Retirement Plans

Our company and subsidiaries have various plans that cover a significant number of our employees. These plans include defined contribution plans, defined benefit plans, and other postretirement plans:

our defined contribution plans provide retirement benefits in return for services rendered. These plans provide an individual account for each participant and have terms that specify how contributions to the participant’s account are to be determined rather than the amount of pension benefits the participant is to receive. Contributions to these plans are based on pretax income and/or discretionary amounts determined on an annual basis. Our expense for the defined contribution plans for continuing operations totaled $347 million in 2014, $313 million in 2013, and $293 million in 2012;


-	our defined benefit plans, which include both funded and unfunded pension plans, define an amount of pension benefit to be provided, usually as a function of age, years of service, and/or compensation. The unfunded obligations and net periodic benefit cost of our United States defined benefit plans were not material for the periods presented; and


-	our postretirement plans other than pensions are offered to specific eligible employees. The accumulated benefit obligations and net periodic benefit cost for these plans were not material for the periods presented.

Funded status

For our international pension plans, at December 31, 2014, the projected benefit obligation was $1.2 billion and the fair value of plan assets was $891 million, which resulted in an unfunded obligation of $347 million. At December 31, 2013, the projected benefit obligation was $1.2 billion and the fair value of plan assets was $887 million, which resulted in an unfunded obligation of $268 million. The accumulated benefit obligation for our international plans was $1.2 billion at December 31, 2014 and $1.1 billion at December 31, 2013.

The following table presents additional information about our international pension plans.



	December 31
Millions of dollars	2014		2013
Amounts recognized on the Consolidated Balance Sheets
Accrued employee compensation and benefits	$	22	$	17
Employee compensation and benefits	325		251
Pension plans in which projected benefit obligation exceeded plan assets
Projected benefit obligation	$	1,232	$	1,123
Fair value of plan assets	884		854
Pension plans in which accumulated benefit obligation exceeded plan assets
Accumulated benefit obligation	$	1,120	$	1,046
Fair value of plan assets	860		854

Fair value measurements of plan assets

Our Level 1 plan asset fair values are based on quoted prices in active markets for identical assets, our Level 2 plan asset fair values are based on significant observable inputs for similar assets, and our Level 3 plan asset fair values are based on significant unobservable inputs.

The following table sets forth by level within the fair value hierarchy the fair value of assets held by our international pension plans.



Millions of dollars	Level 1		Level 2		Level 3		Total
Common/collective trust funds
Equity funds (a)	$	—	$	320	$	—	$	320
Bond funds (b)	—		197		70		267
Alternatives fund (c)	—		148		—		148
Real estate funds (d)	—		86		—		86
Other assets	6		33		31		70
Fair value of plan assets at December 31, 2014	$	6	$	784	$	101	$	891

Common/collective trust funds (e)
Equity funds	$	—	$	247	$	—	$	247
Bond funds	—		118		—		118
Balanced funds	—		13		—		13
Non-United States equity securities	165		—		—		165
United States equity securities	139		—		—		139
Corporate bonds	—		110		—		110
Other assets	2		59		34		95
Fair value of plan assets at December 31, 2013	$	306	$	547	$	34	$	887


(a)	Strategy is to invest in diversified funds of global common stocks.


(b)	Strategy is to invest in diversified funds of fixed income securities of varying geographies and credit quality and whose cash flows approximate the maturities of the benefit obligation.


(c)	Strategy is to invest in a fund of diversifying investments, including but not limited to reinsurance, commodities, and currencies.


(d)	Strategy is to invest in diversified funds of real estate investment trusts and private real estate.


(e)	Strategies are generally to invest in equity or debt securities, or a combination thereof, that match or outperform certain predefined indices.

Common/collective trust funds are valued at the net asset value of units held by the plans at year-end.

Equity securities are traded in active markets and valued based on their quoted fair value by independent pricing vendors. Corporate bonds are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including other observable inputs such as market interest rate curves, referenced credit spreads, and estimated prepayment rates, where applicable.

Our investment strategy varies by country depending on the circumstances of the underlying plan. Risk management practices include diversification by issuer, industry, and geography, as well as the use of multiple asset classes and investment managers within each asset class. For our United Kingdom pension plan, which constituted 80% of our international pension plans’ projected benefit obligation at December 31, 2014 and is no longer accruing service benefits, we implemented an investment strategy in 2014 that aims to achieve full funding of the benefit obligation, with the plan's assets increasingly composed of investments whose cash flows match the maturities of the obligation.

Net periodic benefit cost

Net periodic benefit cost for our international pension plans was $36 million in 2014, $32 million in 2013, and $26 million in 2012.

Actuarial assumptions

Certain weighted-average actuarial assumptions used to determine benefit obligations of our international pension plans at December 31 were as follows:



	2014	2013
Discount rate	4.1%	4.8%
Rate of compensation increase	5.3%	5.5%

Certain weighted-average actuarial assumptions used to determine net periodic benefit cost of our international pension plans for the years ended December 31 were as follows:



	2014	2013	2012
Discount rate	4.8%	4.8%	5.2%
Expected long-term return on plan assets	6.4%	6.4%	6.5%
Rate of compensation increase	5.4%	5.5%	5.4%

Assumed long-term rates of return on plan assets, discount rates for estimating benefit obligations, and rates of compensation increases vary by plan according to local economic conditions. Discount rates were determined based on the prevailing market rates of a portfolio of high-quality debt instruments with maturities matching the expected timing of the payment of the benefit obligations. Expected long-term rates of return on plan assets were determined based upon an evaluation of our plan assets and historical trends and experience, taking into account current and expected market conditions.

Other information

Contributions. Funding requirements for each plan are determined based on the local laws of the country where such plan resides. In certain countries the funding requirements are mandatory, while in other countries they are discretionary. We currently expect to contribute $14 million to our international pension plans in 2015.

Benefit payments. The following table presents expected benefit payments over the next 10 years for our international pension plans.



Millions of dollars
2015	$	46
2016	35
2017	37
2018	36
2019	43
Years 2020 - 2024	341