commodities. Exchange‑traded securities are classified as Level 1. Commingled fund values reflect the NAV per fund share and are classified as Level 2 or 3. Private equity and real estate limited partnership values reflect information reported by the fund managers, which include inputs such as cost, operating results, discounted future cash flows, market based comparable data and independent appraisals from third‑party sources with professional qualifications. Hedge funds, private equity and non‑exchange‑traded real estate investments are classified as Level 3.

The following tables provide changes in financial assets that are measured at fair value based on Level 3 inputs that are held by institutional funds classified as:

							Private			Real
	Fixed			Hedge			Equity			Estate
	Income			Funds			Funds			Funds			Total
	(In millions)
Balance at January 1, 2014	$	3		$	291		$	89		$	47		$	430
Actual return on plan assets		—			9			15			—			24
Purchases, sales or other settlements		(1	)		2			1			1			3
Net transfers in (out) of Level 3		—			—			—			—			—
Balance at December 31, 2014		2			302			105			48			457
Actual return on plan assets		—			(5	)		18			9			22
Purchases, sales or other settlements		1			(81	)		(1	)		(5	)		(86	)
Net transfers in (out) of Level 3		—			—			—			—			—
Balance at December 31, 2015	$	3		$	216		$	122		$	52		$	393

We expect to contribute approximately $27 million to our funded pension plans in 2016.

Estimated future benefit payments by the funded and unfunded pension plans, and the postretirement medical plan, which reflect expected future service, are as follows (in millions):

2016	$	111
2017		117
2018		120
2019		129
2020		134
Years 2021 to 2025		711

We also have several defined contribution plans for certain eligible employees. Employees may contribute a portion of their compensation to these plans and we match a portion of the employee contributions. We recorded expense of $28 million in 2015 for contributions to these plans (2014: $32 million; 2013: $41 million).

In February 2016, we assumed the HOVENSA pension plan as per the court approved settlement of the HOVENSA Liquidation Plan. See Note 23, Subsequent Events.