M. EMPLOYEE RETIREMENT PLANS

We sponsor qualified defined-benefit and defined-contribution retirement plans for most of our employees. In addition to our qualified defined-benefit pension plans, we have unfunded non-qualified defined-benefit pension plans covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans. Substantially all salaried employees participate in non-contributory defined-contribution retirement plans, to which payments are determined annually by the Organization and Compensation Committee of the Board of Directors.

In addition, we participate in 21 regional multi-employer pension plans, principally related to building trades; none of the plans are considered significant.

Pre-tax expense related to our retirement plans was as follows, in millions:

	2014		2013		2012
Defined-contribution plans	$	46	$	54	$	43
Defined-benefit plans		25		31		36
Multi-employer plans		5		4		4

	$	76	$	89	$	83

In March 2009, based on management's recommendation, the Board of Directors approved a plan to freeze all future benefit accruals under substantially all of our domestic qualified and non-qualified defined-benefit pension plans. The freeze was effective January 1, 2010.

Changes in the projected benefit obligation and fair value of plan assets, and the funded status of our defined-benefit pension plans were as follows, in millions:

	2014						2013
	Qualified			Non-Qualified			Qualified			Non-Qualified
Changes in projected benefit obligation:
Projected benefit obligation at January 1	$	983		$	163		$	1,056		$	181
Service cost		3			—			3			—
Interest cost		41			7			40			6
Actuarial (gain) loss, net		184			32			(81	)		(13	)
Foreign currency exchange		(24	)		—			7			—
Benefit payments		(42	)		(12	)		(42	)		(11	)

Projected benefit obligation at December 31	$	1,145		$	190		$	983		$	163


Changes in fair value of plan assets:
Fair value of plan assets at January 1	$	659		$	—		$	594		$	—
Actual return on plan assets		38			—			65			—
Foreign currency exchange		(8	)		—			2			—
Company contributions		49			12			44			11
Expenses, other		(5	)		—			(4	)		—
Benefit payments		(42	)		(12	)		(42	)		(11	)

Fair value of plan assets at December 31	$	691		$	—		$	659		$	—


Funded status at December 31:	$	(454	)	$	(190	)	$	(324	)	$	(163	)

Amounts in our consolidated balance sheets were as follows, in millions:

	At December 31, 2014						At December 31, 2013
	Qualified			Non-Qualified			Qualified			Non-Qualified
Accrued liabilities	$	(2	)	$	(12	)	$	(3	)	$	(12	)
Other liabilities		(452	)		(178	)		(321	)		(151	)

Total net liability	$	(454	)	$	(190	)	$	(324	)	$	(163	)

Unrealized loss included in accumulated other comprehensive (loss) income before income taxes were as follows, in millions:

	At December 31, 2014				At December 31, 2013
	Qualified		Non-Qualified		Qualified		Non-Qualified
Net loss	$	524	$	68	$	344	$	38
Net transition obligation		1		—		1		—
Net prior service cost		2		—		2		—

Total	$	527	$	68	$	347	$	38

Information for defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets, was as follows, in millions:

	At December 31
	2014				2013
	Qualified		Non-Qualified		Qualified		Non-Qualified
Projected benefit obligation	$	1,145	$	190	$	983	$	163
Accumulated benefit obligation	$	1,145	$	190	$	982	$	163
Fair value of plan assets	$	691	$	—	$	659	$	—

The projected benefit obligation was in excess of plan assets for all of our defined-benefit pension plans at December 31, 2014 and 2013.

Net periodic pension cost for our defined-benefit pension plans was as follows, in millions:

	2014					2013					2012
	Qualified			Non-Qualified		Qualified			Non-Qualified		Qualified			Non-Qualified
Service cost	$	3		$	—	$	3		$	—	$	2		$	—
Interest cost		47			7		44			6		46			7
Expected return on plan assets		(45	)		—		(40	)		—		(35	)		—
Recognized net loss		11			2		16			2		14			2

Net periodic pension cost	$	16		$	9	$	23		$	8	$	27		$	9

We expect to recognize $21 million of pre-tax net loss from accumulated other comprehensive (loss) income into net periodic pension cost in 2015 related to our defined-benefit pension plans.

Plan Assets. Our qualified defined-benefit pension plan weighted average asset allocation, which is based upon fair value, was as follows:

	2014			2013
Equity securities		46	%		47	%
Debt securities		34	%		35	%
Other		20	%		18	%

Total		100	%		100	%

For our qualified defined-benefit pension plans, we have adopted accounting guidance that defines fair value, establishes a framework for measuring fair value and prescribes disclosures about fair value measurements. Accounting guidance defines fair value as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."

Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2014.

Common and Preferred Stocks: Valued at the closing price on the active market on which the individual securities are traded, or based on the active market for similar securities.

Private Equity and Hedge Funds: Valued based on an estimated fair value using either a market approach or an income approach, each of which requires a significant degree of judgment. There is no active trading market for these investments and they are for the most part illiquid. Due to the significant unobservable inputs, the fair value measurements used to estimate fair value are a Level 3 input.

Corporate Debt Securities: Valued based on the active market for similar securities or on estimated fair value.

Government and Other Debt Securities: Valued based on either the closing price reported on the active market on which the individual securities are traded, the market for similar securities or estimated fair value based on a model for similar securities.

Common Collective Trust Fund: Valued based on a unit value basis, which approximates fair value as of December 31, 2014 and 2013. Such basis is determined by reference to the respective fund's underlying assets, which are primarily marketable equity and fixed income securities. There are no unfunded commitments or other restrictions associated with this fund.

Short-Term and Other Investments: Valued based on a net asset value (NAV) which approximates fair value at December 31, 2014 and 2013. Such basis is determined by referencing the respective fund's underlying assets.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the qualified defined-benefit pension plan assets at fair value as of December 31, 2014 and 2013, in millions.

	At December 31, 2014
	Level 1		Level 2		Level 3		Total
Common and Preferred Stocks:
United States	$	136	$	116	$	—	$	252
International		50		15		—		65
Private Equity and Hedge Funds:
United States		—		—		59		59
International		—		—		27		27
Corporate Debt Securities:
United States		15		33		—		48
International		—		75		—		75
Government and Other Debt Securities:
United States		64		2		—		66
International		24		27		—		51
Common Collective Trust Fund – United States		—		5		—		5
Short-Term and Other Investments:
United States		—		1		—		1
International		3		21		18		42

Total Assets at Fair Value	$	292	$	295	$	104	$	691

	At December 31, 2013
	Level 1		Level 2		Level 3		Total
Common and Preferred Stocks:
United States	$	143	$	107	$	—	$	250
International		46		16		—		62
Private Equity and Hedge Funds:
United States		—		—		52		52
International		—		—		24		24
Corporate Debt Securities:
United States		15		25		—		40
International		—		61		—		61
Government and Other Debt Securities:
United States		79		1		—		80
International		23		27		—		50
Common Collective Trust Fund – United States		—		3		—		3
Short-Term and Other Investments:
United States		2		2		—		4
International		10		6		17		33

Total Assets at Fair Value	$	318	$	248	$	93	$	659

Changes in the fair value of the qualified defined-benefit pension plan Level 3 assets, were as follows, in millions:

	2014			2013
Fair Value, January 1	$	93		$	78
Purchases		13			25
Sales		(9	)		(14	)
Transfers, net		—			—
Unrealized gains (losses)		7			4

Fair Value, December 31	$	104		$	93

Assumptions. Major assumptions used in accounting for our defined-benefit pension plans were as follows:

	2014			2013			2012
Discount rate for obligations		3.80	%		4.40	%		3.80	%
Expected return on plan assets		7.25	%		7.25	%		7.25	%
Rate of compensation increase		—	%		—	%		—	%
Discount rate for net periodic pension cost		4.40	%		3.80	%		4.40	%

The discount rate for obligations for 2014 and 2013 was based upon the expected duration of each defined-benefit pension plan's liabilities matched to the December 31, 2014 and 2013 Towers Watson Rate Link Curve. At December 31, 2014, such rates for our defined-benefit pension plans ranged from 2.00 percent to 4.00 percent, with the most significant portion of the liabilities having a discount rate for obligations of 3.70 percent or higher. At December 31, 2013, such rates for our defined-benefit pension plans ranged from 1.75 percent to 4.80 percent, with the most significant portion of the liabilities having a discount rate for obligations of 4.20 percent or higher. The decrease in the weighted average discount rate over the last year is principally the result of lower long-term interest rates in the bond markets.

For 2014 and 2013, we determined the expected long-term rate of return on plan assets of 7.25 percent based upon an analysis of expected and historical rates of return of various asset classes utilizing the current and long-term target asset allocation of the plan assets. The projected asset return at both December 31, 2014 and 2013 also considered near term returns, including current market conditions and also that pension assets are long-term in nature. The actual annual rate of return on our pension plan assets was 5.0 percent and 5.9 percent for the 10-year periods ended December 31, 2014 and 2013, respectively. Although these rates of return are less than our current expected long-term rate of return on plan assets, we note that the 10-year period ended December 31, 2014 includes one significant decline in the equity markets. In 2014 and 2013, actual annual rate of return on our pension plan assets was 3.6 percent and 13.6 percent, respectively. Accordingly, we believe a 7.25 percent expected long-term rate of return is reasonable.

The investment objectives seek to minimize the volatility of the value of our plan assets relative to pension liabilities and to ensure plan assets are sufficient to pay plan benefits. In 2014, we achieved targeted asset allocation: 46 percent equities, 34 percent fixed-income, and 20 percent alternative investments (such as private equity, commodities and hedge funds). The asset allocation of the investment portfolio was developed with the objective of achieving our expected rate of return and reducing volatility of asset returns, and considered the freezing of future benefits. The equity portfolios are invested in individual securities or funds that are expected to mirror broad market returns for equity securities. The fixed-income portfolio is invested in corporate bonds, bond index funds or U.S. Treasury securities. The increased allocation to fixed-income securities partially matches the bond-like and long-term nature of the pension liabilities. It is expected that the alternative investments would have a higher rate of return than the targeted overall long-term return of 7.25 percent. However, these investments are subject to greater volatility, due to their nature, than a portfolio of equities and fixed-income investments, and would be less liquid than financial instruments that trade on public markets. This portfolio is expected to yield a long-term rate of return of 7.25 percent.

The fair value of our plan assets is subject to risk including significant concentrations of risk in our plan assets related to equity, interest rate and operating risk. In order to ensure plan assets are sufficient to pay benefits, a portion of plan assets is allocated to equity investments that are expected, over time, to earn higher returns with more volatility than fixed-income investments which more closely match pension liabilities. Within equity, risk is mitigated by targeting a portfolio that is broadly diversified by geography, market capitalization, manager mandate size, investment style and process.

In order to minimize asset volatility relative to the liabilities, a portion of plan assets are allocated to fixed-income investments that are exposed to interest rate risk. Rate increases generally will result in a decline in fixed-income assets, while reducing the present value of the liabilities. Conversely, rate decreases will increase fixed income assets, partially offsetting the related increase in the liabilities.

Potential events or circumstances that could have a negative effect on estimated fair value include the risks of inadequate diversification and other operating risks. To mitigate these risks, investments are diversified across and within asset classes in support of investment objectives. Policies and practices to address operating risks include ongoing manager oversight, plan and asset class investment guidelines and instructions that are communicated to managers, and periodic compliance and audit reviews to ensure adherence to these policies. In addition, we periodically seek the input of our independent advisor to ensure the investment policy is appropriate.

Other. We sponsor certain post-retirement benefit plans that provide medical, dental and life insurance coverage for eligible retirees and dependents in the United States based upon age and length of service. The aggregate present value of the unfunded accumulated post-retirement benefit obligation was $12 million and $10 million at December 31, 2014 and 2013, respectively.

Cash Flows. At December 31, 2014, we expected to contribute approximately $40 million to our qualified defined-benefit pension plans to meet ERISA requirements in 2015. We also expected to pay benefits of $7 million and $12 million to participants of our foreign and non-qualified (domestic) defined-benefit pension plans, respectively, in 2015.

At December 31, 2014, the benefits expected to be paid in each of the next five years, and in aggregate for the five years thereafter, relating to our defined-benefit pension plans, were as follows, in millions:

	Qualified Plans		Non-Qualified Plans
2015	$	47	$	12
2016	$	48	$	12
2017	$	48	$	12
2018	$	49	$	12
2019	$	50	$	13
2020 - 2024	$	276	$	61