Retirement Plans and Postretirement Medical Benefits

We provide certain retirement benefits to our U.S. employees hired prior to January 1, 2005 and to eligible employees outside the U.S. under various defined benefit retirement plans. Benefit accruals under most of our defined benefit plans, including our two largest U.S. pension plans, our U.K. pension plans and Canadian pension plans, have been frozen.

We also provide certain employer subsidized health care and employer provided life insurance benefits in the U.S. and Canada to eligible retirees and their dependents. Employees hired before January 1, 2005 in the U.S. and April 1, 2005 in Canada become eligible for retiree medical benefits after reaching age 55 and with the completion of the required service period. The cost of these benefits is recognized over the period the employee provides credited service to the company.

Retirement Plans

The benefit obligations and funded status of defined benefit pension plans are as follows:



	United States						Foreign
	2014			2013			2014			2013
Accumulated benefit obligation	$	1,866,914		$	1,611,457		$	698,176		$	659,602

Projected benefit obligation
Benefit obligation - beginning of year	$	1,622,591		$	1,822,677		$	672,773		$	663,826
Service cost	6,908			13,981			3,565			6,272
Interest cost	77,655			74,370			28,518			27,365
Plan participants' contributions	—			—			59			496
Actuarial loss (gain)	306,718			(154,996		)	89,695			(1,224		)
Foreign currency changes	—			—			(52,750		)	(204		)
Settlement / curtailment	(16,867		)	(3,275		)	—			(86		)
Special termination benefits	—			548			1,238			935
Benefits paid	(128,829		)	(130,714		)	(27,811		)	(24,607		)
Benefit obligation - end of year	$	1,868,176		$	1,622,591		$	715,287		$	672,773



Fair value of plan assets available for benefits
Fair value of plan assets - beginning of year	$	1,523,679		$	1,583,932		$	561,078		$	509,331
Actual return on plan assets	195,946			60,569			67,306			62,777
Company contributions	19,534			9,892			15,323			14,509
Plan participants' contributions	—			—			59			496
Settlement / curtailment	(16,867		)	—			—			—
Foreign currency changes	—			—			(40,963		)	(1,428		)
Benefits paid	(128,829		)	(130,714		)	(27,811		)	(24,607		)
Fair value of plan assets - end of year	$	1,593,463		$	1,523,679		$	574,992		$	561,078



Amounts recognized in the Consolidated Balance Sheets
Non-current asset	$	300		$	195		$	5,813		$	11,951
Current liability	(6,590		)	(18,097		)	(1,008		)	(1,051		)
Non-current liability	(268,423		)	(81,010		)	(145,100		)	(122,595		)
Funded status	$	(274,713	)	$	(98,912	)	$	(140,295	)	$	(111,695	)

In October 2014, the Society of Actuaries published updated mortality tables for U.S. plans (RP-2014) and an updated improvement scale (MP-2014), which both reflect improved longevity. We have historically utilized the Society of Actuaries' published mortality data in our plan assumptions. Accordingly, we adopted RP-2014 and MP-2014 for purposes of measuring the pension obligation at year end. The change to the mortality assumption increased the year-end pension obligation by $110 million.

Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2014 and 2013:



	United States				Foreign
	2014		2013		2014		2013
Projected benefit obligation	$	1,867,788	$	1,621,164	$	583,317	$	544,875
Accumulated benefit obligation	$	1,866,525	$	1,610,029	$	566,365	$	532,774
Fair value of plan assets	$	1,592,774	$	1,522,057	$	437,209	$	421,229



Pretax amounts recognized in AOCI consist of:
	United States						Foreign
	2014			2013			2014			2013
Net actuarial loss	$	918,641		$	733,943		$	253,257		$	200,000
Prior service credit	(144		)	(135		)	(806		)	(863		)
Transition asset	—			—			(49		)	(59		)
Total	$	918,497		$	733,808		$	252,402		$	199,078

The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2015 are as follows:



	United States		Foreign
Net actuarial loss	$	30,590	$	6,828
Prior service cost (credit)	9		(79		)
Transition asset	—		(10		)
Total	$	30,599	$	6,739

The components of net periodic benefit cost for defined benefit pension plans were as follows:



	United States									Foreign
	2014			2013			2012			2014			2013			2012
Service cost	$	6,908		$	13,981		$	18,939		$	3,565		$	6,272		$	7,763
Interest cost	77,655			74,370			81,040			28,518			27,365			27,793
Expected return on plan assets	(103,822		)	(107,608		)	(121,623		)	(39,137		)	(34,769		)	(32,299		)
Amortization of net transition asset	—			—			—			(10		)	(9		)	(10		)
Amortization of prior service cost (credit)	9			380			803			(57		)	112			112
Amortization of net actuarial loss	25,369			32,494			52,957			8,268			14,445			14,103
Special termination benefits	—			548			—			1,238			935			601
Settlement / curtailment	4,528			2,638			(48		)	—			—			444
Net periodic benefit cost	$	10,647		$	16,803		$	32,068		$	2,385		$	14,351		$	18,507

Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were as follows:



	United States						Foreign
	2014			2013			2014			2013
Net actuarial loss (gain)	$	214,593		$	(111,232	)	$	61,525		$	(29,320	)
Amortization of net actuarial loss	(25,369		)	(32,494		)	(8,268		)	(14,445		)
Amortization of prior service (cost) credit	(9		)	(380		)	57			(112		)
Net transition asset	—			—			10			9
Settlement / curtailment	(4,528		)	(2,638		)	—			—
Total recognized in other comprehensive income	$	184,687		$	(146,744	)	$	53,324		$	(43,868	)

Weighted-average actuarial assumptions used to determine end of year benefit obligations and net periodic benefit cost for defined benefit pension plans include:



	2014				2013				2012
United States
Used to determine benefit obligations
Discount rate	4.15%				4.95%				4.05%
Rate of compensation increase	N/A				3.50%				3.50%

Used to determine net periodic benefit cost
Discount rate	4.95%				4.05%				4.95%
Expected return on plan assets	7.00%				7.25%				7.75%
Rate of compensation increase	3.50%				3.50%				3.50%

Foreign
Used to determine benefit obligations
Discount rate	1.10	%	-	3.80%	1.45	%	-	4.60%	1.95	%	-	4.65%
Rate of compensation increase	1.50	%	-	3.50%	1.50	%	-	3.50%	1.50	%	-	3.50%

Used to determine net periodic benefit cost
Discount rate	1.45	%	-	4.60%	1.95	%	-	4.65%	1.80	%	-	6.10%
Expected return on plan assets	3.75	%	-	7.50%	3.50	%	-	7.50%	3.25	%	-	7.50%
Rate of compensation increase	1.50	%	-	3.50%	1.50	%	-	3.50%	2.10	%	-	4.60%

A discount rate is used to determine the present value of our future benefit obligations. The discount rate for our U.S. pension and postretirement medical benefit plans is determined by matching the expected cash flows associated with our benefit obligations to a pool of corporate long-term, high-quality fixed income debt instruments available as of the measurement date. The discount rate for our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan), is determined by using a model that discounts each year's estimated benefit payments by an applicable spot rate derived from a yield curve created from a large number of high quality corporate bonds. For our other smaller foreign pension plans, the discount rate is selected based on high-quality fixed income indices available in the country in which the plan is domiciled.

The expected return on plan assets is based on historical and expected rates of return for current and planned asset classes in the plans' investment portfolio after analyzing historical experience and future expectations of the returns and volatility of the various asset classes. The overall expected rate of return for the portfolio is based on the target asset allocation of our global pension plans, adjusted for historical and expected experience of active portfolio management results, when compared to the benchmark returns. When assessing the expected future returns for the portfolio, management places more emphasis on the expected future returns than historical returns.

During 2015, we anticipate making total contributions of $7 million to our U.S. pension plans and $16 million to our foreign pension plans. We will reassess our funding alternatives as the year progresses.

Investment Strategy and Asset Allocation - U.S. Pension Plans

The investment strategy of our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least 7.0%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. Investments within the private equity and real estate portfolios are comprised of limited partnership units in primary and secondary fund of funds and units in open-ended commingled real estate funds, respectively. These types of investment vehicles are used in an effort to gain greater asset diversification. We do not have any significant concentrations of credit risk within the plan assets. The pension plans' liabilities, investment objectives and investment managers are reviewed periodically. The target asset allocation for 2015 and the actual asset allocations at December 31, 2014 and 2013, for the U.S. pension plans are as follows:



	Target allocation		Percent of Plan Assets at December 31,
	2015		2014		2013
Asset category
U.S. equities	11	%	12	%	16	%
Non-U.S. equities	11	%	9	%	14	%
Fixed income	68	%	69	%	60	%
Real estate	2	%	5	%	4	%
Private equity	8	%	5	%	6	%
Total	100	%	100	%	100	%

Investment Strategy and Asset Allocation - Foreign Pension Plans

Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees and our corporate personnel. The investment strategies adopted by our foreign plans vary by country and plan, with each strategy tailored to achieve the expected rate of return within an acceptable or appropriate level of risk, depending upon the liability profile of plan participants, local funding requirements, investment markets and restrictions. The U.K. plan represents 74% of the non-U.S. pension assets. The U.K. pension plan's investment strategy is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least 7.0%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. We do not have any significant concentrations of credit risk within the plan assets. The pension plans' liabilities, investment objectives and investment managers are reviewed periodically. The target asset allocation for 2015 and the actual asset allocations at December 31, 2014 and 2013, for the U.K. pension plan are as follows:



	Target Allocation		Percent of Plan Assets at December 31,
	2015		2014		2013
Asset category
U.K. equities	30	%	28	%	33	%
Non-U.K. equities	30	%	29	%	35	%
Fixed income	40	%	40	%	31	%
Cash	—	%	3	%	1	%
Total	100	%	100	%	100	%

The target asset allocation used to manage the investment portfolios is based on the broad asset categories shown above. The plan asset categories presented in the fair value hierarchy are subsets of the broad asset categories.

The fair value of the U.K. plan assets was $427 million and $414 million at December 31, 2014 and 2013, respectively, and the expected long-term weighted average rate of return on these plan assets was 7.50% in 2014 and 7.38% in 2013.

Fair Value Measurements of Plan Assets

The following tables show, by level within the fair value hierarchy, the financial assets and liabilities that are accounted for at fair value on a recurring basis at December 31, 2014 and 2013, respectively, for the U.S. and foreign pension plans. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect placement within the fair value hierarchy levels. There are no shares of our common stock included in the plan assets of our pension plans.

United States Pension Plans



	December 31, 2014
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	10,758	$	—	$	10,758
Equity securities	180,069		146,716		—		326,785
Commingled fixed income securities	—		261,571		—		261,571
Debt securities - U.S. and foreign governments, agencies and municipalities	184,209		25,131		—		209,340
Debt securities - corporate	—		598,927		—		598,927
Mortgage-backed securities	—		20,401		2,102		22,503
Asset-backed securities	—		2,158		—		2,158
Private equity	—		—		81,246		81,246
Real estate	—		—		74,747		74,747
Securities lending collateral ⁽¹⁾	—		131,901		—		131,901
Total plan assets at fair value	$	364,278	$	1,197,563	$	158,095	$	1,719,936
Securities lending payable ⁽¹⁾							(131,901		)
Cash							4,621
Other							807
Fair value of plan assets available for benefits							$	1,593,463



	December 31, 2013
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	30,374	$	—	$	30,374
Equity securities	279,988		165,303		—		445,291
Commingled fixed income securities	—		209,674		—		209,674
Debt securities - U.S. and foreign governments, agencies and municipalities	43,390		30,477		—		73,867
Debt securities - corporate	—		568,567		—		568,567
Mortgage-backed securities	—		31,738		2,634		34,372
Asset-backed securities	—		625		—		625
Private equity	—		—		87,470		87,470
Real estate	—		—		67,917		67,917
Securities lending collateral ⁽¹⁾	—		6,602		—		6,602
Total plan assets at fair value	$	323,378	$	1,043,360	$	158,021	$	1,524,759
Securities lending payable ⁽¹⁾							(6,602		)
Cash							634
Other							4,888
Fair value of plan assets available for benefits							$	1,523,679

(1) Securities lending collateral is offset by a corresponding securities lending payable amount.

Foreign Plans



	December 31, 2014
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	6,684	$	—	$	6,684
Equity securities	99,570		190,924		—		290,494
Commingled fixed income securities	—		151,017		—		151,017
Debt securities - U.S. and foreign governments, agencies and municipalities	—		85,711		—		85,711
Debt securities - corporate	—		26,154		—		26,154
Total plan assets at fair value	$	99,570	$	460,490	$	—	$	560,060
Cash							10,859
Other							4,073
Fair value of plan assets available for benefits							$	574,992



	December 31, 2013
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	6,058	$	—	$	6,058
Equity securities	109,403		257,046		—		366,449
Commingled fixed income securities	—		104,070		—		104,070
Debt securities - U.S. and foreign governments, agencies and municipalities	—		60,204		—		60,204
Debt securities - corporate	—		17,944		—		17,944
Total plan assets at fair value	$	109,403	$	445,322	$	—	$	554,725
Cash							5,285
Other							1,068
Fair value of plan assets available for benefits							$	561,078

The following information relates to our classification of investments into the fair value hierarchy:


•	Money Market Funds: Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits. The money market funds are classified as Level 2 since they are not actively traded on an exchange.

•

Equity Securities: Equity securities include U.S. and foreign common stock, American Depository Receipts, preferred stock and commingled funds. Equity securities classified as Level 1 are valued using active, high volume trades for identical securities. Equity securities classified as Level 2 represent those not listed on an exchange in an active market. These securities are valued based on quoted market prices of similar securities.

•

Commingled Fixed Income Securities: Mutual funds that invest in a variety of fixed income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Value of the funds is based on the net asset value (NAV) per unit as reported by the fund manager. NAV is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. Commingled fixed income securities are not listed on an active exchange and are classified as Level 2.

•

Debt Securities - U.S. and Foreign Governments, Agencies and Municipalities: Government securities include treasury notes and bonds, foreign government issues, U.S. government sponsored agency debt and commingled funds. Municipal debt securities include general obligation securities and revenue-backed securities. Debt securities classified as Level 1 are valued using active, high volume trades for identical securities. Debt securities classified as Level 2 are valued through benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities.


•	Debt Securities – Corporate: Investments are comprised of both investment grade debt (≥BBB-) and high-yield debt (≤BBB-). The fair value of corporate debt securities is valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.

•

Mortgage-Backed Securities (MBS): Investments are comprised of agency-backed MBS, non-agency MBS, collateralized mortgage obligations, commercial MBS, and commingled funds. These securities are valued based on external pricing indices. When external index pricing is not observable, MBS are valued based on external price/spread data. If neither pricing method is available, broker quotes are utilized. When inputs are observable and supported by an active market, MBS are classified as Level 2 and when inputs are unobservable, MBS are classified as Level 3.


•	Asset-Backed Securities (ABS): Investments are primarily comprised of credit card receivables, auto loan receivables, student loan receivables, and Small Business Administration loans. These securities are valued based on external pricing indices or external price/spread data and are classified as Level 2.


•	Private Equity: Investments are comprised of units in fund-of-fund investment vehicles. Fund-of-funds consist of various private equity investments and are used in an effort to gain greater diversification. The investments are valued in accordance with the most appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.


•	Real Estate: Investments include units in open-ended commingled real estate funds. Properties that comprise these funds are valued in accordance with the most appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.

•

Securities Lending Fund: Investment represents a commingled fund through our custodian's securities lending program. The U.S. pension plan lends securities that are held within the plan to other banks and/or brokers, and receives collateral, typically cash. This collateral is invested in a short-term fixed income securities commingled fund. The commingled fund is not listed or traded on an exchange and is classified as Level 2. This amount invested in the fund is offset by a corresponding liability reflected in the U.S. pension plan's net assets available for benefits.

Level 3 Gains and Losses

The following table summarizes the changes in the fair value of Level 3 assets for the years ended December 31, 2014 and 2013:



	Mortgage-backed securities			Private equity			Real estate			Total
Balance at December 31, 2012	$	3,191		$	91,805		$	63,168		$	158,164
Realized (losses) gains	—			(1,591		)	1,939			348
Unrealized gains	205			2,190			5,182			7,577
Net purchases, sales and settlements	(762		)	(4,934		)	(2,372		)	(8,068		)
Balance at December 31, 2013	2,634			87,470			67,917			158,021
Realized gains	12			11,174			285			11,471
Unrealized gains	59			1,886			6,140			8,085
Net purchases, sales and settlements	(603		)	(19,284		)	405			(19,482		)
Balance at December 31, 2014	$	2,102		$	81,246		$	74,747		$	158,095

Nonpension Postretirement Benefits

The benefit obligation and funded status for nonpension postretirement benefit plans are as follows:



	2014			2013
Benefit obligation
Benefit obligation - beginning of year	$	231,153		$	282,857
Service cost	2,683			3,684
Interest cost	9,951			9,503
Plan participants' contributions	5,418			4,313
Actuarial loss (gain)	37,532			(30,051		)
Foreign currency changes	(2,096		)	(1,693		)
Curtailment	(2,160		)	(4,839		)
Benefits paid	(28,501		)	(32,621		)
Benefit obligation - end of year ⁽¹⁾	$	253,980		$	231,153



Fair value of plan assets
Fair value of plan assets - beginning of year	$	—		$	—
Company contribution	23,083			28,308
Plan participants' contributions	5,418			4,313
Benefits paid	(28,501		)	(32,621		)
Fair value of plan assets - end of year	$	—		$	—



Amounts recognized in the Consolidated Balance Sheets
Current liability	$	(22,113	)	$	(23,668	)
Non-current liability	(231,867		)	(207,485		)
Funded status	$	(253,980	)	$	(231,153	)


(1)	The benefit obligation for the U.S. nonpension postretirement plans was $231 million and $208 million at December 31, 2014 and 2013, respectively.

Pretax amounts recognized in AOCI consist of:



	2014		2013
Net actuarial loss	$	97,955	$	68,120
Prior service cost	2,356		2,516
Total	$	100,311	$	70,636

The components of net periodic benefit cost for nonpension postretirement benefit plans were as follows:



	2014		2013		2012
Service cost	$	2,683	$	3,684	$	3,563
Interest cost	9,951		9,503		11,187
Amortization of prior service cost (credit)	159		128		(1,724		)
Amortization of net actuarial loss	5,949		7,433		8,214
Curtailment	—		2,920		—
Net periodic benefit cost	$	18,742	$	23,668	$	21,240

Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income were as follows:



	2014			2013
Net actuarial loss (gain)	$	35,372		$	(34,890	)
Amortization of net actuarial loss	(5,949		)	(7,433		)
Amortization of prior service cost	(159		)	(128		)
Curtailment	—			(2,920		)
Other adjustments	412			481
Total recognized in other comprehensive income	$	29,676		$	(44,890	)

The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2015 are as follows:



Net actuarial loss	$	9,619
Prior service cost	297
Total	$	9,916

The weighted-average discount rates used to determine end of year benefit obligation and net periodic pension cost include:



	2014		2013		2012
Discount rate used to determine benefit obligation
U.S.	3.90	%	4.40	%	3.65	%
Canada	3.80	%	4.65	%	3.90	%

Discount rate used to determine net period benefit cost
U.S.	4.40	%	3.65	%	4.50	%
Canada	4.65	%	3.90	%	4.15	%

The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 6.5% for 2014 and 7.0% for 2013. The assumed health care trend rate is 6.0% for 2015 and will gradually decline to 5.0% by the year 2017 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in the assumed health care cost trend rates would have the following effects:



	1% Increase		1% Decrease
Effect on total of service and interest cost components	$	548	$	(431	)
Effect on postretirement benefit obligation	$	9,512	$	(8,829	)

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, are expected to be paid.



	Pension Benefits		Nonpension Benefits
Years ending December 31,
2015	$	126,662	$	22,187
2016	125,924		21,530
2017	127,549		20,863
2018	130,141		20,174
2019	131,871		19,567
2020 - 2024	676,833		88,921
	$	1,318,980	$	193,242

Savings Plans

We offer voluntary defined contribution plans to our U.S. employees designed to help them accumulate additional savings for retirement. We provide a core contribution to all employees, regardless if they participate in the plan, and match a portion of each participating employees' contribution, based on eligible pay. Total contributions to our defined contribution plans were $25 million in 2014 and $32 million in 2013.