NOTE 13 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS

We offer defined benefit pension plans, defined contribution pension plans and other postretirement benefit plans, primarily consisting of retiree healthcare benefits, to most employees in North America as part of a total compensation and benefits program. We do not have employee retirement benefit obligations at our Asia Pacific Iron Ore operations. The defined benefit pension plans largely are noncontributory and benefits generally are based on employees’ years of service and average earnings for a defined period prior to retirement or a minimum formula.

On November 9, 2012, the USW ratified 37 month labor contracts, which replaced the labor agreements that expired on September 1, 2012. The agreements cover approximately 2,400 USW-represented employees at our Empire and Tilden mines in Michigan and our United Taconite and Hibbing mines in Minnesota, or 32.0 percent of our total workforce. The new agreement set temporary monthly postretirement OPEB caps for participants who retire prior to January 1, 2015. These premium maximums will expire at the end of the contract period and revert to increasing premiums based on the terms of the 2004 bargaining agreement. Also agreed to was an OPEB cap that will limit the amount of contributions that we have to make toward medical insurance coverage for each retiree and spouse of a retiree per calendar year after it goes into effect. The amount of the annual OPEB cap will be based upon the costs we incur in 2014. The OPEB cap will apply to employees who retire on or after January 1, 2015 and will not apply to surviving spouses. In addition, the bargaining agreement renewed the lump sum special payments for certain employees retiring in the near future. The changes also included renewal of and an increase in payments to surviving spouses of certain retirees, as well as, an increase in the temporary supplemental benefit amount paid to certain retirees. The agreements also provide that we and our partners fund an estimated $65.7 million into the bargaining unit VEBA plans during the term of the agreements unless funding obligations have been reached. These agreements are effective through September 30, 2015.

In August 2013, we entered into a new labor agreement with the USW covering our represented employees at Bloom Lake. It has a three-year term that runs from September 1, 2013 through August 31, 2016. The new agreement provides us with significant workforce flexibility.

In November 2013, we entered into a new labor agreement the USW covering our represented employees at our Pointe Noire facility, which is part of our Wabush operations. It has a six-year term and runs from March 1, 2014 to February 28, 2020. It provides for a 26.0 percent increase in the cost of employment over the life of the contract. We also obtained the USW’s consent to an application we had made to the Canadian Industrial Relations Board to have this workforce governed by Canadian federal labor law. Following entrance of this agreement, the CIRB granted our application, providing us with significantly more flexibility to manage any future labor disruptions.

In addition, we currently provide various levels of retirement health care and OPEB to most full-time employees who meet certain length of service and age requirements (a portion of which is pursuant to collective bargaining agreements). Most plans require retiree contributions and have deductibles, co-pay requirements and benefit limits. Most bargaining unit plans require retiree contributions and co-pays for major medical and prescription drug coverage. There is an annual limit on our cost for medical coverage under the U.S. salaried plans. The annual limit applies to each covered participant and equals $7,000 for coverage prior to age 65 and $3,000 for coverage after age 65, with the retiree’s participation adjusted based on the age at which the retiree’s benefits commence. For participants at our Northshore operation, the annual limit ranges from $4,020 to $4,500 for coverage prior to age 65, and equals $2,000 for coverage after age 65. Covered participants pay an amount for coverage equal to the excess of (i) the average cost of coverage for all covered participants, over (ii) the participant’s individual limit, but in no event will the participant’s cost be less than 15.0 percent of the average cost of coverage for all covered participants. For Northshore participants, the minimum participant cost is a fixed dollar amount. We do not provide OPEB for most U.S. salaried employees hired after January 1, 1993. Retiree healthcare coverage is provided through programs administered by insurance companies whose charges are based on benefits paid.

Our North American Coal segment is required under an agreement with the UMWA to pay amounts into the UMWA pension trusts based principally on hours worked by UMWA-represented employees. This agreement covers approximately 800 UMWA-represented employees at our Pinnacle Complex in West Virginia and our Oak Grove mine in Alabama, or 11.0 percent of our total workforce. These multi-employer pension trusts provide benefits to eligible retirees through a defined benefit plan. The UMWA 1993 Benefit Plan is a defined contribution plan that was created as the result of negotiations for the NBCWA of 1993. The plan provides healthcare insurance to orphan UMWA retirees who are not eligible to participate in the UMWA Combined Benefit Fund or the 1992 Benefit Fund or whose last employer signed the 1993 or later NBCWA and who subsequently goes out of business. Contributions to the trust were at a rate of $8.10 per hour worked in both 2013 and 2012 and $6.50 per hour worked in 2011. These amounted to $14.9 million in both 2013 and 2012 and $9.5 million in 2011, respectively. Our Pinnacle and Oak Grove mines are signatories to labor agreements with the UMWA, making them participants in the UMWA 1974 Pension Plan (the "1974 PP"). As of the most recent estimate, Pinnacle and Oak Grove's combined share of this underfunded liability was estimated to be approximately $342 million. If Pinnacle or Oak Grove were to withdraw from the 1974 PP or if a mass withdrawal were to occur, we would become obligated to pay this amount to the 1974 PP.

In December 2003, The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was enacted. This act introduced a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that at least actuarially is equivalent to Medicare Part D. Our measures of the accumulated postretirement benefit obligation and net periodic postretirement benefit cost as of December 31, 2004 and for periods thereafter reflect amounts associated with the subsidy. We elected to adopt the retroactive transition method for recognizing the cost reduction in 2004. The following table summarizes the annual expense recognized related to the retirement plans for 2013, 2012 and 2011:



	(In Millions)
	2013		2012		2011
Defined benefit pension plans	$	52.1	$	55.2	$	37.8
Defined contribution pension plans	6.8		6.7		5.7
Other postretirement benefits	17.4		28.1		26.8
Total	$	76.3	$	90.0	$	70.3

The following tables and information provide additional disclosures for our consolidated plans.

Obligations and Funded Status

The following tables and information provide additional disclosures for the December 31, 2013 and 2012:



	(In Millions)
	Pension Benefits						Other Benefits
Change in benefit obligations:	2013			2012			2013			2012
Benefit obligations — beginning of year	$	1,244.3		$	1,141.4		$	459.8		$	488.4
Service cost (excluding expenses)	38.9			32.0			12.3			14.7
Interest cost	45.9			48.4			17.3			20.6
Plan amendments	0.8			2.8			—			(58.3		)
Actuarial (gain) loss	(121.8		)	84.3			(103.3		)	11.3
Benefits paid	(72.9		)	(71.0		)	(28.0		)	(26.9		)
Participant contributions	—			—			5.6			4.6
Federal subsidy on benefits paid	—			—			0.5			0.8
Exchange rate (gain) loss	(17.2		)	6.4			(8.0		)	4.6
Benefit obligations — end of year	$	1,118.0		$	1,244.3		$	356.2		$	459.8

Change in plan assets:
Fair value of plan assets — beginning of year	$	838.7		$	744.1		$	237.0		$	193.5
Actual return on plan assets	109.5			92.5			11.0			26.1
Participant contributions	—			—			1.8			1.7
Employer contributions	53.7			67.7			20.7			23.3
Benefits paid	(72.9		)	(71.0		)	(18.7		)	(7.6		)
Exchange rate gain (loss)	(13.7		)	5.4			—			—
Fair value of plan assets — end of year	$	915.3		$	838.7		$	251.8		$	237.0

Funded status at December 31:
Fair value of plan assets	$	915.3		$	838.7		$	251.8		$	237.0
Benefit obligations	(1,118.0		)	(1,244.3		)	(356.2		)	(459.8		)
Funded status (plan assets less benefit obligations)	$	(202.7	)	$	(405.6	)	$	(104.4	)	$	(222.8	)
Amount recognized at December 31	$	(202.7	)	$	(405.6	)	$	(104.4	)	$	(222.8	)

Amounts recognized in Statements of Financial Position:
Current liabilities	$	(5.2	)	$	(1.8	)	$	(7.9	)	$	(8.3	)
Noncurrent liabilities	(197.5		)	(403.8		)	(96.5		)	(214.5		)
Net amount recognized	$	(202.7	)	$	(405.6	)	$	(104.4	)	$	(222.8	)

Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	$	230.6		$	429.2		$	67.0		$	176.8
Prior service cost	14.9			17.2			(45.4		)	(48.8		)
Transition asset	—			—			—			—
Net amount recognized	$	245.5		$	446.4		$	21.6		$	128.0

The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2014:
Net actuarial loss	$	14.2					$	4.6
Prior service cost	2.7						(3.6		)
Net amount recognized	$	16.9					$	1.0



	(In Millions)
	2013
	Pension Plans															Other Benefits
	Salaried			Hourly			Mining			SERP			Total			Salaried			Hourly			Total
Fair value of plan assets	$	357.4		$	552.7		$	5.2		$	—		$	915.3		$	—		$	251.8		$	251.8
Benefit obligation	(427.2		)	(674.8		)	(6.8		)	(9.2		)	(1,118.0		)	(53.6		)	(302.6		)	(356.2		)
Funded status	$	(69.8	)	$	(122.1	)	$	(1.6	)	$	(9.2	)	$	(202.7	)	$	(53.6	)	$	(50.8	)	$	(104.4	)

	2012
	Pension Plans															Other Benefits
	Salaried			Hourly			Mining			SERP			Total			Salaried			Hourly			Total
Fair value of plan assets	$	328.2		$	506.4		$	4.1		$	—		$	838.7		$	—		$	237.0		$	237.0
Benefit obligation	(464.4		)	(764.8		)	(6.4		)	(8.7		)	(1,244.3		)	(72.6		)	(387.2		)	(459.8		)
Funded status	$	(136.2	)	$	(258.4	)	$	(2.3	)	$	(8.7	)	$	(405.6	)	$	(72.6	)	$	(150.2	)	$	(222.8	)

The accumulated benefit obligation for all defined benefit pension plans was $1,091.4 million and $1,204.7 million at December 31, 2013 and 2012, respectively. The decrease in the accumulated benefit obligation primarily is a result of an increase in the discount rates.

Components of Net Periodic Benefit Cost



	(In Millions)
	Pension Benefits									Other Benefits
	2013			2012			2011			2013			2012			2011
Service cost	$	38.9		$	32.0		$	23.6		$	12.3		$	14.7		$	11.1
Interest cost	45.9			48.4			51.4			17.3			20.6			22.3
Expected return on plan assets	(65.6		)	(59.5		)	(61.2		)	(20.1		)	(17.7		)	(16.1		)
Amortization:
Net asset	—			—			—			—			(3.0		)	(3.0		)
Prior service costs (credits)	3.0			3.9			4.4			(3.6		)	1.9			3.7
Net actuarial gains	29.9			30.4			19.6			11.5			11.6			8.8
Net periodic benefit cost	$	52.1		$	55.2		$	37.8		$	17.4		$	28.1		$	26.8
Acquired through business combinations	—			—			—			—			—			—
Current year actuarial (gain)/loss	(168.8		)	53.1			165.3			(95.2		)	3.2			46.8
Amortization of net loss	(29.9		)	(30.4		)	(19.6		)	(11.5		)	(11.6		)	(8.8		)
Current year prior service cost	0.8			2.8			—			—			(58.3		)	—
Amortization of prior service (cost) credit	(3.0		)	(3.9		)	(4.4		)	3.6			(1.9		)	(3.7		)
Amortization of transition asset	—			—			—			—			3.0			3.0
Total recognized in other comprehensive income	$	(200.9	)	$	21.6		$	141.3		$	(103.1	)	$	(65.6	)	$	37.3
Total recognized in net periodic cost and other comprehensive income	$	(148.8	)	$	76.8		$	179.1		$	(85.7	)	$	(37.5	)	$	64.1

Additional Information



	(In Millions)
	Pension Benefits						Other Benefits
	2013		2012		2011		2013		2012		2011
Effect of change in mine ownership & noncontrolling interest	$	46.5	$	54.8	$	53.3	$	4.8	$	8.6	$	12.5
Actual return on plan assets	109.5		92.5		10.8		11.0		26.1		1.9

Assumptions

For our U.S. pension and other postretirement benefit plans, we used a discount rate as of December 31, 2013 of 4.57 percent, compared with a discount rate of 3.70 percent as of December 31, 2012. The U.S. discount rates are determined by matching the projected cash flows used to determine the PBO and APBO to a projected yield curve of 494 Aa graded bonds in the 10th to 90th percentiles. These bonds are either noncallable or callable with make-whole provisions. The duration matching produced rates ranging from 4.36 percent to 4.66 percent for our plans. Based upon these results, we selected a December 31, 2013 discount rate of 4.57 percent for our plans. This methodology is consistent with the calculation of the prior-year discount rate.

For our Canadian plans, we used a discount rate as of December 31, 2013 of 4.50 percent for the pension plans and 4.75 percent for the other postretirement benefit plans. Similar to the U.S. plans, the Canadian discount rates are determined by matching the projected cash flows used to determine the PBO and APBO to a projected yield curve of 334 corporate bonds in the 10th to 90th percentiles. The corporate bonds are either Aa graded, or (for maturities of 10 or more years) A or Aaa graded with an appropriate credit spread adjustment. These bonds are either noncallable or callable with make whole provisions. This methodology is consistent with the calculation of the prior-year discount rate.

Weighted-average assumptions used to determine benefit obligations at December 31 were:



	Pension Benefits		Other Benefits
	2013	2012	2013	2012
U.S. plan discount rate	4.57%	3.70%	4.57%	3.70%
Canadian plan discount rate	4.50	3.75	4.75	4.00
Salaried rate of compensation increase	4.00	4.00	4.00	4.00
Hourly rate of compensation increase (ultimate)	3.00	4.00	N/A	N/A
U.S. expected return on plan assets	8.25	8.25	7.00	8.25
Canadian expected return on plan assets	7.25	7.25	N/A	N/A

Weighted-average assumptions used to determine net benefit cost for the years 2013, 2012 and 2011 were:



	Pension Benefits						Other Benefits
	2013		2012		2011		2013		2012		2011
U.S. plan discount rate	3.70	%	4.28	%	5.11	%	3.70	%	4.28/3.51	% ¹	5.11	%
Canadian plan discount rate	3.75		4.00		5.00		4.00		4.25		5.00
U.S. expected return on plan assets	8.25		8.25		8.50		8.25		8.25		8.50
Canadian expected return on plan assets	7.25		7.25		7.50		N/A		N/A		7.50
Salaried rate of compensation increase	4.00		4.00		4.00		4.00		4.00		4.00
Hourly rate of compensation increase	4.00		4.00		4.00		N/A		N/A		N/A


¹	4.28 percent for the Salaried Plan. For the Hourly Plan, 4.28 percent from January 1, 2012 through October 31, 2012, and 3.51 percent from November 1, 2012 through December 31, 2012.

Assumed health care cost trend rates at December 31 were:



	2013		2012
U.S. plan health care cost trend rate assumed for next year	7.25	%	7.50	%
Canadian plan health care cost trend rate assumed for next year	4.00		7.50
Ultimate health care cost trend rate	5.00		5.00
U.S. plan year that the ultimate rate is reached	2023		2023
Canadian plan year that the ultimate rate is reached	2018		2018

The Canadian plan health care cost trend rate assumed for next year decreased as we have experienced lower than expected Canadian plan health care costs in recent years.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A change of one percentage point in assumed health care cost trend rates would have the following effects:



	(In Millions)
	Increase		Decrease
Effect on total of service and interest cost	$	5.4	$	(4.1	)
Effect on postretirement benefit obligation	38.2		(31.3		)

Plan Assets

Our financial objectives with respect to our pension and VEBA plan assets are to fully fund the actuarial accrued liability for each of the plans, to maximize investment returns within reasonable and prudent levels of risk, and to maintain sufficient liquidity to meet benefit obligations on a timely basis.

Our investment objective is to outperform the expected Return on Asset (“ROA”) assumption used in the plans’ actuarial reports over a full market cycle, which is considered a period during which the U.S. economy experiences the effects of both an upturn and a downturn in the level of economic activity. In general, these periods tend to last between three and five years. The expected ROA takes into account historical returns and estimated future long-term returns based on capital market assumptions applied to the asset allocation strategy.

The asset allocation strategy is determined through a detailed analysis of assets and liabilities by plan, which defines the overall risk that is acceptable with regard to the expected level and variability of portfolio returns, surplus (assets compared to liabilities), contributions and pension expense.

The asset allocation review process involves simulating the effect of financial market performance for various asset allocation scenarios and factoring in the current funded status and likely future funded status levels by taking into account expected growth or decline in the contributions over time. The modeling is then adjusted by simulating unexpected changes in inflation and interest rates. The process also includes quantifying the effect of investment performance and simulated changes to future levels of contributions, determining the appropriate asset mix with the highest likelihood of meeting financial objectives and regularly reviewing our asset allocation strategy.

The asset allocation strategy varies by plan. The following table reflects the actual asset allocations for pension and VEBA plan assets as of December 31, 2013 and 2012, as well as the 2014 weighted average target asset allocations as of December 31, 2013. Equity investments include securities in large-cap, mid-cap and small-cap companies located in the U.S. and worldwide. Fixed income investments primarily include corporate bonds and government debt securities. Alternative investments include hedge funds, private equity, structured credit and real estate.



	Pension Assets						VEBA Assets
Asset Category	2014 Target Allocation		Percentage of Plan Assets at December 31,				2014 Target Allocation		Percentage of Plan Assets at December 31,
Asset Category	2014 Target Allocation		2013		2012		2014 Target Allocation		2013		2012
Equity securities	46.9	%	51.5	%	45.9	%	10.9	%	10.4	%	42.6	%
Fixed income	28.4	%	26.7	%	29.5	%	69.4	%	66.6	%	32.9	%
Hedge funds	6.5	%	6.3	%	10.2	%	8.0	%	9.8	%	9.8	%
Private equity	5.8	%	3.2	%	3.5	%	2.7	%	2.4	%	2.6	%
Structured credit	6.2	%	6.7	%	6.7	%	4.0	%	5.4	%	5.3	%
Real estate	6.2	%	4.5	%	3.5	%	5.0	%	5.3	%	6.7	%
Cash	—	%	1.1	%	0.7	%	—	%	0.1	%	0.1	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Pension

The fair values of our pension plan assets at December 31, 2013 and 2012 by asset category are as follows:



	(In Millions)
	December 31, 2013
Asset Category	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Equity securities:
U.S. large-cap	$	261.5	$	—	$	—	$	261.5
U.S. small/mid-cap	60.8		—		—		60.8
International	149.3		—		—		149.3
Fixed income	214.8		30.1		—		244.9
Hedge funds	—		—		57.6		57.6
Private equity	—		—		29.1		29.1
Structured credit	—		—		61.0		61.0
Real estate	—		—		40.9		40.9
Cash	10.2		—		—		10.2
Total	$	696.6	$	30.1	$	188.6	$	915.3



	(In Millions)
	December 31, 2012
Asset Category	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Equity securities:
U.S. large-cap	$	231.1	$	—	$	—	$	231.1
U.S. small/mid-cap	39.2		—		—		39.2
International	114.5		—		—		114.5
Fixed income	209.1		38.4		—		247.5
Hedge funds	—		—		85.6		85.6
Private equity	—		—		29.3		29.3
Structured credit	—		—		56.2		56.2
Real estate	—		—		29.4		29.4
Cash	5.9		—		—		5.9
Total	$	599.8	$	38.4	$	200.5	$	838.7

Following is a description of the inputs and valuation methodologies used to measure the fair value of our plan assets.

Equity Securities

Equity securities classified as Level 1 investments include U.S. large-, small- and mid-cap investments and international equity. These investments are comprised of securities listed on an exchange, market or automated quotation system for which quotations are readily available. The valuation of these securities is determined using a market approach, and is based upon unadjusted quoted prices for identical assets in active markets.

Fixed Income

Fixed income securities classified as Level 1 investments include bonds and government debt securities. These investments are comprised of securities listed on an exchange, market or automated quotation system for which quotations are readily available. The valuation of these securities is determined using a market approach, and is based upon unadjusted quoted prices for identical assets in active markets. Also included in Fixed Income is a portfolio of U.S. Treasury STRIPS, which are zero-coupon bearing fixed income securities backed by the full faith and credit of the U.S. government. The securities sell at a discount to par because there are no incremental coupon payments. STRIPS are not issued directly by the Treasury, but rather are created by a financial institution, government securities broker or government securities dealer. Liquidity on the issue varies depending on various market conditions; however, in general the STRIPS market is slightly less liquid than that of the U.S. Treasury Bond market. The STRIPS are priced daily through a bond pricing vendor and are classified as Level 2.

Hedge Funds

Hedge funds are alternative investments comprised of direct or indirect investment in offshore hedge funds of funds with an investment objective to achieve an attractive risk-adjusted return with moderate volatility and moderate directional market exposure over a full market cycle. The valuation techniques used to measure fair value attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. Considerable judgment is required to interpret the factors used to develop estimates of fair value. Valuations of the underlying investment funds are obtained and reviewed. The securities that are valued by the funds are interests in the investment funds and not the underlying holdings of such investment funds. Thus, the inputs used to value the investments in each of the underlying funds may differ from the inputs used to value the underlying holdings of such funds.

In determining the fair value of a security, the fund managers may consider any information that is deemed relevant, which may include one or more of the following factors regarding the portfolio security, if appropriate: type of security or asset; cost at the date of purchase; size of holding; last trade price; most recent valuation; fundamental analytical data relating to the investment in the security; nature and duration of any restriction on the disposition of the security; evaluation of the factors that influence the market in which the security is purchased or sold; financial statements of the issuer; discount from market value of unrestricted securities of the same class at the time of purchase; special reports prepared by analysts; information as to any transactions or offers with respect to the security; existence of merger proposals or tender offers affecting the security; price and extent of public trading in similar securities of the issuer or compatible companies and other relevant matters; changes in interest rates; observations from financial institutions; domestic or foreign government actions or pronouncements; other recent events; existence of shelf registration for restricted securities; existence of any undertaking to register the security; and other acceptable methods of valuing portfolio securities.

Hedge fund investments in the SEI Special Situations Fund are valued quarterly and recorded on a one-month lag. For alternative investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date. Share repurchases for the SEI Special Situations Fund are considered semi-annually subject to notice of 95 days.

Private Equity Funds

Private equity funds are alternative investments that represent direct or indirect investments in partnerships, venture funds or a diversified pool of private investment vehicles (fund of funds).

Investment commitments are made in private equity funds of funds based on an asset allocation strategy, and capital calls are made over the life of the funds to fund the commitments. As of December 31, 2013, remaining commitments total $8.7 million for both our pension and other benefits. Committed amounts are funded from plan assets when capital calls are made. Investment commitments are not pre-funded in reserve accounts. Refer to the valuation methodologies for equity securities above for further information.

The valuation of investments in private equity funds of funds initially is performed by the underlying fund managers. In determining the fair value, the fund managers may consider any information that is deemed relevant, which may include: type of security or asset; cost at the date of purchase; size of holding; last trade price; most recent valuation; fundamental analytical data relating to the investment in the security; nature and duration of any restriction on the disposition of the security; evaluation of the factors that influence the market in which the security is purchased or sold; financial statements of the issuer; discount from market value of unrestricted securities of the same class at the time of purchase; special reports prepared by analysts; information as to any transactions or offers with respect to the security; existence of merger proposals or tender offers affecting the security; price and extent of public trading in similar securities of the issuer or compatible companies and other relevant matters; changes in interest rates; observations from financial institutions; domestic or foreign government actions or pronouncements; other recent events; existence of shelf registration for restricted securities; existence of any undertaking to register the security; and other acceptable methods of valuing portfolio securities.

The valuations are obtained from the underlying fund managers, and the valuation methodology and process is reviewed for consistent application and adherence to policies. Considerable judgment is required to interpret the factors used to develop estimates of fair value.

Private equity investments are valued quarterly and recorded on a one-quarter lag. For alternative investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date. Capital distributions for the funds do not occur on a regular frequency. Liquidation of these investments would require sale of the partnership interest.

Structured Credit

Structured credit investments are alternative investments comprised of collateralized debt obligations and other structured credit investments that are priced based on valuations provided by independent, third-party pricing agents, if available. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value structured credit investments at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value of such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available are valued at the last quoted sale price on the primary exchange or market on which they are traded. Debt obligations with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.

Structured credit investments are valued monthly and recorded on a one-month lag. For alternative investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date. Redemption requests are considered quarterly subject to notice of 90 days.

Real Estate

The real estate portfolio for the pension plans is an alternative investment comprised of three funds with strategic categories of real estate investments. All real estate holdings are appraised externally at least annually, and appraisals are conducted by reputable, independent appraisal firms that are members of the Appraisal Institute. All external appraisals are performed in accordance with the Uniform Standards of Professional Appraisal Practices. The property valuations and assumptions of each property are reviewed quarterly by the investment advisor and values are adjusted if there has been a significant change in circumstances relating to the property since the last external appraisal. The valuation methodology utilized in determining the fair value is consistent with the best practices prevailing within the real estate appraisal and real estate investment management industries, including the Real Estate Information Standards, and standards promulgated by the National Council of Real Estate Investment Fiduciaries, the National Association of Real Estate Investment Fiduciaries, and the National Association of Real Estate Managers. In addition, the investment advisor may cause additional appraisals to be performed. Two of the funds’ fair values are updated monthly, and there is no lag in reported values. Redemption requests for these two funds are considered on a quarterly basis, subject to notice of 45 days.

Effective October 1, 2009, one of the real estate funds began an orderly wind-down over a three to four year period. The decision to wind down the fund primarily was driven by real estate market factors that adversely affected the availability of new investor capital. Third-party appraisals of this fund’s assets were eliminated; however, internal valuation updates for all assets and liabilities of the fund are prepared quarterly. The fund’s asset values are recorded on a one-quarter lag, and current market information is reviewed for any material changes in values at the reporting date. Distributions from sales of properties will be made on a pro-rata basis. Repurchase requests will not be honored during the wind-down period.

During 2011, a new real estate fund of funds investment was added for the Empire, Tilden, Hibbing and United Taconite VEBA plans as a result of the asset allocation review process. This fund invests in pooled investment vehicles that in turn invest in commercial real estate properties. Valuations are performed quarterly and financial statements are prepared on a semi-annual basis, with annual audited statements. Asset values for this fund are reported with a one-quarter lag and current market information is reviewed for any material changes in values at the reporting date. In most cases, values are based on valuations reported by underlying fund managers or other independent third-party sources, but the fund has discretion to use other valuation methods, subject to compliance with ERISA. Valuations are typically estimates only and subject to upward or downward revision based on each underlying fund’s annual audit. Withdrawals are permitted on the last business day of each quarter subject to a 65-day prior written notice.

The following represents the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the years ended December 31, 2013 and 2012:



	(In Millions)
	Year Ended December 31, 2013
	Hedge Funds			Private Equity Funds			Structured Credit Fund			Real Estate			Total
Beginning balance — January 1, 2013	$	85.6		$	29.3		$	56.2		$	29.4		$	200.5
Actual return on plan assets:
Relating to assets still held at the reporting date	4.5			(2.1		)	33.5			5.1			41.0
Relating to assets sold during the period	(1.2		)	5.2			(28.7		)	(0.4		)	(25.1		)
Purchases	66.0			14.7			27.5			36.8			145.0
Sales	(97.3		)	(18.0		)	(27.5		)	(30.0		)	(172.8		)
Ending balance — December 31, 2013	$	57.6		$	29.1		$	61.0		$	40.9		$	188.6



	(In Millions)
	Year Ended December 31, 2012
	Hedge Funds			Private Equity Funds			Structured Credit Fund		Real Estate			Total
Beginning balance — January 1, 2012	$	100.7		$	30.1		$	44.9	$	16.5		$	192.2
Actual return on plan assets:
Relating to assets still held at the reporting date	4.2			1.4			11.3		4.9			21.8
Relating to assets sold during the period	(0.3		)	—			—		(0.5		)	(0.8		)
Purchases	—			2.2			—		12.2			14.4
Sales	(19.0		)	(4.4		)	—		(3.7		)	(27.1		)
Ending balance — December 31, 2012	$	85.6		$	29.3		$	56.2	$	29.4		$	200.5

The expected return on plan assets takes into account historical returns and the weighted average of estimated future long-term returns based on capital market assumptions for each asset category. The expected return is net of investment expenses paid by the plans.

VEBA

Assets for other benefits include VEBA trusts pursuant to bargaining agreements that are available to fund retired employees’ life insurance obligations and medical benefits. The fair values of our other benefit plan assets at December 31, 2013 and 2012 by asset category are as follows:



	(In Millions)
	December 31, 2013
Asset Category	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Equity securities:
U.S. large-cap	$	15.7	$	—	$	—	$	15.7
U.S. small/mid-cap	2.7		—		—		2.7
International	7.8		—		—		7.8
Fixed income	134.4		33.7		—		168.1
Hedge funds	—		—		24.6		24.6
Private equity	—		—		6.0		6.0
Structured credit	—		—		13.5		13.5
Real estate	—		—		13.2		13.2
Cash	0.2		—		—		0.2
Total	$	160.8	$	33.7	$	57.3	$	251.8



	(In Millions)
	December 31, 2012
Asset Category	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Equity securities:
U.S. large-cap	$	58.2	$	—	$	—	$	58.2
U.S. small/mid-cap	10.3		—		—		10.3
International	32.3		—		—		32.3
Fixed income	78.1		—		—		78.1
Hedge funds	—		—		23.2		23.2
Private equity	—		—		6.2		6.2
Structured Credit	—		—		12.5		12.5
Real estate	—		—		15.9		15.9
Cash	0.3		—		—		0.3
Total	$	179.2	$	—	$	57.8	$	237.0

Refer to the pension asset discussion above for further information regarding the inputs and valuation methodologies used to measure the fair value of each respective category of plan assets.

The following represents the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the year ended December 31, 2013 and 2012:



	(In Millions)
	Year Ended December 31, 2013
	Hedge Funds			Private Equity Funds			Structured Credit Fund			Real Estate			Total
Beginning balance — January 1	$	23.2		$	6.2		$	12.5		$	15.9		$	57.8
Actual return on plan assets:
Relating to assets still held at the reporting date	2.1			0.2			2.4			2.8			7.5
Relating to assets sold during the period	(0.7		)	0.4			(1.4		)	(0.7		)	(2.4		)
Purchases	22.5			0.3			11.0			14.2			48.0
Sales	(22.5		)	(1.1		)	(11.0		)	(19.0		)	(53.6		)
Ending balance — December 31	$	24.6		$	6.0		$	13.5		$	13.2		$	57.3



	(In Millions)
	Year Ended December 31, 2012
	Hedge Funds			Private Equity Funds			Structured Credit Fund		Real Estate		Total
Beginning balance — January 1	$	28.3		$	6.8		$	—	$	10.2	$	45.3
Actual return on plan assets:
Relating to assets still held at the reporting date	0.9			0.3			1.5		1.3		4.0
Purchases	—			0.2			11.0		4.4		15.6
Sales	(6.0		)	(1.1		)	—		—		(7.1		)
Ending balance — December 31	$	23.2		$	6.2		$	12.5	$	15.9	$	57.8

Contributions

Annual contributions to the pension plans are made within income tax deductibility restrictions in accordance with statutory regulations. In the event of plan termination, the plan sponsors could be required to fund additional shutdown and early retirement obligations that are not included in the pension obligations. The Company currently has no intention to shutdown, terminate or withdraw from any of its employee benefit plans.



	(In Millions)
	Pension Benefits		Other Benefits
Company Contributions	Pension Benefits		VEBA		Direct Payments		Total
2012	$	67.7	$	17.4	$	21.6	$	39.0
2013	53.7		14.6		10.9		25.5
2014 (Expected)*	68.2		—		7.9		7.9


*	Pursuant to the bargaining agreement, benefits can be paid from VEBA trusts that are at least 70 percent funded (all VEBA trusts are 70 percent funded at December 31, 2013). Funding obligations are suspended when Hibbing's, UTAC's, Tilden's and Empire's share of the value of their respective trust assets reaches 90 percent of their obligation.

VEBA plans are not subject to minimum regulatory funding requirements. Amounts contributed are pursuant to bargaining agreements.

Contributions by participants to the other benefit plans were $5.6 million for the year ended December 31, 2013 and $4.6 million for the year ended December 31, 2012.

Estimated Cost for 2014

For 2014, we estimate net periodic benefit cost as follows:



	(In Millions)
Defined benefit pension plans	$	28.0
Other postretirement benefits	8.3
Total	$	36.3

Estimated Future Benefit Payments



	(In Millions)
	Pension Benefits		Other Benefits
	Pension Benefits		Gross Company Benefits		Less Medicare Subsidy		Net Company Payments
2014	$	81.7	$	23.7	$	1.0	$	22.7
2015	77.9		24.9		1.1		23.8
2016	78.6		24.8		1.2		23.6
2017	79.6		25.0		1.4		23.6
2018	81.6		25.0		1.5		23.5
2019-2023	414.6		119.6		9.4		110.2

Other Potential Benefit Obligations

While the foregoing reflects our obligation, our total exposure in the event of non-performance is potentially greater. Following is a summary comparison of the total obligation:



	(In Millions)
	December 31, 2013
	Defined Benefit Pensions			Other Benefits
Fair value of plan assets	$	915.3		$	251.8
Benefit obligation	(1,118.0		)	(356.2		)
Underfunded status of plan	$	(202.7	)	$	(104.4	)
Additional shutdown and early retirement benefits	$	(15.4	)	$	(53.6	)