Note 14. Benefit Plans

Pension Plans – The Company has several non-contributory defined benefit plans for eligible employees. Benefits for certain plans are determined annually based on a specified percentage of annual earnings (based on the participant’s age or years of service) and a specified interest rate (which is established annually for all participants) applied to accrued balances. The benefits for another plan which covers salaried employees are based on formulas which include, among others, years of service and average pay. The Company’s funding policy is to make contributions in accordance with applicable governmental regulatory requirements.

Other Postretirement Benefit Plans – The Company has several postretirement benefit plans covering eligible employees and retirees. Participants generally become eligible after reaching age 55 with required years of service. Actual requirements for coverage vary by plan. Benefits for retirees who were covered by bargaining units vary by each unit and contract. Benefits for certain retirees are in the form of a Company health care account.

Benefits for retirees reaching age 65 are generally integrated with Medicare. Other retirees, based on plan provisions, must use Medicare as their primary coverage, with the Company reimbursing a portion of the unpaid amount; or are reimbursed for the Medicare Part B premium or have no Company coverage. The benefits provided by the Company are basically health and, for certain retirees, life insurance type benefits.

The Company funds certain of these benefit plans, and accrues postretirement benefits during the active service of those employees who would become eligible for such benefits when they retire. The Company uses December 31 as the measurement date for its plans.

Weighted average assumptions used to determine benefit obligations:


	Pension Benefits						Other Postretirement Benefits
December 31	2015		2014		2013		2015		2014		2013

Discount rate		4.0%		3.7%		4.4%		3.7%		3.4%		4.2%
Expected long term rate of return on plan assets		7.5%		7.5%		7.5%		5.3%		5.3%		5.3%
Rate of compensation increase		3.5% to 5.5%		3.5% to 5.5%		3.5% to 5.5%

Weighted average assumptions used to determine net periodic benefit cost:


	Pension Benefits						Other Postretirement Benefits
Year Ended December 31	2015		2014		2013		2015		2014		2013

Discount rate		3.8%		4.4%		3.9%		3.4%		4.0%		3.5%
Expected long term rate of return on plan assets		7.5%		7.5%		7.5% to 7.8%		5.3%		5.3%		5.3%
Rate of compensation increase		3.5% to 5.5%		3.5% to 5.5%		3.5% to 5.5%

The expected long term rate of return for plan assets is determined based on widely-accepted capital market principles, long term return analysis for global fixed income and equity markets as well as the active total return oriented portfolio management style. Long term trends are evaluated relative to market factors such as inflation, interest rates and fiscal and monetary policies, in order to assess the capital market assumptions as applied to the plan. Consideration of diversification needs and rebalancing is maintained.

Assumed health care cost trend rates:

December 31

2015

2014

2013

Health care cost trend rate assumed for next year

4.0% to 7.5%

4.0% to 8.0%

4.0% to 8.5%

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

4.0% to 5.0%

4.0% to 5.0%

Year that the rate reaches the ultimate trend rate

2016-2021

2015-2021

2014-2022

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. An increase or decrease in the assumed health care cost trend rate of 1% in each year would not have a significant impact on the Company’s service and interest cost as of December 31, 2015. An increase of 1% in each year would increase the Company’s accumulated postretirement benefit obligation as of December 31, 2015 by $2 million and a decrease of 1% in each year would decrease the Company’s accumulated postretirement benefit obligation as of December 31, 2015 by $3 million.

Net periodic benefit cost components:


	Pension Benefits												Other Postretirement Benefits
Year Ended December 31	2015				2014				2013				2015				2014				2013
(In millions)

Service cost		$	12			$	16			$	22			$	1			$	1			$	1
Interest cost			127				149				136				3				4				4
Expected return on plan assets			(193	)			(209	)			(198	)			(5	)			(4	)			(5	)
Amortization of unrecognized net loss			42				30				54				1				1				1
Amortization of unrecognized prior service benefit			(1	)			(1	)							(10	)			(18	)			(25	)
Settlement/Curtailment			3				86				5								(86	)
Net periodic benefit cost		$	(10	)		$	71			$	19			$	(10	)		$	(102	)		$	(24	)

In 2015, CNA eliminated future benefit accruals associated with the CNA Retirement Plan effective June 30, 2015. This amendment resulted in a $55 million curtailment which is a decrease in the plan benefit obligation liability and a reduction of the unrecognized actuarial losses included in AOCI. In connection with the curtailment, CNA remeasured the plan benefit obligation which resulted in an increase in the discount rate used to determine the benefit obligation from 3.9% to 4.0%.

During 2014, CNA offered a limited-time lump sum settlement payment opportunity to the majority of the terminated vested participants of the CNA Retirement Plan. Settlement payments of $253 million were made from CNA Retirement Plan assets and an $84 million settlement charge was recorded by the Company in the fourth quarter of 2014 to recognize a portion of the unrecognized actuarial losses previously reflected in AOCI. This settlement charge is included in Other operating expenses in the Consolidated Statements of Income.

In the second quarter of 2014, CNA eliminated certain postretirement medical benefits associated with the CNA Health and Group Benefits Program. This change was a negative plan amendment which resulted in an $86 million curtailment gain reported in Other operating expenses in the Consolidated Statements of Income. In connection with the plan amendment, CNA remeasured the plan benefit obligation which resulted in a decrease to the discount rate used to determine the benefit obligation from 3.6% to 3.1%.

The following provides a reconciliation of benefit obligations and plan assets:


	Pension Benefits								Other Postretirement Benefits
	2015				2014				2015				2014
(In millions)

Change in benefit obligation:

Benefit obligation at January 1		$	3,446			$	3,336			$	97			$	101
Service cost			12				16				1				1
Interest cost			127				149				3				4
Plan participants’ contributions											5				6
Amendments/curtailments			(55	)			(4	)							(7	)
Actuarial (gain) loss			(96	)			402				(11	)			7
Benefits paid from plan assets			(187	)			(178	)			(13	)			(15	)
Settlements			(12	)			(268	)
Foreign exchange			(8	)			(7	)
Benefit obligation at December 31			3,227				3,446				82				97

Change in plan assets:

Fair value of plan assets at January 1			2,713				2,914				87				81
Actual return on plan assets			(21	)			233				2				9
Company contributions			15				19				5				6
Plan participants’ contributions											5				6
Benefits paid from plan assets			(187	)			(178	)			(13	)			(15	)
Settlements			(12	)			(268	)
Foreign exchange			(8	)			(7	)
Fair value of plan assets at December 31			2,500				2,713				86				87

Funded status		$	(727	)		$	(733	)		$	4			$	(10	)


Amounts recognized in the Consolidated Balance Sheets consist of:

Other assets		$	11			$	9			$	38			$	32
Other liabilities			(738	)			(742	)			(34	)			(42	)
Net amount recognized		$	(727	)		$	(733	)		$	4			$	(10	)


Amounts recognized in Accumulated other comprehensive income (loss), not yet recognized in net periodic (benefit) cost:

Prior service credit		$	(5	)		$	(5	)		$	(9	)		$	(19	)
Net actuarial loss			1,106				1,090				8				18
Net amount recognized		$	1,101			$	1,085			$	(1	)		$	(1	)


Information for plans with projected and accumulated benefit obligations in excess of plan assets:

Projected benefit obligation		$	3,129			$	3,336
Accumulated benefit obligation			3,114				3,262			$	34			$	42
Fair value of plan assets			2,391				2,713

The accumulated benefit obligation for all defined benefit pension plans was $3.2 billion and $3.4 billion at December 31, 2015 and 2014.

The Company employs a total return approach whereby a mix of equity and fixed maturity securities are used to maximize the long term return of plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The target allocation of plan assets is 40% to 60% invested in equity securities and limited partnerships, with the remainder primarily invested in fixed maturity securities. The intent of this strategy is to minimize the Company’s expenses by generating investment returns that exceed the growth of the plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. The investment portfolio contains a diversified blend of fixed maturity, equity and short term securities. Alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At December 31, 2015, the Company had committed $105 million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships. Investment risk is monitored through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

The table below presents the estimated amounts to be recognized from AOCI into net periodic cost (benefit) during 2016.


	Pension Benefits				Other Postretirement Benefits
(In millions)

Amortization of net actuarial loss		$	46			$	-
Amortization of prior service credit			(1	)			(3	)
Total estimated amounts to be recognized		$	45			$	(3	)

The table below presents the estimated future minimum benefit payments at December 31, 2015.


Expected future benefit payments	Pension Benefits			Other Postretirement Benefits
(In millions)

2016		$	218		$	8
2017			217			8
2018			216			7
2019			217			7
2020			219			7
2021 – 2025			1,076			25

In 2016, it is expected that contributions of approximately $14 million will be made to pension plans and $4 million to postretirement health care and life insurance benefit plans.

Pension plan assets measured at fair value on a recurring basis are summarized below.


December 31, 2015	Level 1			Level 2			Level 3			Total
(In millions)

Fixed maturity securities:
Corporate and other bonds					$	455		$	10		$	465
States, municipalities and political subdivisions						106						106
Asset-backed						219						219
Total fixed maturities		$	-			780			10			790
Equity securities			373			107						480
Short term investments			30			28						58
Fixed income mutual funds			95									95
Limited partnerships:
Hedge funds						565			327			892
Private equity									133			133
Total limited partnerships			-			565			460			1,025
Other assets						52						52
Total		$	498		$	1,532		$	470		$	2,500


December 31, 2014

Fixed maturity securities:
Corporate and other bonds					$	463		$	15		$	478
States, municipalities and political subdivisions						80						80
Asset-backed						216						216
U.S. Treasury and obligations of government- sponsored enterprises		$	25									25
Total fixed maturities			25			759			15			799
Equity securities			432			118						550
Short term investments			58			101						159
Fixed income mutual funds			99									99
Limited partnerships:
Hedge funds						619			333			952
Private equity									123			123
Total limited partnerships			-			619			456			1,075
Other assets			1			30						31
Total		$	615		$	1,627		$	471		$	2,713

The limited partnership investments are recorded at fair value, which represents the plans’ share of the net asset value of each partnership. The share of the net asset value of each partnership is determined by the General Partner and is based upon the fair value of the underlying investments, which are valued using varying market approaches. Level 2 includes limited partnership investments which can be redeemed at net asset value in 90 days or less. Level 3 includes limited partnership investments with withdrawal provisions greater than 90 days, or for which withdrawals are not permitted until the termination of the partnership. Within hedge fund strategies, approximately 57% were equity related, 37% pursued a multi-strategy approach and 6% were focused on distressed investments at December 31, 2015.

For a discussion of the valuation methodologies used to measure fixed maturity securities, equities and short term investments, see Note 4.

The tables below present reconciliations for all pension plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2015 and 2014:


											Net
				Actual Return on Assets							Purchases,				Net Transfers
	Balance at			Still Held at			Sold During				Sales, and				In (Out) of				Balance at
2015	January 1,			December 31,			the Year				Settlements				Level 3				December 31,
(In millions)

Fixed maturity securities:
Corporate and other bonds		$	15													$	(5	)		$	10
Limited partnerships:
Hedge funds			333		$	19						$	(25	)							327
Private equity			123			10		$	(1	)			1								133
Total limited partnerships			456			29			(1	)			(24	)			-				460
Total		$	471		$	29		$	(1	)		$	(24	)		$	(5	)		$	470


2014

Fixed maturity securities:
Corporate and other bonds		$	15																	$	15
Equity securities			8									$	(8	)
Limited partnerships:
Hedge funds			352		$	21							(40	)							333
Private equity			125			19		$	1				(22	)							123
Total limited partnerships			477			40			1				(62	)		$	-				456
Total		$	500		$	40		$	1			$	(70	)		$	-			$	471

Other postretirement benefits plan assets measured at fair value on a recurring basis are summarized below.


December 31, 2015	Level 1			Level 2			Level 3			Total
(In millions)

Fixed maturity securities:
Corporate and other bonds					$	17					$	17
States, municipalities and political subdivisions						42						42
Asset-backed						19						19
Total fixed maturities		$	-			78		$	-			78
Short term investments			3									3
Fixed income mutual funds			5									5
Total		$	8		$	78		$	-		$	86


December 31, 2014

Fixed maturity securities:
Corporate and other bonds					$	18					$	18
States, municipalities and political subdivisions						43						43
Asset-backed						20						20
Total fixed maturities		$	-			81		$	-			81
Short term investments			3									3
Fixed income mutual funds			3									3
Total		$	6		$	81		$	-		$	87

There were no Level 3 assets at December 31, 2015 and 2014.

Savings Plans – The Company and its subsidiaries have several contributory savings plans which allow employees to make regular contributions based upon a percentage of their salaries. Matching contributions are made up to specified percentages of employees’ contributions. The contributions by the Company and its subsidiaries to these plans amounted to $115 million, $125 million and $120 million for the years ended December 31, 2015, 2014 and 2013.

Stock Option Plans – In 2012, shareholders approved the amended and restated Loews Corporation 2000 Stock Option Plan (the “Loews Plan”). The aggregate number of shares of Loews common stock for which options or SARs may be granted under the Loews Plan is 18,000,000 shares, and the maximum number of shares of Loews common stock with respect to which options or SARs may be granted to any individual in any calendar year is 1,200,000 shares. The exercise price per share may not be less than the fair market value of the common stock on the date of grant. Generally, options and SARs vest ratably over a four-year period and expire in ten years.

A summary of the stock option and SAR transactions for the Loews Plan follows:


	2015						2014
	Number of Awards			Weighted Average Exercise Price			Number of Awards			Weighted Average Exercise Price

Awards outstanding, January 1		6,908,778			$	39.905		6,476,391			$	38.497
Granted		924,000				38.715		910,375				43.839
Exercised		(390,856	)			28.586		(392,519	)			24.670
Canceled		(80,564	)			45.505		(85,469	)			45.117
Awards outstanding, December 31		7,361,358				40.295		6,908,778				39.905


Awards exercisable, December 31		5,341,685			$	39.851		4,924,249			$	38.742

The following table summarizes information about the Company’s stock options and SARs outstanding in connection with the Loews Plan at December 31, 2015:

Awards Outstanding

Awards Exercisable

Range of exercise prices

Number of
Shares

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise Price

Number of
Shares

Weighted
Average
Exercise

Price

$20.01-30.00

377,758

3.06

25.472

377,758

25.472

30.01-40.00

2,969,582

4.82

37.168

2,410,992

37.084

40.01-50.00

3,844,443

5.85

43.691

2,383,360

44.131

50.01-60.00

169,575

1.06

51.080

169,575

51.080

In 2015, the Company awarded SARs totaling 924,000 shares. In accordance with the Loews Plan, the Company has the ability to settle SARs in shares or cash and has the intention to settle in shares. The SARs balance at December 31, 2015 was 7,350,858 shares. There were 5,357,709 shares and 6,099,228 shares available for grant as of December 31, 2015 and 2014.

The weighted average remaining contractual terms of awards outstanding and exercisable as of December 31, 2015 were 5.2 years and 4.1 years. The aggregate intrinsic values of awards outstanding and exercisable at December 31, 2015 were $9 million and $9 million. The total intrinsic value of awards exercised was $5 million, $8 million and $11 million for the years ended 2015, 2014 and 2013. The total fair value of shares vested was $6 million, $7 million and $7 million for the years ended 2015, 2014 and 2013.

The Company recorded stock based compensation expense of $6 million, $6 million and $7 million related to the Loews Plan for the years ended December 31, 2015, 2014 and 2013. The related income tax benefits recognized were $2 million for each year. At December 31, 2015, the compensation cost related to nonvested awards not yet recognized was $9 million, and the weighted average period over which it is expected to be recognized is 2.4 years.

The fair value of granted options and SARs for the Loews Plan were estimated at the grant date using the Black-Scholes pricing model with the following assumptions and results:


Year Ended December 31	2015			2014			2013

Expected dividend yield		0.7	%		0.6	%		0.6	%
Expected volatility		19.1	%		16.9	%		16.3	%
Weighted average risk-free interest rate		1.5	%		1.7	%		1.1	%
Expected holding period (in years)		5.0			5.0			5.0
Weighted average fair value of awards	$	6.94		$	7.41		$	6.75