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Pensions And Other Postretirement Benefits
12 Months Ended
Dec. 31, 2015
Defined Contribution Pension and Other Postretirement Plans Disclosure [Abstract]  
Pensions And Other Postretirement Benefits
Pensions and Other Postretirement Benefits
 
We have both funded and unfunded defined benefit pension plans covering principally salaried employees. We also provide specified health care and life insurance benefits to eligible retired employees; these plans can be amended or terminated at our option.  Under our self-insured retiree health care plan, for those participants who are not Medicare-eligible, a defined percentage of health care expenses is covered for retired employees and their dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group insurance policies. Those participants who are Medicare-eligible are not covered under the self-insured retiree health care plan, but instead are provided with an employer-funded health reimbursement account which can be used for reimbursement of health insurance premiums or eligible out-of-pocket medical expenses.

Pension and Other Postretirement Benefit Obligations and Plan Assets
 
Pension Benefits
 
Other Postretirement
Benefits
 
2015
 
2014
 
2015
 
2014
 
($ in millions)
Change in benefit obligations:
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
2,429

 
$
2,091

 
$
571

 
$
855

Service cost
41

 
34

 
7

 
7

Interest cost
93

 
93

 
21

 
24

Actuarial losses (gains)
(64
)
 
335

 
(7
)
 
102

Plan amendments

 

 
(8
)
 
(367
)
Benefits paid
(127
)
 
(124
)
 
(48
)
 
(50
)
Benefit obligation at end of year
2,372

 
2,429

 
536

 
571

 
 
 
 
 
 
 
 
Change in plan assets:
 

 
 

 
 

 
 

Fair value of plan assets at beginning of year
2,167

 
2,115

 
262

 
239

Actual return on plan assets
(14
)
 
163

 
2

 
26

Employer contribution (reimbursement)1
14

 
13

 
(27
)
 
47

Benefits paid
(127
)
 
(124
)
 
(48
)
 
(50
)
Fair value of plan assets at end of year
2,040

 
2,167

 
189

 
262

 
 
 
 
 
 
 
 
Funded status at end of year
$
(332
)
 
$
(262
)
 
$
(347
)
 
$
(309
)
 
 
 
 
 
 
 
 
Amounts recognized in the Consolidated
 

 
 

 
 

 
 

Balance Sheets:
 

 
 

 
 

 
 

Noncurrent assets
$
2

 
$
12

 
$

 
$

Current liabilities
(16
)
 
(14
)
 

 

Noncurrent liabilities
(318
)
 
(260
)
 
(347
)
 
(309
)
 
 
 
 
 
 
 
 
Net amount recognized
$
(332
)
 
$
(262
)
 
$
(347
)
 
$
(309
)
 
 
 
 
 
 
 
 
Amounts included in accumulated other comprehensive
 

 
 

 
 

 
 

loss (before tax):
 

 
 

 
 

 
 

Net loss
$
904

 
$
854

 
$
16

 
$
6

Prior service cost (benefit)
3

 
3

 
(331
)
 
(347
)


1Norfolk Southern is eligible to receive reimbursement from the Norfolk Southern Corporation Post-Retirement Benefits Trust (Trust), and the Trust had an outstanding liability to Norfolk Southern of $30 million as of December 31, 2015.

Our accumulated benefit obligation for our defined benefit pension plans is $2.2 billion at both December 31, 2015 and 2014.  Our unfunded pension plans, included above, which in all cases have no assets and therefore have an accumulated benefit obligation in excess of plan assets, had projected benefit obligations of $274 million at both December 31, 2015 and December 31, 2014, and had accumulated benefit obligations of $252 million at December 31, 2015, and $244 million at December 31, 2014.
 
Pension and Other Postretirement Benefit Cost Components

 
2015
 
2014
 
2013
 
($ in millions)
 
 
 
 
 
 
Pension benefits:
 
 
 
 
 
Service cost
$
41

 
$
34

 
$
41

Interest cost
93

 
93

 
81

Expected return on plan assets
(165
)
 
(151
)
 
(142
)
Amortization of net losses
65

 
54

 
89

Amortization of prior service cost

 
1

 

 
 
 
 
 
 
Net cost
$
34

 
$
31

 
$
69

 
 
 
 
 
 
Other postretirement benefits:
 

 
 

 
 

Service cost
$
7

 
$
7

 
$
16

Interest cost
21

 
24

 
50

Expected return on plan assets
(19
)
 
(18
)
 
(16
)
Amortization of net losses

 

 
58

Amortization of prior service benefit
(24
)
 
(20
)
 

 
 
 
 
 
 
Net cost (benefit)
$
(15
)
 
$
(7
)
 
$
108



Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss
 
 
2015
 
Pension
Benefits
 
Other
Postretirement 
Benefits
 
($ in millions)
 
 
 
 
Net loss arising during the year
$
115

 
$
10

Prior service effect of plan amendment

 
(8
)
Amortization of net losses
(65
)
 

Amortization of prior service benefit

 
24

 
 
 
 
Total recognized in other comprehensive loss
$
50

 
$
26

Total recognized in net periodic cost
 

 
 

and other comprehensive loss
$
84

 
$
11


 
Net actuarial losses arising during the year to our pension and other postretirement benefits were due primarily to a lower than expected return on plan assets partially offset by an increase in our discount rate and a change in our mortality assumption.

The estimated net losses for the pension benefit plans that will be amortized from accumulated other comprehensive loss into net periodic cost over the next year are $50 million.  The estimated prior service benefit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next year is $24 million.

Pension and Other Postretirement Benefits Assumptions
 
Costs for pension and other postretirement benefits are determined based on actuarial valuations that reflect appropriate assumptions as of the measurement date, ordinarily the beginning of each year.  The funded status of the plans is determined using appropriate assumptions as of each year end.  A summary of the major assumptions follows:
 
 
2015
 
2014
 
2013
Pension funded status:
 
 
 
 
 
Discount rate
4.30
%
 
3.95
%
 
4.60
%
Future salary increases
4.50
%
 
4.50
%
 
4.50
%
Other postretirement benefits funded status:
 

 
 

 
 
Discount rate
4.02
%
 
3.70
%
 
4.65
%
Pension cost:
 

 
 

 
 
Discount rate
3.95
%
 
4.60
%
 
3.65
%
Return on assets in plans
8.25
%
 
8.25
%
 
8.25
%
Future salary increases
4.50
%
 
4.50
%
 
4.50
%
Other postretirement benefits cost:
 

 
 

 
 
Discount rate1
3.70
%
 
3.90
%
 
3.80
%
Return on assets in plans
8.00
%
 
8.00
%
 
8.00
%
Health care trend rate
6.56
%
 
6.94
%
 
7.33
%
1 2014 other postretirement benefits cost was based on a discount rate of 4.65% prior to our retiree medical plan amendment in the first quarter of 2014, and 3.90% after the plan amendment.

To determine the discount rates, we utilize analyses in which the projected annual cash flows from the pension and other postretirement benefit plans were matched with yield curves based on an appropriate universe of high-quality corporate bonds.  We use the results of the yield curve analyses to select the discount rates that match the payment streams of the benefits in these plans.
 
Health Care Cost Trend Assumptions
 
For measurement purposes at December 31, 2015, increases in the per capita cost of pre-Medicare covered health care benefits were assumed to be 6.30% for 2016.  It is assumed the rate will decrease gradually to an ultimate rate of 5.0% for 2021 and remain at that level thereafter.
 
Assumed health care cost trend rates affect the amounts reported in the consolidated financial statements.  To illustrate, a one-percentage point change in the assumed health care cost trend would have the following effects:
 
One-percentage point
 
Increase
 
Decrease
 
($ in millions)
Increase (decrease) in:
 
 
 
Total service and interest cost components
$
1

 
$
(1
)
Postretirement benefit obligation
11

 
(10
)


Asset Management
 
Ten investment firms manage our defined benefit pension plans’ assets under investment guidelines approved by our Benefits Investment Committee that is comprised of members of our management.  Investments are restricted to domestic and international equity securities, domestic and international fixed income securities, and unleveraged exchange-traded options and financial futures.  Limitations restrict investment concentration and use of certain derivative investments.  The target asset allocation for equity is 75% of the pension plans’ assets.  The fixed income portfolio is invested in the Barclays Government/Credit Bond Index Fund, except that the Canadian earmarked portion of the portfolio is maintained in U.S. Treasury Bonds. Equity investments must be in liquid securities listed on national exchanges.  No investment is permitted in our securities (except through commingled pension trust funds).  Investment managers’ returns are expected to meet or exceed selected market indices by prescribed margins.
 
Our pension plans’ weighted-average asset allocations, by asset category, were as follows:
 
Percentage of plan
assets at December 31,
 
2015
 
2014
 
 
 
 
Domestic equity securities
50
%
 
50
%
Debt securities
25
%
 
25
%
International equity securities
23
%
 
23
%
Cash and cash equivalents
2
%
 
2
%
 
 
 
 
Total
100
%
 
100
%


The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an asset allocation at December 31, 2015, of 67% in equity securities and 33% in debt securities compared with 66% in equity securities and 34% in debt securities at December 31, 2014.  The target asset allocation for equity is between 50% and 75% of the plan’s assets.
 
The plans’ assumed future returns are based principally on the asset allocations and historic returns for the plans’ asset classes determined from both actual plan returns and, over longer time periods, expected market returns for those asset classes. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a three-year period. We assumed a rate of return on pension plan assets of 8.25% for each 2015, 2014 and 2013.  A one-percentage point change to the rate of return assumption would result in a $20 million change to the net pension cost and, as a result, an equal change in “Compensation and benefits” expense.  For 2016, we assume an 8.25% return on pension plan assets.

Fair Value of Plan Assets
 
Following is a description of the valuation methodologies used for pension plan assets measured at fair value.
 
Common stock:  Shares held by the plan at year end are valued at the official closing price as defined by the exchange or at the most recent trade price of a security at the close of the active market.
 
Common collective trusts:  Valued at the net asset value (NAV) of shares held by the plan at year end, based on the quoted market prices of the underlying assets of the trusts.  The investments are valued using NAV as a practical expedient for fair value.  The common collective trusts hold equity securities, fixed income securities and cash and cash equivalents.
 
Commingled funds:  Valued at the NAV of shares held by the plan at year end, based on the quoted market prices of the underlying assets of the funds.  The investments are valued using NAV as a practical expedient for fair value.  The commingled funds hold equity securities.
 
Interest bearing cash:  Short-term bills or notes are valued at an estimated price at which a dealer would pay for the security at year end using observable market-based inputs; money market funds are valued at the closing price reported on the active market on which the funds are traded.
 
United States Government and agencies securities:  Valued at an estimated price at which a dealer would pay for a security at year end using observable market-based inputs.  Inflation adjusted instruments utilize the appropriate index factor.
 
Preferred stock:   Shares held by the plan at year end are valued at the most recent trade price of a security at the close of the active market or at an estimated price at which a dealer would pay for a similar security at year end using observable market-based inputs.
 
The following table sets forth the pension plans’ assets by valuation technique level, within the fair value hierarchy (there were no level 3 valued assets).
 
December 31, 2015
 
Level 1
 
Level 2
 
Total
 
($ in millions)
 
 
 
 
 
 
Common stock
$
1,119

 
$

 
$
1,119

Common collective trusts:
 

 
 

 
 

Debt securities

 
505

 
505

International equity securities

 
301

 
301

Commingled funds

 
77

 
77

Interest bearing cash
34

 

 
34

U.S. government and agencies securities

 
4

 
4

 
 
 
 
 
 
Total investments
$
1,153

 
$
887

 
$
2,040


 
December 31, 2014
 
Level 1
 
Level 2
 
Total
 
($ in millions)
 
 
 
 
 
 
Common stock
$
1,180

 
$

 
$
1,180

Common collective trusts:
 

 
 

 
 

Debt securities

 
532

 
532

International equity securities

 
327

 
327

Commingled funds

 
81

 
81

Interest bearing cash
41

 

 
41

U.S. government and agencies securities

 
4

 
4

Preferred stock

 
2

 
2

 
 
 
 
 
 
Total investments
$
1,221

 
$
946

 
$
2,167


 
Following is a description of the valuation methodologies used for other postretirement benefit plan assets measured at fair value.
 
Trust-owned life insurance:  Valued at our share of the net assets of trust-owned life insurance issued by a major insurance company.  The underlying investments of that trust consist of a U.S. stock account and a U.S. bond account, and a loan asset account, but may retain cash at times as well. The U.S. stock account and U.S. bond account are valued based upon the aggregate market values of the underlying investments, and the loan asset account is valued at cash surrender value at the time of the loan, plus accrued interest.
 
The other postretirement benefit plan assets consisted of trust-owned life insurance with fair values of $189 million and $262 million at December 31, 2015 and 2014 respectively, and are valued under level 2 of the fair value hierarchy. There were no level 1 or level 3 related assets.
 
The methods used to value pension and other postretirement benefit plan assets 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.

Contributions and Estimated Future Benefit Payments
 
In 2016, we expect to contribute approximately $16 million to our unfunded pension plans for payments to pensioners and approximately $20 million to our other postretirement benefit plans for retiree health and death benefits.  We do not expect to contribute to our funded pension plan in 2016

Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
 
Pension
Benefits
 
Other
Postretirement 
Benefits
 
($ in millions)
 
 
 
 
2016
$
135

 
$
44

2017
137

 
43

2018
140

 
42

2019
142

 
42

2020
143

 
41

Years 2021 – 2025
731

 
185


 
Other Postretirement Coverage
 
Under collective bargaining agreements, Norfolk Southern and certain subsidiaries participate in a multi-employer benefit plan, which provides certain postretirement health care and life insurance benefits to eligible union employees.  Premiums under this plan are expensed as incurred and totaled $32 million in 2015, $36 million in 2014, and $41 million in 2013.
 
Section 401(k) Plans
 
Norfolk Southern and certain subsidiaries provide Section 401(k) savings plans for employees.  Under the plans, we match a portion of employee contributions, subject to applicable limitations.  Our matching contributions, recorded as an expense, under these plans were $21 million in 2015, $20 million in 2014, and $19 million in 2013.