Employee Benefit Plans

The Company sponsors defined benefit pension plans principally for salaried, management personnel. For employees hired prior to January 1, 2003, the plans provide eligible employees with retirement benefits based predominantly on years of service and compensation rates near retirement. For employees hired in 2003 or thereafter, benefits are determined based on a cash balance formula, which provides benefits by utilizing interest and pay credits based upon age, service and compensation.

NOTE 8. Employee Benefit Plans, continued

In addition to these plans, the Company sponsors a post-retirement medical plan and a life insurance plan that provide benefits to full-time, salaried, management employees, hired prior to January 1, 2003, upon their retirement if certain eligibility requirements are met. Medicare-eligible retirees are covered by a health reimbursement arrangement, which is an employer-funded account that can be used for reimbursement of eligible medical expenses. Non-Medicare eligible retirees are covered by a self-insured program partially funded by participating retirees. The life insurance plan is non-contributory.

The Company engages independent actuaries to compute the amounts of liabilities and expenses relating to these plans subject to the assumptions that the Company selects. In order to perform this valuation, the actuaries are provided with the details of the population covered at the beginning of the year, summarized in the table below, and projects that population forward to the end of the year. These amounts are reviewed by management.



	Summary of Participants as of
	January 1, 2014
	Pension Plans	Post-retirement Medical Plan
Active Employees	5,136	2,031
Retirees and Beneficiaries	11,699	12,148
Other^(a)	5,444	87
Total	22,279	14,266

(a) For pension plans, the other category consists mostly of terminated but vested former employees. For post-retirement plans, the other category consists of employees on long-term disability that have not yet retired.

The benefit obligation for these plans represents the liability of the Company for current and retired employees and is affected primarily by the following:


•	service cost (benefits attributed to employee service during the period);


•	interest cost (interest on the liability due to the passage of time);


•	actuarial gains/losses (experience during the year different from that assumed and changes in plan assumptions); and


•	benefits paid to participants.

Cash Flows

Plan assets are amounts that have been segregated and restricted to provide qualified pension plan benefits and include amounts contributed by the Company and amounts earned from invested contributions, net of benefits paid. Qualified pension plan obligations are funded in accordance with regulatory requirements and with an objective of meeting minimum funding requirements necessary to avoid restrictions on flexibility of plan operation and benefit payments. The Company funds the cost of the post-retirement medical and life insurance benefits as well as nonqualified pension benefits on a pay-as-you go basis. During 2012, the Company made a contribution of $275 million to its qualified pension plans, of which $25 million was the required minimum contribution. No contributions were made during 2013 and 2014. No significant contributions to the Company's qualified pension plans are expected in 2015.

NOTE 8. Employee Benefit Plans, continued

Future expected benefit payments are as follows:



	Expected Cash Flows
(Dollars in Millions)	Pension Benefits		Post-retirement Benefits
2015	$	207	$	37
2016	188		34
2017	188		33
2018	185		30
2019	186		28
2020-2024	931		114
Total	$	1,885	$	276

Plan Assets

The CSX Investment Committee (the “Investment Committee”), whose members were selected by the Chief Financial Officer and approved by the Chief Executive Officer, is responsible for oversight and investment of plan assets. The Investment Committee utilizes an investment asset allocation strategy that is monitored on an ongoing basis and that is updated periodically in consideration of plan or employee changes, or changing market conditions. These studies provide an extensive modeling of asset investment return in conjunction with projected plan liabilities and seek to evaluate how to maximize return within the constraints of acceptable risk. The current asset allocation targets 70% equity investments and 30% fixed income investments and cash. Within equity, a further target is currently established for 42% of total plan assets in domestic equity and 28% in international equity. Allocations are evaluated for levels within 3% of targeted allocations and are adjusted quarterly as necessary. The distribution of pension plan assets as of the measurement date is shown in the table below, and these assets are netted against the pension liabilities on the balance sheet.



	December 2014				December 2013
			Percent of				Percent of
(Dollars in Millions)	Amount		Total Assets		Amount		Total Assets
Equity	$	1,715	68	%	$	1,619	65	%
Fixed Income	740		30		795		32
Cash and Cash Equivalents	49		2		86		3
Total	$	2,504	100	%	$	2,500	100	%

Under the supervision of the Investment Committee, individual investments or fund managers are selected in accordance with standards of prudence applicable to asset diversification and investment suitability. The Company also selects fund managers with differing investment styles and benchmarks their investment returns against appropriate indices. Fund investment performance is continuously monitored. Acceptable performance is determined in the context of the long-term return objectives of the fund and appropriate asset class benchmarks.

NOTE 8. Employee Benefit Plans, continued

Within the Company's equity funds, the U.S. stock segment includes diversification among large and small capitalization stocks. Guidelines established with individual managers limit investment by industry sectors, individual stock issuer concentration and the use of derivatives and CSX securities.

Fixed income securities guidelines established with individual managers specify the types of allowable investments, such as government, corporate and asset-backed bonds, and limit diversification between domestic and foreign investments and the use of derivatives. Additionally, guidelines stipulate minimum credit quality constraints and any prohibited securities.

For detailed information regarding the fair value of pension assets, see Note 13, Fair Value Measurements.

Benefit Obligation, Plan Assets and Funded Status

Changes in benefit obligation and the fair value of plan assets for the 2014 and 2013 calendar plan years are as follows:



	Pension Benefits						Post-retirement Benefits
	Plan Year			Plan Year			Plan Year			Plan Year
(Dollars in Millions)	2014			2013			2014			2013
Actuarial Present Value of Benefit Obligation
Accumulated Benefit Obligation	$	2,849		$	2,538		N/A			N/A
Projected Benefit Obligation	3,002			2,679			$	340		$	350

Change in Projected Benefit Obligation:
Projected Benefit Obligation at Beginning of Plan Year	$	2,679		$	2,954		$	350		$	415
Service Cost	44			49			3			3
Interest Cost	123			108			13			13
Plan Participants' Contributions	—			—			7			8
Workforce Reduction Program/Curtailment	27			—			8			—
Actuarial Loss (Gain)	333			(275		)	(8		)	(49		)
Benefits Paid	(204		)	(157		)	(33		)	(40		)
Benefit Obligation at End of Plan Year	$	3,002		$	2,679		$	340		$	350

Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Plan Year	$	2,500		$	2,294		$	—		$	—
Actual Return on Plan Assets	195			350			—			—
Non-qualified Employer Contributions	13			13			26			32
Plan Participants' Contributions	—			—			7			8
Benefits Paid	(204		)	(157		)	(33		)	(40		)
Fair Value of Plan Assets at End of Plan Year	2,504			2,500			—			—
Funded Status at End of Plan Year	$	(498	)	$	(179	)	$	(340	)	$	(350	)

NOTE 8. Employee Benefit Plans, continued

For qualified plan funding purposes, assets and discounted liabilities are measured in accordance with the Employee Retirement Income Security Act ("ERISA"), as well as other related provisions of the IRC and related regulations. Under these funding provisions and the alternative measurements available thereunder, the Company estimates its unfunded obligation for qualified plans on an annual basis.

In accordance with Compensation-Retirement Benefits Topic in the ASC, an employer must recognize the funded status of a pension or other post-retirement benefit plan by recording a liability (underfunded plan) or asset (overfunded plan) for the difference between the projected benefit obligation (or the accumulated post-retirement benefit obligation for a postretirement benefit plan) and the fair value of plan assets at the plan measurement date. Amounts related to pension and post-retirement benefits recorded in other long-term assets, labor and fringe benefits payable and other long-term liabilities on the balance sheet are as follows:



	Pension Benefits						Post-retirement Benefits
	December			December			December			December
(Dollars in Millions)	2014			2013			2014			2013
Amounts Recorded in Consolidated
Balance Sheets:
Long-term Assets ^(a)	$	9		$	44		$	—		$	—
Current Liabilities	(15		)	(14		)	(37		)	(38		)
Long-term Liabilities	(492		)	(209		)	(303		)	(312		)
Net Amount Recognized in
Consolidated Balance Sheets	$	(498	)	$	(179	)	$	(340	)	$	(350	)


(a)	Long-term assets as of December 2014 relate to one of the qualified pension plans whose assets exceed projected benefit obligations.

The funded status, or amount by which the benefit obligation exceeds the fair value of plan assets, represents a liability. At December 2014, the status of CSX plans only with a net liability is disclosed below. The total fair value of all plans as of December 2014 was $2.5 billion, which includes the qualified pension plans with net assets.



	Aggregate		Aggregate
(Dollars in Millions)	Fair Value		Projected
Benefit Obligations in Excess of Plan Assets	of Plan Assets		Benefit Obligation
Projected Benefit Obligation	$	2,461	$	(2,968	)
Accumulated Benefit Obligation	2,461		(2,815		)

NOTE 8. Employee Benefit Plans, continued

Net Benefit Expense

The following table describes the components of expense/(income) related to net benefit expense recorded in labor and fringe on the income statement.



	Pension Benefits Fiscal Years									Post-retirement Benefits Fiscal Years
(Dollars in Millions)	2014			2013			2012			2014			2013			2012
Service Cost	$	44		$	49		$	44		$	3		$	3		$	4
Interest Cost	123			108			123			13			13			16
Expected Return on Plan Assets	(166		)	(162		)	(166		)	—			—			—
Amortization of Net Loss	57			100			82			5			14			9
Amortization of Prior Service Cost	—			—			—			(1		)	(1		)	(1		)
Net Periodic Benefit Expense	58			95			83			20			29			28
Special Termination Benefits - Workforce Reduction Program/Curtailment^(a)	27			—			—			8			—			—
Settlement Gain^(b)	(1		)	(2		)	(2		)	—			—			—
Total Expense	$	84		$	93		$	81		$	28		$	29		$	28


(a)	These charges result from a management workforce reduction program that was initiated in 2014. For further information regarding the program, see Note 1. Nature of Operations and Significant Accounting Policies.


(b)	Settlement gains were recognized as one of the pension plan's lump-sum payments exceeded the sum of the service cost and interest cost recognized. The gain is the recognition of a portion of its accumulated other comprehensive income related to that plan.

Pension and Other Post-Employment Benefits Adjustments

The following table shows the pre-tax change in other comprehensive loss (income) attributable to the components of net expense and the change in benefit obligation for CSX for pension and other post-employment benefits.



(Dollars in Millions)	Pension Benefits						Post-retirement Benefits
Components of Other Comprehensive	December			December			December			December
Loss (Income)	2014			2013			2014			2013
Recognized in the balance sheet
Losses (Gains)	$	305		$	(462	)	$	(8	)	$	(48	)
Expense (Income) recognized in the income statement
Amortization of net losses ^(a)	$	57		$	100		$	5		$	14
Settlement gain	(1		)	(2		)	—			—
Amortization of prior service costs ^(b)	—			—			(1		)	(1		)


(a)	Amortization of net losses estimated to be expensed for 2015 is approximately $70 million and $5 million for pension benefits and post-retirement benefits, respectively. The increase in amortization is largely related to the impact of lower discount rates and adoption of new mortality tables, partially offset by favorable pension asset experience.


(b)	Amortization of prior service costs estimated to be expensed in 2015 is less than $1 million for pension benefits. The estimated post-retirement benefits amount to be credited to expense for 2015 is $1 million.

NOTE 8. Employee Benefit Plans, continued

As of December 2014, the balances of pre-tax amounts to be amortized that are included in accumulated other comprehensive loss (a component of shareholders’ equity) are as follows:



	Pension Benefits		Post-retirement Benefits
Losses	$	908	$	59
Prior Service Costs (Credits)	—		(1		)
Total	$	908	$	58

Assumptions

The expected long-term average rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for benefits included in the projected benefit obligation. In estimating that rate, the Company gives appropriate consideration to the returns being earned by the plan assets in the funds and the rates of return expected to be available for reinvestment as well as the current and projected asset mix of the funds. Management balances market expectations obtained from various investment managers and economists with both market and actual plan historical returns to develop a reasonable estimate of the expected long-term rate of return on assets. As this assumption is long-term, it is adjusted less frequently than other assumptions used in pension accounting.

Weighted-average assumptions used in accounting for the plans were as follows:



	Pension Benefits				Post-retirement Benefits
	2014		2013		2014		2013
Expected Long-term Return on Plan Assets:
Benefit Cost for Plan Year	7.50	%	7.75	%	N/A		N/A
Benefit Obligation at End of Plan Year	7.25	%	7.50	%	N/A		N/A

Discount Rates:
Benefit Cost for Plan Year	4.75	%	3.75	%	4.25	%	3.20	%
Benefit Obligation at End of Plan Year	4.00	%	4.75	%	3.60	%	4.25	%

Salary Scale Inflation	3.75	%	3.75	%	N/A		N/A

NOTE 8. Employee Benefit Plans, continued

The net post-retirement benefit obligation for salaried, management personnel was determined using the following assumptions for the health care cost trend rate for medical plans. While it is expected that rates will decrease to 4.75% by 2025 for Medicare and 2027 for Non-Medicare eligible individuals, there may be yearly fluctuations. Additionally, there are cost differentials between Medicare and Non-Medicare eligible individuals which are reflected below.



	Post-retirement Benefits
	2014	2013
Health Care Cost Trend Rate:
Components of Benefit Cost: Non-Medicare Eligible	8.0%	8.5%
Components of Benefit Cost: Medicare Eligible	7.5%	8.0%
Benefit Obligations: Non-Medicare Eligible	8.0%	8.0%
Benefit Obligations: Medicare Eligible	7.5%	7.5%

For every 1% change in the assumed health care cost trend rate, service and interest cost will change by less than $1 million on a pre-tax basis on the consolidated income statements. For every 1% change in the health care cost trend rate, the Company’s benefit obligation will change by less than $1 million on the consolidated balance sheets.

Other Plans

Under collective bargaining agreements, the Company participates in a multi-employer benefit plan, which provides certain post-retirement health care and life insurance benefits to eligible contract employees. Premiums under this plan are expensed as incurred and amounted to $37 million, $41 million and $46 million in 2014, 2013 and 2012, respectively.

The Company maintains savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements. Expense associated with these plans was $41 million, $37 million and $29 million for 2014, 2013 and 2012, respectively.