16. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans

The Company has contributory and non-contributory defined-benefit pension plans, which include both qualified and supplemental plans. The Company also provides certain health care and life insurance benefits for certain retired employees. Retiree health care benefits are funded by contributions from the retiree, and in certain circumstances, contributions from the Company. The Company’s retiree life insurance plan is non-contributory.

The following sets forth changes in the benefit obligations and fair value of plan assets for the Company’s pension and other postretirement benefit plans for the years ended December 31, 2015 and 2014, as well as the funded status of the plans and amounts recognized in the financial statements at December 31, 2015 and 2014:



	Pension Benefits						Other Benefits
millions	2015			2014			2015			2014
Change in benefit obligation
Benefit obligation at beginning of year	$	2,528		$	2,158		$	373		$	294
Service cost	118			99			9			7
Interest cost	101			99			15			15
Plan amendments	—			—			(89		)	—
Actuarial (gain) loss	(115		)	337			(27		)	72
Participant contributions	—			1			5			4
Benefit payments	(194		)	(159		)	(20		)	(19		)
Foreign-currency exchange-rate changes	(7		)	(7		)	—			—
Benefit obligation at end of year ⁽¹⁾	$	2,431		$	2,528		$	266		$	373
Change in plan assets
Fair value of plan assets at beginning of year	$	1,818		$	1,754		$	—		$	—
Actual return on plan assets	16			111			—			—
Employer contributions	43			121			15			15
Participant contributions	—			1			5			4
Benefit payments	(194		)	(159		)	(20		)	(19		)
Foreign-currency exchange-rate changes	(9		)	(10		)	—			—
Fair value of plan assets at end of year	$	1,674		$	1,818		$	—		$	—

Funded status of the plans at end of year	$	(757	)	$	(710	)	$	(266	)	$	(373	)

Total recognized amounts in the balance sheet consist of
Other assets	$	41		$	41		$	—		$	—
Accrued expenses	(24		)	(24		)	(16		)	(15		)
Other long-term liabilities—other	(774		)	(727		)	(250		)	(358		)
Total	$	(757	)	$	(710	)	$	(266	)	$	(373	)

Total recognized amounts in accumulated other comprehensive income consist of
Prior service cost (credit)	$	(1	)	$	(1	)	$	(84	)	$	2
Net actuarial (gain) loss	655			740			(25		)	1
Total	$	654		$	739		$	(109	)	$	3

__________________________________________________________________


⁽¹⁾	The accumulated benefit obligation for all defined-benefit pension plans was $2.1 billion at both December 31, 2015 and December 31, 2014.

16. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)

The following summarizes the Company’s defined-benefit pension plans with accumulated benefit obligations in excess of plan assets for the years ended December 31:



millions	2015		2014
Projected benefit obligation	$	2,309	$	2,403
Accumulated benefit obligation	1,954		2,024
Fair value of plan assets	1,511		1,652

The following summarizes the Company’s pension and other postretirement benefit cost and amounts recognized in other comprehensive income (before tax benefit) for the years ended December 31:



	Pension Benefits									Other Benefits
millions	2015			2014			2013			2015			2014			2013
Components of net periodic benefit cost
Service cost	$	118		$	99		$	85		$	9		$	7		$	9
Interest cost	101			99			78			15			15			14
Expected return on plan assets	(109		)	(106		)	(91		)	—			—			—
Amortization of net actuarial loss (gain)	52			34			118			—			(7		)	—
Amortization of net prior service cost (credit)	—			—			—			(4		)	—			1
Settlement loss	11			—			14			—			—			—
Net periodic benefit cost	$	173		$	126		$	204		$	20		$	15		$	24



Amounts recognized in other comprehensive income (expense)
Net actuarial gain (loss)	$	22	$	(333	)	$	342	$	27		$	(72	)	$	74
Amortization of net actuarial (gain) loss	52		34			118		—			(7		)	—
Net prior service (cost) credit	—		—			—		89			—			—
Amortization of net prior service cost (credit)	—		—			—		(4		)	—			1
Settlement loss	11		—			14		—			—			—
Total amounts recognized in other comprehensive income (expense)	$	85	$	(299	)	$	474	$	112		$	(79	)	$	75

The Company amortizes prior service costs (credits) on a straight-line basis over the average remaining service period of employees expected to receive benefits under each plan. Actuarial gains and losses that exceed 10% of the greater of the projected benefit obligation and the market-related value of assets are amortized over the average remaining service period of participating employees expected to receive benefits under each plan. In 2016, an estimated $34 million of net actuarial loss and $27 million of net prior service credit for the pension and other postretirement plans will be amortized from accumulated other comprehensive income into net periodic benefit cost.

16. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)

Defined-benefit plan obligations and costs are actuarially determined, incorporating the use of various assumptions. Critical assumptions for pension and other postretirement plans include the discount rate, the expected long-term rate of return on plan assets (for funded pension plans), the rate of future compensation increases, and the health care cost trend rate or inflation (for postretirement plans). Other assumptions involve demographic factors such as retirement age, mortality, and turnover. The Company evaluates and updates its actuarial assumptions at least annually.

Accumulated and projected benefit obligations are measured as the present value of future cash payments. The Company discounts those cash payments using a discount rate that reflects the weighted average of market-observed yields for select high-quality (AA-rated) fixed-income securities with cash flows that correspond to the expected amounts and timing of benefit payments. The discount-rate assumption used by the Company represents an estimate of the interest rate at which the pension and other postretirement benefit obligations could effectively be settled on the measurement date. Assumed rates of compensation increases for active participants vary by age group, with the resulting weighted-average assumed rate (weighted by the plan-level benefit obligation) provided in the preceding table.

The following summarizes the weighted-average assumptions used by the Company in determining the pension and other postretirement benefit obligations and net periodic benefit cost for the years ended December 31:



	Pension Benefits						Other Benefits
	2015		2014		2013		2015		2014		2013
Benefit obligation assumptions
Discount rate	4.50	%	4.00	%	4.75	%	5.00	%	4.25	%	5.25	%
Rates of increase in compensation levels	5.25	%	5.25	%	5.00	%	5.50	%	5.25	%	5.25	%
Net periodic benefit cost assumptions
Discount rate	4.00	%	4.75	%	3.50	%	4.25	%	5.25	%	4.00	%
Long-term rate of return on plan assets	6.75	%	6.75	%	7.00	%	N/A		N/A		N/A
Rates of increase in compensation levels	5.25	%	5.00	%	4.50	%	5.25	%	5.25	%	4.50	%

An annual rate of increase indexed to the Consumer Price Index (CPI) of 1.75% was assumed for purposes of measuring the other postretirement benefit obligation at December 31, 2015, due to a plan amendment effective in 2016 that changed the Company’s annual benefit payments to a per-participant fixed amount, subject to annual escalation based upon CPI. An 8.00% annual rate of increase in the per-capita cost of covered health care benefits for the next year was assumed for purposes of measuring other postretirement benefit obligations at December 31, 2014.

16. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)

Plan Assets

Investment Policies and Strategies The Company has adopted a balanced, diversified investment strategy, with the intent of maximizing returns without exposure to undue risk. Investments are typically made through investment managers across several investment categories (domestic equity securities, international equity securities, fixed-income securities, real estate, hedge funds, and private equity), with selective exposure to Growth/Value investment styles. Performance for each investment is measured relative to the appropriate index benchmark for its category. Target asset-allocation percentages by major category are 45%-55% equity securities, 20%-30% fixed income, and up to 25% in a combination of other investments such as real estate, hedge funds, and private equity. Investment managers have full discretion as to investment decisions regarding funds under their management to the extent permitted within investment guidelines.

Although investment managers may, at their discretion and within investment guidelines, invest in Anadarko securities, there are no direct investments in Anadarko securities included in plan assets. There may be, however, indirect investments in Anadarko securities through the plans’ collective fund investments. The expected long-term rate of return on plan assets assumption was determined using the year-end 2015 pension investment balances by asset class and expected long-term asset allocation. The expected return for each asset class reflects capital-market projections formulated using a forward-looking building-block approach while also taking into account historical return trends and current market conditions. Equity returns generally reflect long-term expectations of real earnings growth, dividend yield, and inflation. Returns on fixed-income securities are generally developed based on expected inflation, real bond yield, and risk spread (as appropriate), adjusted for the expected effect that changing yields have on the rate of return. Other asset-class returns are derived from their relationship to the equity and fixed-income markets.

16. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)

The fair value of the Company’s pension plan assets by asset class and input level within the fair-value hierarchy were as follows:



millions
December 31, 2015	Level 1			Level 2		Level 3		Total
Investments
Cash and cash equivalents	$	5		$	54	$	—	$	59
Fixed income
Mortgage-backed securities	—			36		—		36
U.S. government securities	—			53		—		53
Other fixed-income securities ⁽¹⁾	46			236		—		282
Equity securities
Domestic	330			80		—		410
International	130			289		—		419
Other
Real estate	—			57		104		161
Private equity	—			—		92		92
Hedge funds and other alternative strategies	7			—		127		134
Other	—			30		—		30
Total investments⁽²⁾	$	518		$	835	$	323	$	1,676
Liabilities
Hedge funds and other alternative strategies	$	(3	)	$	—	$	—	$	(3	)
Total liabilities	$	(3	)	$	—	$	—	$	(3	)

December 31, 2014
Investments
Cash and cash equivalents	$	3		$	53	$	—	$	56
Fixed income
Mortgage-backed securities	—			51		—		51
U.S. government securities	—			56		—		56
Other fixed-income securities ⁽¹⁾	48			212		—		260
Equity securities
Domestic	446			130		—		576
International	124			299		—		423
Other
Real estate	—			56		94		150
Private equity	—			—		84		84
Hedge funds and other alternative strategies	9			—		126		135
Other	—			30		—		30
Total investments⁽²⁾	$	630		$	887	$	304	$	1,821
Liabilities
Hedge funds and other alternative strategies	$	(3	)	$	—	$	—	$	(3	)
Total liabilities	$	(3	)	$	—	$	—	$	(3	)

__________________________________________________________________


⁽¹⁾	Amounts include investments in diversified fixed-income collective investment funds with exposure to mortgage-backed securities, government-issued securities, corporate debt, and other fixed-income securities.


⁽²⁾	Amount excludes receivables and payables, primarily related to Level 1 investments.

16. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)

Investments in securities traded in active markets are measured based on unadjusted quoted prices, which represent Level 1 inputs. Investments based on Level 2 inputs include direct investments in corporate debt and other fixed-income securities as well as shares of open-end mutual funds or similar investment vehicles that do not have a readily determinable fair value but are valued at the net asset value per share (NAV). For such funds, the NAV is the value at which investors transact with the fund, and is determined by the fund based on the estimated fair values of the underlying fund assets. Fair value of investments included as Level 3 inputs generally also reflect investments valued at fund NAVs, but, unlike investments characteristic of Level 2 fair-value measurements, such plan assets have significant liquidity restrictions or other features that are not reflected in NAV.

The following summarizes changes in the fair value of investments based on Level 3 inputs:



millions	Hedge Funds and Other Alternative Strategies		Private Equity			Real Estate		Total
Balance at January 1, 2014	$	79	$	72		$	86	$	237
Acquisitions (dispositions), net	42		—			2		44
Actual return on plan assets
Relating to assets sold during the reporting period	2		5			—		7
Relating to assets still held at the reporting date	3		7			6		16
Balance at December 31, 2014	$	126	$	84		$	94	$	304
Acquisitions (dispositions), net	1		(4		)	2		(1		)
Actual return on plan assets
Relating to assets sold during the reporting period	—		11			—		11
Relating to assets still held at the reporting date	—		1			8		9
Balance at December 31, 2015	$	127	$	92		$	104	$	323

Risks and Uncertainties The plan assets include various investment securities that are exposed to various risks such as interest-rate, credit, and market risks. Due to the level of risk associated with certain investment securities, it is possible that changes in the values of investment securities could significantly impact the plan assets.

The plan assets may include securities with contractual cash flows such as asset-backed securities, collateralized mortgage obligations, and commercial mortgage-backed securities, including securities backed by subprime mortgage loans. The value, liquidity, and related income of those securities are sensitive to changes in economic conditions, including real estate values, delinquencies or defaults, or both, and may be adversely affected by shifts in the market’s perception of the issuers and changes in interest rates.

16. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)

Cash Contributions and Expected Benefit Payments While reported benefit obligations exceed the fair value of pension and other postretirement plan assets at December 31, 2015, the Company monitors the status of its funded pension plans to ensure that plan funds are sufficient to continue paying benefits. Contributions to funded plans increase plan assets while contributions to unfunded plans are used to fund current benefit payments.

The following summarizes the Company’s contributions for 2015 and expected contributions for 2016:



millions	Expected 2016		2015
Funded pension plans	$	5	$	4
Unfunded pension plans	25		39
Unfunded other postretirement plans	16		15
Total	$	46	$	58

The following summarizes estimated benefit payments for the next ten years, including benefit increases due to continuing employee service:



millions	Pension Benefit Payments		Other Benefit Payments
2016	$	171	$	16
2017	197		17
2018	194		17
2019	214		17
2020	209		18
2021-2025	1,199		92

Defined-Contribution Plans The Company maintains several defined-contribution benefit plans, the most significant of which is the Anadarko Employee Savings Plan (ESP). All regular employees of the Company on its U.S. payroll are eligible to participate in the ESP by making elective contributions that are matched by the Company, subject to certain limitations. The Company recognized expense of $76 million for both 2015 and 2014, and $78 million for 2013, related to these plans.