OTHER LIABILITIES, INCLUDING EMPLOYEE BENEFITS

Information regarding other liabilities follows:



	December 31,
	2013		2012
Pension, postretirement, postemployment and other employment benefits^a	$	1,225	$	1,340
Commodity derivative contracts	115		—
Reserve for uncertain tax benefits	87		107
Other	263		197
Total other liabilities	$	1,690	$	1,644


a.	Refer to Note 7 for current portion.

Pension Plans. Following is a discussion of FCX’s pension plans.

FMC Plans. FMC has trusteed, non-contributory pension plans covering substantially all of its U.S. employees and some employees of its international subsidiaries hired before 2007. The applicable FMC plan design determines the manner in which benefits are calculated for any particular group of employees. Benefits are calculated based on final average monthly compensation and years of service or based on a fixed amount for each year of service. Participants in the FMC plans generally vest in their accrued benefits after five years of service. Non-bargained FMC employees hired after December 31, 2006, are not eligible to participate in the FMC U.S. pension plan.

FCX’s funding policy for these plans provides that contributions to pension trusts shall be at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended, for U.S. plans; or, in the case of international plans, the minimum legal requirements that may be applicable in the various countries. Additional contributions also may be made from time to time.

FCX’s policy for determining asset-mix targets for the Freeport-McMoRan Corporation Defined Benefit Master Trust (Master Trust) includes the periodic development of asset and liability studies to determine expected long-term rates of return and expected risk for various investment portfolios. FCX’s retirement plan administration and investment committee considers these studies in the formal establishment of asset-mix targets. FCX’s investment objective emphasizes the need to maintain a well-diversified investment program through both the allocation of the Master Trust assets among asset classes and the selection of investment managers whose various styles are fundamentally complementary to one another and serve to achieve satisfactory rates of return. Diversification, by asset class and by investment manager, is FCX’s principal means of reducing volatility and exercising prudent investment judgment. FCX’s present target asset allocation approximates 57 percent equity investments (primarily global equities), 33 percent fixed income (primarily long-term treasury STRIPS or "separate trading or registered interest and principal securities;" long-term U.S. treasury/agency bonds; international fixed income securities; treasury inflation-protection securities; long-term high-credit quality corporate bonds; high-yield and emerging markets fixed income securities; and fixed income debt securities) and 10 percent alternative investments (private real estate, real estate investment trusts and private equity).

The expected rate of return on plan assets is evaluated at least annually, taking into consideration asset allocation, historical returns on the types of assets held in the Master Trust and the current economic environment. Based on these factors, FCX expects the pension assets will earn an average of 7.5 percent per annum beginning January 1, 2014. The 7.5 percent estimation was based on a passive return on a compound basis of 7.0 percent and a premium for active management of 0.5 percent reflecting the target asset allocation and current investment array.

For estimation purposes, FCX assumes the long-term asset mix for these plans generally will be consistent with the current mix. Changes in the asset mix could impact the amount of recorded pension income or expense, the funded status of the plans and the need for future cash contributions. A lower-than-expected return on assets also would decrease plan assets and increase the amount of recorded pension expense in future years. When calculating the expected return on plan assets, FCX uses the market value of assets.

Among the assumptions used to estimate the benefit obligation is a discount rate used to calculate the present value of expected future benefit payments for service to date. The discount rate assumption for FCX’s U.S. plans is designed to reflect yields on high-quality, fixed-income investments for a given duration. The determination of the discount rate for these plans is based on expected future benefit payments for service to date together with the Mercer Pension Discount Curve - Above Mean Yield. The Mercer Pension Discount Curve - Above Mean Yield is constructed from the bonds in the Mercer Pension Discount Curve that have a yield higher than the regression mean yield curve. The Mercer Pension Discount Curve consists of spot (i.e., zero coupon) interest rates at one-half year increments for each of the next 30 years and is developed based on pricing and yield information for high-quality corporate bonds. Changes in the discount rate are reflected in FCX’s benefit obligation and, therefore, in future pension costs.

Other FCX Plans. In February 2004, FCX established an unfunded Supplemental Executive Retirement Plan (SERP) for its two most senior executive officers. The SERP provides for retirement benefits payable in the form of a joint and survivor annuity or an equivalent lump sum. The annuity will equal a percentage of the executive’s highest average compensation for any consecutive three-year period during the five years immediately preceding 25 years of credited service. The SERP benefit will be reduced by the value of all benefits paid or due under any defined benefit or defined contribution plan sponsored by FM Services Company, FCX’s wholly owned subsidiary, FCX or its predecessor, but not including accounts funded exclusively by deductions from participant’s pay.

PT-FI Plan. PT-FI has a defined benefit pension plan denominated in Indonesian rupiah covering substantially all of its Indonesian national employees. PT-FI funds the plan and invests the assets in accordance with Indonesian pension guidelines. The pension obligation was valued at an exchange rate of 12,128 rupiah to one U.S. dollar on December 31, 2013, and 9,622 rupiah to one U.S. dollar on December 31, 2012. Indonesian labor laws enacted in 2003 require that companies provide a minimum level of benefits to employees upon employment termination based on the reason for termination and the employee’s years of service. PT-FI’s pension benefit disclosures include benefits related to this law. PT-FI’s expected rate of return on plan assets is evaluated at least annually, taking into consideration its long-range estimated return for the plan based on the asset mix. Based on these factors, PT-FI expects its pension assets will earn an average of 7.75 percent per annum beginning January 1, 2014.

Plan Information. FCX uses a measurement date of December 31 for its plans. Information for those plans where the accumulated benefit obligations exceed the fair value of plan assets follows:



	December 31,
	2013		2012
Projected benefit obligation	$	2,180	$	2,247
Accumulated benefit obligation	1,933		2,031
Fair value of plan assets	1,490		1,443

Information on the FCX (including FMC’s plans and FCX’s SERP plans) and PT-FI plans as of December 31 follows:



	FCX						PT-FI
	2013			2012			2013			2012
Change in benefit obligation:
Benefit obligation at beginning
of year	$	1,954		$	1,791		$	240		$	206
Service cost	30			27			20			17
Interest cost	77			79			14			14
Actuarial (gains) losses	(103		)	142			13			25
Plan amendment	—			—			33			—
Foreign exchange losses (gains)	1			1			(53		)	(13		)
Benefits paid	(88		)	(86		)	(8		)	(9		)
Benefit obligation at end of year	1,871			1,954			259			240

Change in plan assets:
Fair value of plan assets at
beginning of year	1,300			1,141			130			107
Actual return on plan assets	112			140			(3		)	12
Employer contributions^a	26			105			35			26
Foreign exchange losses	—			—			(30		)	(6		)
Benefits paid	(88		)	(86		)	(8		)	(9		)
Fair value of plan assets at end
of year	1,350			1,300			124			130
Funded status	$	(521	)	$	(654	)	$	(135	)	$	(110	)

Accumulated benefit obligation	$	1,742		$	1,842		$	141		$	136

Weighted-average assumptions
used to determine benefit obligations:
Discount rate	5.00		%	4.10		%	9.00		%	6.25		%
Rate of compensation increase^b	3.75		%	3.75		%	10.00		%	8.00		%

Balance sheet classification of
funded status:
Other assets	$	8		$	7		$	—		$	—
Accounts payable and
accrued liabilities	(4		)	(4		)	—			—
Other liabilities	(525		)	(657		)	(135		)	(110		)
Total	$	(521	)	$	(654	)	$	(135	)	$	(110	)


a.	Employer contributions for 2014 are expected to approximate $5 million for the FCX plans and $22 million for the PT-FI plan (based on a December 31, 2013, exchange rate of 12,128 Indonesian rupiah to one U.S. dollar).


b.	The rate of compensation increase shown for the PT-FI plan in 2013 related to non-staff employees (staff employees was 8 percent).

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for FCX’s pension plans for the years ended December 31 follow:



	2013			2012			2011
Weighted-average assumptions:^a
Discount rate	4.10		%	4.60		%	5.40		%
Expected return on plan assets	7.50		%	7.50		%	8.00		%
Rate of compensation increase	3.75		%	3.75		%	3.75		%

Service cost	$	30		$	27		$	24
Interest cost	77			79			83
Expected return on plan assets	(95		)	(86		)	(86		)
Amortization of prior service cost	—			(1		)	(1		)
Amortization of net actuarial losses	38			33			19
Net periodic benefit cost	$	50		$	52		$	39


a.	The assumptions shown relate only to the FMC plans.

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for PT-FI’s pension plan for the years ended December 31 follow:



	2013			2012			2011
Weighted-average assumptions:
Discount rate	6.25		%	7.00		%	8.50		%
Expected return on plan assets	7.50		%	9.25		%	9.25		%
Rate of compensation increase	8.00		%	8.00		%	8.00		%

Service cost	$	20		$	17		$	13
Interest cost	14			14			11
Expected return on plan assets	(10		)	(9		)	(9		)
Amortization of prior service cost	—			1			1
Amortization of net actuarial loss	8			7			3
Net periodic benefit cost	$	32		$	30		$	19

Included in accumulated other comprehensive loss are the following amounts that have not been recognized in net periodic pension cost as of December 31:



	2013				2012
	Before Taxes		After Taxes and Noncontrolling Interests		Before Taxes			After Taxes and Noncontrolling Interests
Prior service costs (credits)	$	32	$	17	$	(2	)	$	(1	)
Net actuarial loss	542		326		705			429
	$	574	$	343	$	703		$	428

Actuarial losses in excess of 10 percent of the greater of the projected benefit obligation or market-related value of plan assets are amortized over the expected average remaining future service period of the current active participants. The amount expected to be recognized in 2014 net periodic pension cost for actuarial losses is $25 million ($15 million net of tax and noncontrolling interests) and $3 million ($2 million net of tax and noncontrolling interests) for prior service costs.

FCX does not expect to have any plan assets returned to it in 2014. Plan assets are classified within a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1), then to significant observable inputs (Level 2) and the lowest priority to significant unobservable inputs (Level 3). For further discussion of the different levels of the fair value hierarchy, refer to Note 15.

A summary of the fair value hierarchy for pension plan assets associated with the FCX plans follows:



	Fair Value at December 31, 2013
	Total			Level 1		Level 2		Level 3
Commingled/collective funds:
Global equity	$	623		$	—	$	623	$	—
U.S. small-cap equity	65			—		65		—
Real estate property	47			—		—		47
U.S. real estate securities	40			—		40		—
Fixed income debt securities	30			—		30		—
Short-term investments	5			—		5		—
Open-ended mutual funds:
Government bonds	43			43		—		—
Emerging markets equity	41			41		—		—
Corporate bonds	33			33		—		—
Mutual funds:
Foreign bonds	51			51		—		—
Emerging markets equity	26			26		—		—
Emerging markets bond	20			20		—		—
Fixed income:
Government bonds	198			—		198		—
Corporate bonds	52			—		52		—
Private equity investments	43			—		—		43
Other investments	29			1		28		—
Total investments	1,346			$	215	$	1,041	$	90

Cash and receivables	18
Payables	(14		)
Total pension plan net assets	$	1,350



	Fair Value at December 31, 2012
	Total			Level 1		Level 2		Level 3
Commingled/collective funds:
Global equity	$	481		$	—	$	481	$	—
U.S. real estate securities	61			—		61		—
U.S. small-cap equity	52			—		52		—
Real estate property	41			—		—		41
Short-term investments	40			—		40		—
Open-ended mutual funds:
Government bonds	48			48		—		—
Emerging markets equity	41			41		—		—
Corporate bonds	23			23		—		—
Mutual funds:
Foreign bonds	54			54		—		—
Emerging markets bond	37			37		—		—
Emerging markets equity	28			28		—		—
Fixed income:
Government bonds	241			—		241		—
Corporate bonds	82			—		82		—
Private equity investments	45			—		—		45
Other investments	33			1		32		—
Total investments	1,307			$	232	$	989	$	86

Cash and receivables	5
Payables	(12		)
Total pension plan net assets	$	1,300

Following is a description of the pension plan asset categories and the valuation techniques used to measure fair value. There have been no changes to the techniques used to measure fair value.

Commingled/collective funds are managed by several fund managers and are valued at the net asset value per unit of the fund. For most of these funds, the majority of the underlying assets are actively traded equity securities; however, the unit level is considered to be at the fund level. These funds (except the real estate property funds) require less than a month's notice for redemptions and, as such, are classified within Level 2 of the fair value hierarchy. Real estate property funds are valued at net realizable value using information from independent appraisal firms, who have knowledge and expertise about the current market values of real property in the same vicinity as the investments. Redemptions of the real estate property funds are allowed once per quarter, subject to available cash and, as such, are classified within Level 3 of the fair value hierarchy.

Open-ended mutual funds are managed by registered investment companies and are valued at the daily published net asset value of shares/units held. Because redemptions and purchases of shares/units occur at the net asset value without any adjustments to the published net asset value that is provided on an ongoing basis (active-market criteria are met), these investments are classified within Level 1 of the fair value hierarchy.

Mutual funds are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.

Fixed income investments include government and corporate bonds held directly by the Master Trust or through commingled funds. Fixed income securities are valued using a bid evaluation price or a mid-evaluation price and, as such, are classified within Level 2 of the fair value hierarchy. A bid evaluation price is an estimated price at which a dealer would pay for a security. A mid-evaluation price is the average of the estimated price at which a dealer would sell a security and the estimated price at which a dealer would pay for a security. These evaluations are based on quoted prices, if available, or models that use observable inputs.

Private equity investments are valued at net realizable value using information from general partners and, as such, are classified within Level 3 of the fair value hierarchy because of the inherent restrictions on redemptions that may affect the ability to sell the investments at their net asset value in the near term.

A summary of changes in the fair value of FCX’s Level 3 pension plan assets for the years ended December 31 follow:



	Private Equity Investments			Real Estate Property			Total
Balance at January 1, 2012	$	50		$	35		$	85
Actual return on plan assets:
Realized gains	—			2			2
Net unrealized (losses) gains related to
assets still held at the end of the year	(5		)	4			(1		)
Purchases	4			—			4
Settlements, net	(4		)	—			(4		)
Balance at December 31, 2012	45			41			86
Actual return on plan assets:
Realized gains	—			1			1
Net unrealized (losses) gains related to
assets still held at the end of the year	(1		)	6			5
Purchases	3			—			3
Sales	—			(1		)	(1		)
Settlements, net	(4		)	—			(4		)
Balance at December 31, 2013	$	43		$	47		$	90

A summary of the fair value hierarchy for pension plan assets associated with the PT-FI plan follows:



	Fair Value at December 31, 2013
	Total		Level 1		Level 2		Level 3
Common stocks	$	27	$	27	$	—	$	—
Government bonds	23		23		—		—
Mutual funds	12		12		—		—
Total investments	62		$	62	$	—	$	—

Cash and receivables^a	62
Total pension plan net assets	$	124



	Fair Value at December 31, 2012
	Total		Level 1		Level 2		Level 3
Common stocks	$	32	$	32	$	—	$	—
Government bonds	27		27		—		—
Mutual funds	10		10		—		—
Total investments	69		$	69	$	—	$	—

Cash and receivables^a	61
Total pension plan net assets	$	130


a.	Cash consisted primarily of short-term time deposits.

Following is a description of the valuation techniques used for pension plan assets measured at fair value associated with the PT-FI plan. There have been no changes to the techniques used to measure fair value.

Common stocks, government bonds and mutual funds are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.

The techniques described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The expected benefit payments for FCX’s and PT-FI’s pension plans follow:



	FCX		PT-FI^a
2014	$	93	$	21
2015	147		12
2016	99		13
2017	102		18
2018	106		21
2019 through 2023	584		194


a.	Based on a December 31, 2013, exchange rate of 12,128 Indonesian rupiah to one U.S. dollar.

Postretirement and Other Benefits. FCX also provides postretirement medical and life insurance benefits for certain U.S. employees and, in some cases, employees of certain international subsidiaries. These postretirement benefits vary among plans, and many plans require contributions from retirees. The expected cost of providing such postretirement benefits is accrued during the years employees render service.

The discount rate for FCX’s postretirement medical and life insurance benefit plans was determined on the same basis as FCX’s pension plans. Information on the postretirement benefit plans as of December 31 follows:



	2013			2012
Change in benefit obligation:
Benefit obligation at beginning of year	$	213		$	223
Service cost	1			1
Interest cost	7			9
Actuarial (gains) losses	(24		)	2
Plan amendments and acquisition	6			—
Benefits paid, net of employee and joint venture partner
contributions, and Medicare Part D subsidy	(21		)	(22		)
Benefit obligation at end of year	182			213

Change in plan assets:
Fair value of plan assets at beginning of year	—			—
Employer and joint venture partner contributions	23			25
Employee contributions	11			10
Benefits paid	(34		)	(35		)
Fair value of plan assets at end of year	—			—

Funded status	$	(182	)	$	(213	)

Discount rate assumption	4.30		%	3.50		%

Balance sheet classification of funded status:
Accounts payable and accrued liabilities	$	(19	)	$	(21	)
Other liabilities	(163		)	(192		)
Total	$	(182	)	$	(213	)

Expected benefit payments for these plans total $19 million for 2014, $18 million for 2015, $17 million for 2016, $16 million for 2017, $15 million for 2018 and $70 million for 2019 through 2023. The discount rate used to determine net periodic benefit cost and the components of net periodic benefit cost for FCX’s postretirement benefits was 3.50 percent in 2013, 4.20 percent in 2012 and 4.90 percent in 2011. The medical-care trend rates at December 31, 2013 and 2012, assumed the first year trend rate was 7.75 percent, which declines over the next 15 years with an ultimate trend rate of 4.25 percent.

FCX has a number of postemployment plans covering severance, long-term disability income, continuation of health and life insurance coverage for disabled employees or other welfare benefits. The accumulated postemployment benefit consisted of a current portion of $9 million (included in accounts payable and accrued liabilities) and a long-term portion of $75 million (included in other liabilities) at December 31, 2013, and a current portion of $8 million and a long-term portion of $69 million at December 31, 2012.

FCX also sponsors savings plans for the majority of its U.S. employees. The plans allow employees to contribute a portion of their pre-tax income in accordance with specified guidelines. These savings plans are principally qualified 401(k) plans for all U.S. salaried and non-bargained hourly employees. In these plans, participants exercise control and direct the investment of their contributions and account balances among various investment options. FCX contributes to these plans at varying rates and matches a percentage of employee pre-tax deferral contributions up to certain limits, which vary by plan. For employees whose eligible compensation exceeds certain levels, FCX provides an unfunded defined contribution plan, which has a liability balance of $65 million at December 31, 2013, and $59 million at December 31, 2012.

The costs charged to operations for employee savings plans totaled $66 million in 2013 (of which $5 million was capitalized to oil and gas properties), $43 million in 2012 and $35 million in 2011. FCX has other employee benefit plans, certain of which are related to FCX’s financial results, which are recognized in operating costs.