Postretirement Plans (Tables)

12 Months Ended

Dec. 31, 2015

The net periodic benefit cost recognized each year included the following (in millions):


	Qualified Defined Benefit Pension Plans ^(a)						Retiree Medical and Life Insurance Plans
	2015		2014		2013		2015		2014		2013
Service cost	$	875	$	903	$	1,142	$	21	$	22	$	27
Interest cost		1,791		1,912		1,800		110		123		116
Expected return on plan assets		(2,734)		(2,693)		(2,485)		(147)		(146)		(145)
Recognized net actuarial losses		1,599		1,173		1,410		43		23		44
Amortization of net prior service (credit) cost		(389)		(151)		81		4		4		(17)
Total net periodic benefit cost	$	1,142	$	1,144	$	1,948	$	31	$	26	$	25

^(a)

Total net periodic benefit cost associated with our qualified defined benefit plans represents pension expense calculated in accordance with GAAP (FAS pension expense). We are required to calculate pension expense in accordance with both GAAP and CAS rules, each of which results in a different calculated amount of pension expense. The CAS pension cost is recovered through the pricing of our products and services on U.S. Government contracts and, therefore, is recognized in net sales and cost of sales for products and services. We include the difference between FAS pension expense and CAS pension cost, referred to as the FAS/CAS pension adjustment, as a component of other unallocated, net on our Statements of Earnings. The FAS/CAS pension adjustment, which was income of $471 million in 2015; income of $376 million in 2014; and expense of $482 million in 2013, effectively adjusts the amount of CAS pension cost in the business segment operating profit so that pension expense recorded on our Statements of Earnings is equal to FAS pension expense.

Reconciliation of Benefit Obligations, Plan Assets, and Unfunded or Funded Status

The following table provides a reconciliation of benefit obligations, plan assets and unfunded status related to our qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions):


	Qualified Defined Benefit Pension Plans				Retiree Medical and Life Insurance Plans
	2015		2014		2015		2014
Change in benefit obligation
Beginning balance	$	45,882	$	42,161	$	3,034	$	2,823
Service cost		875		903		21		22
Interest cost		1,791		1,912		110		123
Benefits paid ^(a)		(2,055)		(2,399)		(307)		(352)
Actuarial losses (gains)		(1,988)		4,493		(170)		(40)
New longevity assumptions		(834)		3,390		(77)		266
Plan amendments and acquisitions ^(b)		31		(4,578)		157		5
Medicare Part D subsidy		—		—		14		26
Participants’ contributions		—		—		101		161
Ending balance	$	43,702	$	45,882	$	2,883	$	3,034

Change in plan assets
Beginning balance at fair value	$	34,673	$	33,010	$	1,932	$	1,921
Actual return on plan assets		(527)		2,062		(27)		126
Benefits paid ^(a)		(2,055)		(2,399)		(307)		(352)
Company contributions		5		2,000		100		50
Medicare Part D subsidy		—		—		14		26
Participants’ contributions		—		—		101		161
Ending balance at fair value	$	32,096	$	34,673	$	1,813	$	1,932
Unfunded status of the plans	$	(11,606)	$	(11,209)	$	(1,070)	$	(1,102)

^(a)

Benefits paid in 2014 for qualified defined benefit pension plans include $427 million in the form of lump-sum settlement payments to former employees who had not commenced receiving their vested benefit payments. The corresponding benefit obligation that was released was $529 million. The settlement payments had no impact on our 2014 FAS pension expense and CAS pension cost.

^(b)

The June 2014 plan amendment which resulted in freezing the pay-based component of the formula used to determine retirement benefits under the affected plans reduced our qualified defined benefit pension obligations by $4.6 billion, which resulted in a corresponding reduction, net of tax, in the accumulated other comprehensive loss (AOCL) component of stockholders’ equity. This amount is being recognized as a reduction of net periodic benefit cost (i.e., amortization of net prior service credit) over the estimated remaining service period of the covered employees, which is approximately 10 years and began in the third quarter of 2014. The November 2015 acquisition of Sikorsky increased our qualified defined benefit pension obligations by about $30 million.

Amounts Recognized on Balance Sheets Related to Qualified Defined Benefit Pension Plans and Retiree Medical and Life Insurance Plans

The following table provides amounts recognized on our Balance Sheets related to our qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions):

Qualified Defined Benefit
Pension Plans

Retiree Medical and

Life Insurance Plans

2015

2014

2015

2014

Prepaid pension asset

$ 201

$ 204

$ —

$ —

Accrued postretirement benefit liabilities

(11,807)

(11,413)

(1,070)

(1,102)

Accumulated other comprehensive loss (pre-tax) related to:

Net actuarial losses

19,632

20,794

627

741

Prior service (credit) cost

(3,565)

(3,985)

167

Total ^(a)

$16,067

$16,809

$ 794

$ 755

^(a)

Accumulated other comprehensive loss related to postretirement benefit plans, after tax, of $11.3 billion and $11.8 billion at December 31, 2015 and 2014 (Note 12) includes $16.1 billion ($10.4 billion after tax) and $16.8 billion ($10.8 billion after tax) for qualified defined benefit pension plans, $794 million ($514 million after tax) and $755 million ($488 million after tax) for retiree medical and life insurance plans and $620 million ($408 million after tax) and $692 million ($460 million after tax) for other plans.

Accumulated Benefit Obligations In Excess Of Fair Value Of Plan Assets

Certain key information related to our qualified defined benefit pension plans as of December 31, 2015 and 2014 is as follows (in millions):


	2015			2014
Plans where ABO was in excess of plan assets
Projected benefit obligation		$ 43,575			$ 45,741
Less: fair value of plan assets		31,768			34,328
Unfunded status of plans ^(a)		(11,807	)		(11,413)

Plans where ABO was less than plan assets
Projected benefit obligation		127			141
Less: fair value of plan assets		328			345
Funded status of plans ^(b)		$ 201			$ 204

^(a)	Represent accrued pension liabilities, which are included on our Balance Sheets.

^(b)	Represent prepaid pension assets, which are included on our Balance Sheets in other noncurrent assets.

Amounts Recognized In Other Comprehensive Income (Loss) Related To Postretirement Benefit Plans

The following table provides the amounts recognized in other comprehensive income (loss) related to postretirement benefit plans, net of tax, for the years ended December 31, 2015, 2014 and 2013 (in millions):


	Incurred but Not Yet Recognized in Net Periodic Benefit Cost						Recognition of Previously Deferred Amounts
	2015		2014		2013		2015		2014		2013
	Gains (losses)						(Gains) losses
Actuarial gains and losses
Qualified defined benefit pension plans		$(291)		$(5,505)		$2,751		$1,034		$758		$ 911
Retiree medical and life insurance plans		46		(160)		140		28		15		28
Other plans		21		(245)		46		47		33		34
		(224)		(5,910)		2,937		1,109		806		973

	Credit (cost)						(Credit) cost
Net prior service credit and cost
Qualified defined benefit pension plans		(18)		2,959		(69)		(251)		(98)		53
Retiree medical and life insurance plans		(102)		(3)		—		2		3		(11)
Other plans		(7)		84		—		(10)		(5)		—
		(127)		3,040		(69)		(259)		(100)		42
		$(351)		$(2,870)		$2,868		$ 850		$706		$1,015

Actuarial Assumptions Used to Determine Net Periodic Benefit Cost

The actuarial assumptions used to determine the benefit obligations at December 31 of each year and to determine the net periodic benefit cost for each subsequent year, were as follows:


	Qualified Defined Benefit Pension Plans						Retiree Medical and Life Insurance Plans
	2015		2014		2013		2015		2014		2013
Discount rate		4.375%		4.00%		4.75%		4.25%		3.75%		4.50%
Expected long-term rate of return on assets		8.00%		8.00%		8.00%		8.00%		8.00%		8.00%
Rate of increase in future compensation levels		4.50%		4.30%		4.30%
Health care trend rate assumed for next year								9.00%		8.50%		8.75%
Ultimate health care trend rate								5.00%		5.00%		5.00%
Year that the ultimate health care trend rate is reached								2032		2029		2029

Schedule of Allocation of Plan Assets

The following table presents the fair value of the assets (in millions) of our qualified defined benefit pension plans and retiree medical and life insurance plans by asset category and their level within the fair value hierarchy, which has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.


	December 31, 2015										December 31, 2014
	Total			Level 1		Level 2			Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents ^(a)	$	2,658		$	2,658		$ —		$	—	$	2,968	$	2,968		$ —	$	—
Equity ^(a):
U.S. equity securities		4,790			4,771		19			—		6,431		6,363		67		1
International equity securities		6,121			6,087		24			10		5,566		5,525		31		10
Commingled equity funds		1,935			614		1,321			—		6,078		2,047		4,031		—
Fixed income ^(a):
Corporate debt securities		3,929			—		3,914			15		4,242		—		4,201		41
U.S. Government securities		5,069			—		5,069			—		4,579		—		4,579		—
U.S. Government-sponsored enterprise securities		1,377			—		1,377			—		613		—		613		—
Other fixed income investments		3,252			—		3,246			6		1,807		39		1,759		9
Alternative investments:
Private equity funds		3,131			—		—			3,131		2,952		—		—		2,952
Real estate funds		1,108			—		92			1,016		762		—		33		729
Hedge funds		522			—		167			355		570		—		66		504
Commodities ^(a)		(26	)		1		(27	)		—		2		2		—		—
Total	$	33,866		$	14,131		$15,202		$	4,533	$	36,570	$	16,944		$15,380	$	4,246
Receivables, net		43										35
Total	$	33,909									$	36,605

^(a)

Cash and cash equivalents, equity securities, fixed income securities and commodities included derivative assets and liabilities whose fair values were not material as of December 31, 2015 and 2014. LMIMCO’s investment policies restrict the use of derivatives to either establish long exposures for purposes of expediency or capital efficiency or to hedge risks to the extent of a plan’s current exposure to such risks. Most derivative transactions are settled on a daily basis.

Changes In Fair Value of Level 3 Plan Assets

The following table presents the changes during 2015 and 2014 in the fair value of plan assets categorized as Level 3 in the preceding table (in millions):


	Private Equity Funds			Real Estate Funds		Hedge Funds			Other			Total
Balance at January 1, 2014		$2,601			$572		$ 505			$145		$	3,823
Actual return on plan assets:
Realized gains, net		182			43		34			1			260
Unrealized gains (losses), net		38			22		(11	)		(21	)		28
Purchases, sales and settlements, net		131			92		(24	)		8			207
Transfers out of Level 3, net		—			—		—			(72	)		(72)
Balance at December 31, 2014		$2,952			$729		$ 504			$61		$	4,246
Actual return on plan assets:
Realized gains, net		315			84		23			(12	)		410
Unrealized (losses) gains, net		(163	)		20		5			7			(131)
Purchases, sales and settlements, net		27			183		(177	)		(22	)		11
Transfers out of Level 3, net		—			—		—			(3	)		(3)
Balance at December 31, 2015		$3,131			$1,016		$ 355			$ 31		$	4,533

Estimated Future Benefit Payments

The following table presents estimated future benefit payments, which reflect expected future employee service, as of December 31, 2015 (in millions):


	2016		2017		2018		2019		2020		2021 - 2025
Qualified defined benefit pension plans	$	2,160	$	2,240	$	2,320	$	2,410	$	2,500		$13,670
Retiree medical and life insurance plans		190		190		200		200		200		940

Target Allocation Range

Schedule of Allocation of Plan Assets

LMIMCo’s investment policies require that asset allocations of postretirement benefit plans be maintained within the following approximate ranges:


Asset Class		Asset Allocation Ranges
Cash and cash equivalents		0-20%
Equity		15-65%
Fixed income		10-60%
Alternative investments:
Private equity funds		0-15%
Real estate funds		0-10%
Hedge funds		0-20%
Commodities		0-25%