PENSION AND OTHER POSTRETIREMENT BENEFITS

We sponsor various defined benefit pension plans as well as postretirement plans providing retiree health care and retiree life insurance benefits. Below, we discuss our obligations related to these plans, the assets dedicated to meeting the obligations, and the amounts we recognized in our financial statements as a result of sponsoring these plans.

Obligations. We provide eligible employees with pension and other postretirement benefits based on factors such as years of service and compensation level during employment. The pension obligation shown below (“projected benefit obligation”) consists of: (a) benefits earned by employees to date based on current salary levels (“accumulated benefit obligation”); and (b) benefits to be received by employees as a result of expected future salary increases. (The obligation for medical and life insurance benefits is not affected by future salary increases.) The following table shows how the present value of our obligation changed during each of the last two years.



	Pension Benefits						Medical and Life Insurance Benefits
	2013			2014			2013			2014
Obligation at beginning of year	$	727		$	783		$	62		$	74
Service cost	20			21			2			2
Interest cost	35			31			3			3
Net actuarial loss (gain)	45			4			10			3
Plan amendments	4			—			—			(10		)
Retiree contributions	—			—			2			1
Benefits paid	(48		)	(54		)	(5		)	(4		)
Obligation at end of year	$	783		$	785		$	74		$	69

Service cost represents the present value of the benefits attributed to service rendered by employees during the year. Interest cost is the increase in the present value of the obligation due to the passage of time. Net actuarial loss (gain) is the change in value of the obligation resulting from experience different from that assumed or from a change in an actuarial assumption. (We discuss actuarial assumptions used at the end of this note.) Plan amendments may also change the value of the obligation.

As shown in the previous table, the change in the value of our pension and other postretirement benefit obligations also includes the effect of benefit payments and retiree contributions. Expected benefit payments (net of retiree contributions) over the next 10 years are as follows:



	Pension Benefits		Medical and Life Insurance Benefits
2015	$	45	$	3
2016	47		3
2017	48		3
2018	50		3
2019	54		4
2020 – 2024	284		20

Assets. We invest in specific assets to fund our pension benefit obligations. Our investment goal is to earn a total return that, over time, will grow assets sufficiently to fund our plans’ liabilities, after providing appropriate levels of contributions and accepting prudent levels of investment risk. To achieve this goal, plan assets are invested primarily in funds or portfolios of funds actively managed by outside managers. Investment risk is managed by company policies that require diversification of asset classes, manager styles, and individual holdings. We measure and monitor investment risk through quarterly and annual performance reviews, and through periodic asset/liability studies.

Asset allocation is the most important method for achieving our investment goals and is based on our assessment of the plans’ long-term return objectives and the appropriate balances needed for liquidity, stability, and diversification. The following table shows the fair value of pension plan assets by category, as well as the actual and target allocations, as of April 30, 2013 and 2014. (Fair value levels are defined in Note 6.)



									Allocation by Asset Class
	Level 1		Level 2		Level 3		Total		Actual		Target
April 30, 2013:
Commingled trust funds¹:
Equity funds	$	—	$	279	$	—	$	279	49	%	47	%
Fixed income funds	—		196		—		196		34	%	35	%
Real estate funds	—		20		28		48		8	%	8	%
Short-term investments	—		3		—		3		1	%	—	%
Total commingled trust funds	—		498		28		526		92	%	90	%
Hedge funds²	—		—		26		26		4	%	5	%
Private equity³	—		—		21		21		4	%	5	%
Total	$	—	$	498	$	75	$	573	100	%	100	%
April 30, 2014:
Commingled trust funds¹:
Equity funds	$	—	$	235	$	—	$	235	38	%	38	%
Fixed income funds	—		196		—		196		32	%	35	%
Real estate funds	—		21		32		53		9	%	8	%
Short-term investments	—		3		—		3		1	%	—	%
Total commingled trust funds	—		455		32		487		80	%	81	%
Hedge funds²	—		—		30		30		5	%	5	%
Private equity³	—		—		25		25		4	%	5	%
Equity securities	63		—		—		63		11	%	9	%
Total	$	63	$	455	$	87	$	605	100	%	100	%

¹Commingled trust fund valuations are based on the net asset value (NAV) of the funds as determined by the administrator of the fund and reviewed by us. NAV represents the underlying assets owned by the fund, minus liabilities and divided by the number of shares or units outstanding.

²Hedge fund valuations are based primarily on the NAV of the funds as determined by fund administrators and reviewed by us. During our review, we determine whether it is necessary to adjust a valuation for inherent liquidity and redemption issues that may exist within a fund’s underlying assets or fund unit values.

³As of April 30, 2013 and 2014, consists only of limited partnership interests, which are valued at the percentage ownership of total partnership equity as determined by the general partner. These valuations require significant judgment due to the absence of quoted market prices, the inherent lack of liquidity, and the long-term nature of these investments.

The following table shows how the fair value of the Level 3 assets changed during each of the last two years.



	Real Estate Funds		Hedge Funds		Private Equity			Total
Balance as of April 30, 2012	$	26	$	24	$	17		$	67
Return on assets held at end of year	2		2		2			6
Purchases and settlements	—		—		4			4
Sales and settlements	—		—		(2		)	(2		)
Balance as of April 30, 2013	28		26		21			75
Return on assets held at end of year	4		2		4			10
Purchases and settlements	—		2		3			5
Sales and settlements	—		—		(3		)	(3		)
Balance as of April 30, 2014	$	32	$	30	$	25		$	87

The following table shows how the total fair value of all pension plan assets changed during each of the last two years. (We do not have assets set aside for postretirement medical or life insurance benefits.)



	Pension Benefits						Medical and Life Insurance Benefits
	2013			2014			2013			2014
Fair value at beginning of year	$	508		$	573		$	—		$	—
Actual return on plan assets	68			53			—			—
Retiree contributions	—			—			2			1
Company contributions	45			33			3			3
Benefits paid	(48		)	(54		)	(5		)	(4		)
Fair value at end of year	$	573		$	605		$	—		$	—

We currently expect to contribute $14 to our pension plans and $3 to our postretirement medical and life insurance benefit plans during 2015.

Funded status. The funded status of a plan refers to the difference between its assets and its obligations. The following table shows the funded status of our plans.



	Pension Benefits						Medical and Life Insurance Benefits
	2013			2014			2013			2014
Assets	$	573		$	605		$	—		$	—
Obligations	(783		)	(785		)	(74		)	(69		)
Funded status	$	(210	)	$	(180	)	$	(74	)	$	(69	)

The funded status is recorded on the accompanying consolidated balance sheets as follows:



	Pension Benefits						Medical and Life Insurance Benefits
	2013			2014			2013			2014
Other assets	$	2		$	2		$	—		$	—
Accounts payable and accrued expenses	(3		)	(4		)	(3		)	(3		)
Accrued postretirement benefits	(209		)	(178		)	(71		)	(66		)
Net liability	$	(210	)	$	(180	)	$	(74	)	$	(69	)
Accumulated other comprehensive income (loss), before tax:
Net actuarial gain (loss)	$	(336	)	$	(296	)	$	(11	)	$	(14	)
Prior service credit (cost)	(7		)	(5		)	(5		)	5
	$	(343	)	$	(301	)	$	(16	)	$	(9	)

The following table compares our pension plans that have assets in excess of their accumulated benefit obligations with those whose assets are less than their obligations. (As discussed above, we have no assets set aside for postretirement medical or life insurance benefits.)



	Plan Assets				Accumulated Benefit Obligation				Projected Benefit Obligation
	2013		2014		2013		2014		2013		2014
Plans with assets in excess of accumulated benefit obligation	$	52	$	52	$	48	$	49	$	50	$	50
Plans with accumulated benefit obligation in excess of assets	521		553		647		640		733		735
Total	$	573	$	605	$	695	$	689	$	783	$	785

Pension expense. The following table shows the components of the pension expense recognized during each of the last three years. The amount for each year includes amortization of the prior service cost/credit and net actuarial loss/gain included in accumulated other comprehensive loss as of the beginning of the year.



	Pension Benefits
	2012			2013			2014
Service cost	$	16		$	20		$	21
Interest cost	34			35			31
Expected return on plan assets	(40		)	(41		)	(40		)
Amortization of:
Prior service cost (credit)	1			1			1
Net actuarial loss (gain)	19			28			31
Net expense	$	30		$	43		$	44

The prior service cost/credit, which represents the effect of plan amendments on benefit obligations, is amortized on a straight-line basis over the average remaining service period of the employees expected to receive the benefits. The net actuarial loss/gain results from experience different from that assumed or from a change in actuarial assumptions (including the difference between actual and expected return on plan assets), and is amortized over at least that same period. The estimated amount of prior service cost and net actuarial loss that will be amortized from accumulated other comprehensive loss into pension expense in 2015 is $1 and $23, respectively.

Other postretirement benefit expense. The following table shows the components of the postretirement medical and life insurance benefit expense that we recognized during each of the last three years.



	Medical and Life Insurance Benefits
	2012		2013		2014
Service cost	$	2	$	2	$	2
Interest cost	3		3		3
Amortization of prior service cost (credit)	—		1		—
Net expense	$	5	$	6	$	5

Other comprehensive income (loss). Prior service cost/credit and net actuarial loss/gain are recognized in other comprehensive income or loss (OCI) during the period in which they arise. These amounts are later amortized from accumulated OCI into pension and other postretirement benefit expense over future periods as described above. The following table shows the pre-tax effect of these amounts on OCI during each of the last three years:



	Pension Benefits								Medical and Life Insurance Benefits
	2012			2013			2014		2012			2013			2014
Prior service credit (cost)	$	(1	)	$	(4	)	$	—	$	—		$	—		$	10
Net actuarial gain (loss)	(102		)	(18		)	9		(4		)	(10		)	(3		)
Amortization reclassified to earnings:
Prior service cost (credit)	1			1			1		—			1			—
Net actuarial loss (gain)	19			28			31		—			—			—
Net amount recognized in OCI	$	(83	)	$	7		$	41	$	(4	)	$	(9	)	$	7

Assumptions and sensitivity. We use various assumptions to determine the obligations and expense related to our pension and other postretirement benefit plans. The weighted-average assumptions used in computing benefit plan obligations as of the end of the last two years were as follows:



	Pension Benefits				Medical and Life Insurance Benefits
	2013		2014		2013		2014
Discount rate	4.08	%	4.46	%	4.36	%	4.67	%
Rate of salary increase	4.00	%	4.00	%	n/a		n/a

The weighted-average assumptions used in computing benefit plan expense during each of the last three years were as follows:



	Pension Benefits						Medical and Life Insurance Benefits
	2012		2013		2014		2012		2013		2014
Discount rate	5.67	%	4.92	%	4.08	%	5.59	%	4.84	%	4.36	%
Rate of salary increase	4.00	%	4.00	%	4.00	%	n/a		n/a		n/a
Expected return on plan assets	8.25	%	7.75	%	7.50	%	n/a		n/a		n/a

The discount rate represents the interest rate used to discount the cash-flow stream of benefit payments to a net present value as of the calculation date. A lower assumed discount rate increases the present value of the benefit obligation. We determined the discount rate using a yield curve based on the interest rates of high-quality debt securities with maturities corresponding to the expected timing of our benefit payments.

The assumed rate of salary increase reflects the expected average annual increase in salaries as a result of inflation, merit increases, and promotions over the service period of the plan participants. A lower assumed rate decreases the present value of the benefit obligation.

The expected return on plan assets represents the long-term rate of return that we assume will be earned over the life of the pension assets. The assumption reflects expected capital market returns for each asset class, which are based on historical returns, adjusted for the expected effects of diversification and active management (net of fees).

The assumed health care cost trend rates as of the end of the last two years were as follows:



	Medical and Life Insurance Benefits
	2013		2014
Health care cost trend rate assumed for next year:
Present rate before age 65	8.0	%	8.0	%
Present rate age 65 and after	7.0	%	7.0	%

We project health care cost trend rates to decline gradually to 5.0% by 2021 and to remain level after that. Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement medical plans. A 1% increase in assumed health care cost trend rates would have increased the accumulated postretirement benefit obligation as of April 30, 2014, by $7 and the aggregate service and interest costs for 2014 by $1. A 1% decrease in assumed health care cost trend rates would have decreased the accumulated postretirement benefit obligation as of April 30, 2014, by $6 and the aggregate service and interest costs for 2014 by $1.

Savings plans. We also sponsor various defined contribution benefit plans that together cover substantially all U.S. employees. Employees can make voluntary contributions in accordance with their respective plans, which include a 401(k) tax deferral option. We match a percentage of each employee’s contributions in accordance with plan terms. We expensed $8, $9, and $10 for matching contributions during 2012, 2013, and 2014, respectively.

International plans. The information presented above for defined benefit plans and defined contribution benefit plans reflects amounts for U.S. plans only. Information about similar international plans is not presented due to immateriality.