The Company and certain of its subsidiaries provide pension, health care and life insurance defined benefits to eligible retired employees, spouses and other eligible dependents through various domestic and foreign plans. The effect of its foreign pension and other postretirement benefit plans is immaterial to the Company's results of operations, liquidity and financial position. The Company froze its defined benefit postretirement medical plan in the first quarter of 2013 and its primary domestic pension plans in 2009.

As further discussed in Note 23, the Company and the Cigna Pension Plan are defendants in a class action lawsuit that has yet to be resolved. When the parties agree on a final plan amendment, the pension benefit obligation will be updated to reflect additional benefits resulting from this litigation.

In the first quarter of 2013, the Company also announced a change in the cost sharing arrangement with retirees for pharmacy subsidy payments received from the U.S. Government effective January 1, 2014, resulting in a reduced other postretirement benefit obligation of $57 million. This reduction was recorded in accumulated other comprehensive income, net of deferred taxes, resulting in an after-tax increase to shareholders' equity of $37 million.

The Company measures the assets and liabilities of its domestic pension and other postretirement benefit plans as of December 31. The following table summarizes the projected benefit obligations and assets related to the Company's domestic and international pension and other postretirement benefit plans as of, and for the year ended, December 31:

		Pension				Other Postretirement
		Benefits				Benefits
(In millions)	2014		2013		2014		2013
Change in benefit obligation
Benefit obligation, January 1	$	4,700	$	5,267	$	323	$	442
Service cost		2		3		-		1
Interest cost		206		181		12		12
(Gain) loss from past experience		679		(464)		31		(37)
Effect of plan amendment		2		-		-		(57)
Benefits paid from plan assets		(291)		(262)		(5)		(3)
Benefits paid - other		(29)		(25)		(26)		(28)
Curtailment		-		-		-		(7)
Benefit obligation, December 31		5,269		4,700		335		323
Change in plan assets
Fair value of plan assets, January 1		4,089		3,665		16		20
Actual return on plan assets		257		488		1		(1)
Benefits paid		(291)		(262)		(5)		(3)
Contributions		115		198		-		-
Fair value of plan assets, December 31		4,170		4,089		12		16
Funded Status	$	(1,099)	$	(611)	$	(323)	$	(307)

The postretirement benefits liability adjustment included in accumulated other comprehensive loss consisted of the following as of December 31:

	Pension				Other
	Benefits				Postretirement Benefits
(In millions)	2014		2013		2014		2013
Unrecognized net gain (loss)	$	(2,317)	$	(1,696)	$	(16)	$	14
Unrecognized prior service cost		(7)		(5)		54		57
Postretirement benefits liability adjustment	$	(2,324)	$	(1,701)	$	38	$	71

During 2014, the Company's postretirement benefits liability adjustment increased by $656 million pre-tax ($426 million after-tax) resulting in a decrease to shareholders' equity. The increase in the liability was primarily due to a change in the mortality assumption (as discussed further in the assumptions section of this note) and a decrease in the discount rate.

Pension benefits. The Company's pension plans were underfunded by $1.1 billion in 2014 and $0.6 billion in 2013 and had related accumulated benefit obligations of $5.3 billion as of December 31, 2014 and $4.7 billion as of December 31, 2013.

The Company funds its qualified pension plans at least at the minimum amount required by the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006. For 2015, the Company expects to make minimum required contributions totaling approximately $5 million. Future years' contributions will ultimately be based on a wide range of factors including but not limited to asset returns, discount rates, and funding targets.

(In millions)	2014		2013		2012
Service cost	$	2	$	3	$	3
Interest cost		206		181		198
Expected long-term return on plan assets		(264)		(272)		(270)
Amortization of:
Net loss from past experience		57		74		58
Settlement loss		6		-		6
Net pension cost	$	7	$	(14)	$	(5)

The Company expects to recognize pre-tax losses of $70 million in 2015 from amortization of past experience. This estimate is based on a weighted average amortization period for the frozen and inactive plans that is based on the average expected remaining life of plan participants of approximately 29 years.

Other postretirement benefits. Unfunded retiree health benefit plans had accumulated benefit obligations of $206 million at December 31, 2014 and $190 million at December 31, 2013. Retiree life insurance plans had accumulated benefit obligations of $129 million as of December 31, 2014 and $133 million as of December 31, 2013.

Components of net other postretirement benefit cost for the years ended December 31 were as follows:

(In millions)	2014		2013		2012
Service cost	$	-	$	1	$	2
Interest cost		12		12		16
Expected long-term return on plan assets		-		(1)		(1)
Amortization of:
Prior service cost		(3)		(4)		(12)
Curtailment gain		-		(19)		-
Net other postretirement benefit cost	$	9	$	(11)	$	5

The Company expects to recognize $3 million pre-tax gains related to amortization of prior service cost and no pre-tax gains from amortization of past experience in 2015. The amortization period is based on an average expected remaining life of plan participants of 29 years.

The estimated rate of future increases in the per capita cost of health care benefits is 6.75% in 2015, decreasing by 0.25% per year to 4.75% in 2023 and beyond. This estimate reflects the Company's current claim experience and management's estimate that rates of growth will decline in the future. A 1% increase or decrease in the estimated rate in 2014 would have no impact on postretirement benefit costs, and $1 million on the postretirement benefit obligation.

Plan assets. The Company's current target investment allocation percentages (50% fixed income, 25% public equity securities, and 25% in other investments, including securities partnerships, hedge funds and real estate) are developed by management as guidelines, although the fair values of each asset category are expected to vary as a result of changes in market conditions. The Company would expect to further reduce the allocation to equity securities and move further into fixed income investments as funding levels improve.

As of December 31, 2014, pension plan assets included $3.8 billion invested in the separate accounts of Connecticut General Life Insurance Company (“CGLIC”) and Life Insurance Company of North America, that are subsidiaries of the Company, as well as an additional $361 million invested directly in funds offered by the buyer of the retirement benefits business.

The fair values of plan assets by category and by the fair value hierarchy as defined by GAAP are as follows. See Note 10 for further details regarding how the Company determines fair value, including the level within the fair value hierarchy and the procedures the Company uses to validate fair value measurements.

December 31, 2014
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Plan assets at fair value:
Fixed maturities:
Federal government and agency	$	1	$	1	$	-	$	2
Corporate		-		1,025		35		1,060
Mortgage and other asset-backed		-		21		3		24
Fund investments and pooled separate accounts⁽¹⁾		-		744		3		747
Total fixed maturities		1		1,791		41		1,833
Equity securities:
Domestic		640		5		73		718
International, including funds and pooled separate accounts⁽¹⁾		131		241		7		379
Total equity securities		771		246		80		1,097
Real estate, including pooled separate accounts⁽¹⁾		-		-		331		331
Commercial mortgage loans		-		-		110		110
Securities partnerships		-		-		357		357
Hedge funds		-		-		283		283
Guaranteed deposit account contract		-		-		44		44
Cash equivalents		-		115		-		115
Total plan assets at fair value	$	772	$	2,152	$	1,246	$	4,170

(1) A pooled separate account has several participating benefit plans and each owns a share of the total pool of investments.

December 31, 2013
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Plan assets at fair value:
Fixed maturities:
Federal government and agency	$	-	$	2	$	-	$	2
Corporate		-		725		24		749
Mortgage and other asset-backed		-		18		5		23
Fund investments and pooled separate accounts⁽¹⁾		-		1,019		3		1,022
Total fixed maturities		-		1,764		32		1,796
Equity securities:
Domestic		824		-		35		859
International, including funds and pooled separate accounts⁽¹⁾		187		124		7		318
Total equity securities		1,011		124		42		1,177
Real estate, including pooled separate accounts⁽¹⁾		-		-		251		251
Commercial mortgage loans		-		-		88		88
Securities partnerships		-		-		304		304
Hedge funds		-		-		360		360
Guaranteed deposit account contract		-		-		44		44
Cash equivalents		-		69		-		69
Total plan assets at fair value	$	1,011	$	1,957	$	1,121	$	4,089

(1) A pooled separate account has several participating benefit plans and each owns a share of the total pool of investments.

Plan assets in Level 1 include exchange-listed equity securities. Level 2 assets primarily include:

Plan assets classified in Level 3 include investments primarily in securities partnerships, equity real estate and hedge funds generally valued based on the pension plan's ownership share of the equity of the investee including changes in the fair values of its underlying investments.

The following table summarizes the changes in pension plan assets classified in Level 3 for the years ended December 31, 2014 and December 31, 2013. Actual return on plan assets in this table may include changes in fair value that are attributable to both observable and unobservable inputs.

(In millions)	Fixed Maturities & Equity Securities		Real Estate & Mortgage Loans		Securities Partnerships		Hedge Funds		Guaranteed Deposit Account Contract		Total

Balance at January 1, 2014	$	74	$	339	$	304	$	360	$	44	$	1,121
Actual return on plan assets:
Assets still held at the reporting date		1		41		40		17		2		101
Assets sold during the period		-		-		-		-		-		-
Total actual return on plan assets		1		41		40		17		2		101
Purchases, sales, settlements, net		44		61		13		(94)		(2)		22
Transfers into/out of Level 3		2		-		-		-		-		2
Balance at December 31, 2014	$	121	$	441	$	357	$	283	$	44	$	1,246

(In millions)	Fixed Maturities & Equity Securities		Real Estate & Mortgage Loans		Securities Partnerships		Hedge Funds		Guaranteed Deposit Account Contract		Total

Balance at January 1, 2013	$	44	$	352	$	328	$	327	$	47	$	1,098
Actual return on plan assets:
Assets still held at the reporting date		-		29		16		38		1		84
Assets sold during the period		7		-		-		-		-		7
Total actual return on plan assets		7		29		16		38		1		91
Purchases, sales, settlements, net		25		(42)		(40)		(5)		(4)		(66)
Transfers into/out of Level 3		(2)		-		-		-		-		(2)
Balance at December 31, 2013	$	74	$	339	$	304	$	360	$	44	$	1,121

Assumptions for pension and other postretirement benefit plans. Management determined the present value of the projected benefit obligation and the accumulated other postretirement benefit obligation and related benefit costs based on the following weighted average assumptions as of and for the years ended December 31:

	2014	2013
Discount rate:
Pension benefit obligation	3.75%	4.50%
Other postretirement benefit obligation	3.50%	4.00%
Pension benefit cost	4.50%	3.50%
Other postretirement benefit cost	4.00%	3.25%
Expected long-term return on plan assets:
Pension benefit cost	7.25%	8.00%
Other postretirement benefit cost	5.00%	5.00%

Based on a 2014 study of the Company's mortality experience over the past several years, it was determined that the new Society of Actuaries mortality table and projection scale published in the fourth quarter of 2014 should be adopted for the Company's defined benefit pension and other postretirement plans as of December 31, 2014.

In measuring the benefit obligation, the Company sets discount rates by applying actual annualized yields at various durations from a discount rate curve to the expected cash flows of the pension and other postretirement benefits liabilities. The discount rate curve is constructed using an array of bonds in various industries throughout the domestic market for high quality bonds, but only selects those for the curve that have an above average return at each duration. The bond portfolio used to construct the curve is monitored to ensure that only high quality issues are included. The Company believes that this curve is representative of the yields that the Company is able to achieve in its plan asset investment strategy. As part of its discount rate setting process, the Company reviewed alternative indices and determined that they were not materially different than the result produced by the curve used.

Expected long-term rates of return on plan assets were developed considering actual long-term historical returns, expected long-term market conditions, plan asset mix and management's investment strategy, that continues a significant allocation to domestic and foreign equity securities as well as real estate, securities partnerships and hedge funds. Expected long-term market conditions take into consideration certain key macroeconomic trends including expected domestic and foreign GDP growth, employment levels and inflation. The expected return assumption was considered reasonable for 2014. The Company will reconsider its expected return assumption for 2015 given some changes in asset mix and re-evaluation of future return expectations among various asset classes.

To measure pension costs, the Company uses a market-related asset valuation for domestic pension plan assets invested in non-fixed income investments. The market-related value of these pension assets recognizes the difference between actual and expected long-term returns in the portfolio over 5 years, a method that reduces the short-term impact of market fluctuations on pension cost. At December 31, 2014, the market-related asset value was approximately $3.9 billion compared with a market value of approximately $4.2 billion.

Benefit payments. The following benefit payments, including expected future services, are expected to be paid in:

The Company sponsors a 401(k) plan in which the Company matches a portion of employees' pre-tax contributions. Another 401(k) plan with an employer match was frozen in 1999. Participants in the active plan may invest in various funds that invest in the Company's common stock, several diversified stock funds, a bond fund or a fixed-income fund. In conjunction with the action to freeze the domestic defined benefit pension plans, effective January 1, 2010, the Company increased its matching contributions to 401(k) plan participants.

The Company may elect to increase its matching contributions if the Company's annual performance meets certain targets. The Company's expense for these plans was $98 million for 2014, $91 million for 2013 and $78 million for 2012.