Employee Benefits

Defined Contribution Savings Plans

Aon maintains defined contribution savings plans for the benefit of its U.S. and U.K. employees. The expense recognized for these plans is included in Compensation and benefits in the Consolidated Statements of Income, as follows (in millions):



Years ended December 31	2013		2012		2011
U.S.	$	123	$	115	$	104
U.K.	45		41		43
	$	168	$	156	$	147

Pension and Other Post-retirement Benefits

The Company sponsors defined benefit pension and post-retirement health and welfare plans that provide retirement, medical, and life insurance benefits. The post-retirement healthcare plans are contributory, with retiree contributions adjusted annually, and the life insurance and pension plans are generally noncontributory. The significant U.S, U.K. and Canadian pension plans are closed to new entrants.

Pension Plans

The following tables provide a reconciliation of the changes in the projected benefit obligations and fair value of assets for the years ended December 31, 2013 and 2012 and a statement of the funded status as of December 31, 2013 and 2012, for the material U.K. plans, U.S. plans and other plans, which are located in the Netherlands and Canada. These plans represent approximately 93% of the Company's projected benefit obligations.



	U.K.						U.S.						Other
(millions)	2013			2012			2013			2012			2013			2012
Change in projected benefit obligation
At January 1	$	4,944		$	4,520		$	2,884		$	2,657		$	1,323		$	1,063
Service cost	1			1			7			—			18			14
Interest cost	210			217			114			119			45			48
Participant contributions	—			—			—			—			1			1
Plan amendment	—			—			12			—			—			—
Curtailments	—			—			—			—			(1		)	—
Plan transfer and acquisitions	—			—			115			—			—			—
Actuarial loss (gain)	145			(116		)	17			29			1			(23		)
Benefit payments	(186		)	(153		)	(128		)	(123		)	(44		)	(42		)
Actual expenses	—			—			—			—			(1		)	—
Change in discount rate	(95		)	324			(277		)	202			(85		)	238
Foreign currency impact	87			151			—			—			(5		)	24
At December 31	$	5,106		$	4,944		$	2,744		$	2,884		$	1,252		$	1,323
Accumulated benefit obligation at end of year	$	5,106		$	4,944		$	2,744		$	2,884		$	1,177		$	1,241
Change in fair value of plan assets
At January 1	$	4,860		$	4,245		$	1,631		$	1,325		$	1,009		$	853
Actual return on plan assets	304			281			199			203			34			111
Participant contributions	—			—			—			—			1			1
Employer contributions	316			341			153			226			55			71
Plan transfer and acquisitions	—			—			—			—			—			—
Benefit payments	(186		)	(153		)	(128		)	(123		)	(44		)	(42		)
Actual Expenses	—			—			—			—			(1		)	—
Foreign currency impact	104			146			—			—			7			15
At December 31	$	5,398		$	4,860		$	1,855		$	1,631		$	1,061		$	1,009
Market related value at end of year	$	5,398		$	4,860		$	1,765		$	1,566		$	1,061		$	1,009
Amount recognized in Statement of Financial Position at December 31
Funded status	$	292		$	(84	)	$	(889	)	$	(1,253	)	$	(191	)	$	(314	)
Unrecognized prior-service cost	24			24			12			—			3			4
Unrecognized loss	2,012			1,981			1,219			1,591			402			491
Net amount recognized	$	2,328		$	1,921		$	342		$	338		$	214		$	181

Amounts recognized in the Consolidated Statements of Financial Position consist of (in millions):



	U.K.						U.S.						Other
	2013			2012			2013			2012			2013			2012
Prepaid benefit cost (1)	$	549		$	301		$	—		$	—		$	1		$	—
Accrued benefit liability (2)	(257		)	(385		)	(889		)	(1,253		)	(192		)	(314		)
Accumulated other comprehensive loss	2,036			2,005			1,231			1,591			405			495
Net amount recognized	$	2,328		$	1,921		$	342		$	338		$	214		$	181


(1)	Included in Other non-current assets


(2)	Included in Pension, other post retirement, and post employment liabilities

Amounts recognized in Accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost at December 31, 2013 and 2012 consist of (in millions):



	U.K.				U.S.				Other
	2013		2012		2013		2012		2013		2012
Net loss	$	2,012	$	1,981	$	1,219	$	1,591	$	402	$	491
Prior service cost	24		24		12		—		3		4
	$	2,036	$	2,005	$	1,231	$	1,591	$	405	$	495

In 2013, U.S. plans with a projected benefit obligation ("PBO") and an accumulated benefit obligation ("ABO") in excess of the fair value of plan assets had a PBO of $2.7 billion, an ABO of $2.7 billion, and plan assets of $1.9 billion. U.K. plans with a PBO in excess of the fair value of plan assets had a PBO of $1.2 billion and plan assets with a fair value of $1.0 billion, and plans with an ABO in excess of the fair value of plan assets had an ABO of $1.2 billion and plan assets with a fair value of $1.0 billion. Other plans with a PBO in excess of the fair value of plan assets had a PBO of $1.2 billion and plan assets with a fair value of $1.0 billion, and plans with an ABO in excess of the fair value of plan assets had an ABO of $0.4 billion and plan assets with a fair value of $0.3 billion.

In 2012, U.S. plans with a with a PBO and an ABO in excess of the fair value of plan assets had a PBO of $2.9 billion, an ABO of $2.9 billion, and plan assets of $1.6 billion. U.K. plans with a PBO in excess of the fair value of plan assets had a PBO of $2.2 billion and plan assets with a fair value of $1.8 billion, and plans with an ABO in excess of the fair value of plan assets had an ABO of $2.2 billion and plan assets with a fair value of $1.8 billion. Other plans with a PBO in excess of the fair value of plan assets had a PBO of $1.3 billion and plan assets with a fair value of $1.0 billion, and plans with an ABO in excess of the fair value of plan assets had an ABO of $1.3 billion and plan assets with a fair value of $1.0 billion.

The following table provides the components of net periodic benefit cost for the plans (in millions):



	U.K.									U.S.									Other
	2013			2012			2011			2013			2012			2011			2013			2012			2011
Service cost	$	1		$	1		$	4		$	7		$	—		$	—		$	18		$	14		$	15
Interest cost	210			217			216			114			119			122			45			48			51
Expected return on plan assets	(302		)	(274		)	(238		)	(139		)	(127		)	(120		)	(59		)	(49		)	(49		)
Amortization of prior-service cost	1			1			1			—			—			—			—			—			—
Amortization of net actuarial loss	49			43			39			52			43			31			23			17			14
Net periodic benefit cost	$	(41	)	$	(12	)	$	22		$	34		$	35		$	33		$	27		$	30		$	31

The weighted-average assumptions used to determine future benefit obligations are as follows:



	U.K.		U.S.		Other
	2013	2012	2013	2012	2013	2012
Discount rate	4.55%	4.45%	3.97-4.87%	3.73 – 4.05%	3.60 - 4.71%	3.25 - 3.89%
Rate of compensation increase	3.70 - 4.40%	3.85%	N/A	N/A	2.25 - 3.50%	2.25 - 3.50%
Underlying price inflation	2.4%	2.25%	N/A	N/A	1.50 - 2.50%	2.00 - 2.50%

The weighted-average assumptions used to determine the net periodic benefit cost are as follows:



	U.K.			U.S.			Other
	2013	2012	2011	2013	2012	2011	2013	2012	2011
Discount rate	4.45%	4.80%	5.30 - 5.50%	3.73 - 4.05%	4.33 – 4.60%	4.35 – 5.34%	3.25 - 3.89%	4.40 - 4.94%	4.70 - 5.45%
Expected return on plan assets	6.30%	6.30%	3.20 - 7.20%	8.80%	8.80%	8.80%	4.60 - 6.50%	4.90 - 6.75%	4.90 - 7.00%
Rate of compensation increase	3.25 - 3.85%	3.55%	4.00%	N/A	N/A	N/A	2.25 - 3.50%	2.25 - 3.50%	2.00 - 3.50%

The amounts in Accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2014 are $44 million in the U.S. and $63 million outside the U.S.

Expected Return on Plan Assets

To determine the expected long-term rate of return on plan assets, the historical performance, investment community forecasts and current market conditions are analyzed to develop expected returns for each asset class used by the plans. The expected returns for each asset class are weighted by the target allocations of the plans. The expected return on plan assets in the U.S. of 8.8% reflects a portfolio that is seeking asset growth through a higher equity allocation while maintaining prudent risk levels. The portfolio contains certain assets that have historically resulted in higher returns and other financial instruments to minimize downside risk.

No plan assets are expected to be returned to the Company during 2014.

Fair value of plan assets

The Company determined the fair value of plan assets through numerous procedures based on the asset class and available information. See Note 15 "Fair Value Measurements and Financial Instruments" for a description of the procedures performed to determine the fair value of the plan assets.

The fair values of the Company's U.S. pension plan assets at December 31, 2013 and December 31, 2012, by asset category, are as follows (in millions):



			Fair Value Measurements Using
Asset Category	Balance at December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	53	$	53	$	—	$	—
Equity investments: (2)
Large cap domestic	303		303		—		—
Small cap domestic	66		5		61		—
Large cap international	212		66		146		—
Equity derivatives	361		146		215		—
Fixed income investments: (3)
Corporate bonds	395		—		395		—
Government and agency bonds	96		—		96		—
Asset-backed securities	25		—		25		—
Fixed income derivatives	13		—		13		—
Other investments:
Alternative investments (4)	266		—		—		266
Commodity derivatives (5)	14		—		14		—
Real estate and REITS (6)	51		51		—		—
Total	$	1,855	$	624	$	965	$	266


(1)	Consists of cash and institutional short-term investment funds.


(2)	Consists of equity securities, equity derivatives, and pooled equity funds.


(3)	Consists of corporate and government bonds, asset-backed securities, and fixed income derivatives.


(4)	Consists of limited partnerships, private equity and hedge funds.


(5)	Consists of long-dated options on a commodity index.


(6)	Consists of exchange traded REITS.



			Fair Value Measurements Using
Asset Category	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	22	$	22	$	—	$	—
Equity investments: (2)
Large cap domestic	233		233		—		—
Small cap domestic	44		—		44		—
Large cap international	188		59		129		—
Equity derivatives	226		69		157		—
Fixed income investments: (3)
Corporate bonds	421		—		421		—
Government and agency bonds	97		—		97		—
Asset-backed securities	18		—		18		—
Fixed income derivatives	52		—		52		—
Other investments:
Alternative investments (4)	262		—		—		262
Commodity derivatives (5)	17		—		17		—
Real estate and REITS (6)	51		51		—		—
Total	$	1,631	$	434	$	935	$	262


(1)	Consists of cash and institutional short-term investment funds.


(2)	Consists of equity securities, equity derivatives, and pooled equity funds.


(3)	Consists of corporate and government bonds, asset-backed securities, and fixed income derivatives.


(4)	Consists of limited partnerships, private equity and hedge funds.


(5)	Consists of long-dated options on a commodity index.


(6)	Consists of exchange traded REITS.

The following table presents the changes in the Level 3 fair-value category in the Company's U.S. pension plans for the years ended December 31, 2013 and December 31, 2012 (in millions):



	Fair Value Measurement Using Level 3 Inputs
Balance at January 1, 2012	$	191
Actual return on plan assets:
Relating to assets still held at December 31, 2012	22
Relating to assets sold during 2012	1
Purchases, sales and settlements—net	48
Transfer in/(out) of Level 3	—
Balance at December 31, 2012	262
Actual return on plan assets:
Relating to assets still held at December 31, 2013	26
Relating to assets sold during 2013	4
Purchases, sales and settlements—net	(26		)
Transfer in/(out) of Level 3	—
Balance at December 31, 2013	$	266

The fair values of the Company's major U.K. pension plan assets at December 31, 2013 and December 31, 2012, by asset category, are as follows (in millions):



			Fair Value Measurements Using
	Balance at December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	555	$	555	$	—	$	—
Equity investments:
Pooled funds: (1)
Global	668				668		—
Europe	155		—		155		—
Equity securities — global (2)	171		171		—		—
Derivatives (2)	31		—		31		—
Fixed income investments:
Pooled funds: (1)
Fixed income securities	500		—		500		—
Fixed income securities (3)	2,043		2,043		—		—
Annuities	564		—		—		564
Derivatives (3)	142		—		142		—
Other investments:
Pooled funds: (1)
Real estate (4)	23		—		—		23
Alternative investments (5)	546		—		—		546
Total	$	5,398	$	2,769	$	1,496	$	1,133


(1)	Consists of various equity, fixed income, commodity, and real estate mutual fund type investment vehicles.


(2)	Consists of equity securities and equity derivatives.


(3)	Consists of corporate and government bonds and fixed income derivatives.


(4)	Consists of property funds and trusts holding direct real estate investments.


(5)	Consists of limited partnerships, private equity and hedge funds.



			Fair Value Measurements Using
	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	298	$	298	$	—	$	—
Equity investments:
Pooled funds: (1)
Global	967		—		967		—
Europe	319		—		319		—
Equity securities — global (2)	137		137		—		—
Derivatives (2)	103		—		103		—
Fixed income investments:
Pooled funds: (1)
Fixed income securities	501		—		501		—
Fixed income securities (3)	1,234		1,234		—		—
Annuities	568		—		—		568
Derivatives (3)	217		—		217		—
Other investments:
Pooled funds: (1)
Real estate (4)	70		—		—		70
Alternative investments (5)	446		—		—		446
Total	$	4,860	$	1,669	$	2,107	$	1,084


(1)	Consists of various equity, fixed income, commodity, and real estate mutual fund type investment vehicles.


(2)	Consists of equity securities and equity derivatives.


(3)	Consists of corporate and government bonds and fixed income derivatives.


(4)	Consists of property funds and trusts holding direct real estate investments.


(5)	Consists of limited partnerships, private equity and hedge funds.

The following table presents the changes in the Level 3 fair-value category in the Company's U.K. pension plans for the years ended December 31, 2013 and December 31, 2012 (in millions):



	Fair Value Measurements Using Level 3 Inputs
	Annuities			Real Estate			Alternative Investments		Total
Balance at January 1, 2012	$	419		$	97		$	335	$	851
Actual return on plan assets:
Relating to assets still held at December 31, 2012	(4		)	1			19		16
Relating to assets sold during 2012	—			1			11		12
Purchases, sales and settlements—net	137			(32		)	68		173
Transfers in/(out) of Level 3	—			—			—		—
Foreign exchange	16			3			13		32
Balance at December 31, 2012	568			70			446		1,084
Actual return on plan assets:
Relating to assets still held at December 31, 2013	(13		)	1			32		20
Relating to assets sold during 2013	—			3			5		8
Purchases, sales and settlements—net	—			(50		)	51		1
Transfers in/(out) of Level 3	—			—			—		—
Foreign exchange	9			(1		)	12		20
Balance at December 31, 2013	$	564		$	23		$	546	$	1,133

The fair values of the Company's major other pension plan assets at December 31, 2013 and December 31, 2012, by asset category, are as follows (in millions):



			Fair Value Measurements Using
	Balance at December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	11	$	11	$	—	$	—
Equity investments:
Pooled funds: (1)
Global	318		—		318		—
North America	52		—		52		—
Fixed income investments:
Pooled funds: (1)
Fixed income securities	509		—		509		—
Derivatives	20		—		20		—
Fixed income securities (2)	61		—		61		—
Derivatives (2)	14		—		14		—
Other investments:
Pooled funds: (1)
Commodities	32		—		32		—
REITS	5		—		5		—
Real estate (3)	17		—		—		17
Alternative investments (4)	8		—		—		8
Derivatives	14		—		14		—
Total	$	1,061	$	11	$	1,025	$	25


(1)	Consists of various equity, fixed income, commodity, and real estate mutual fund type investment vehicles.


(2)	Consists of corporate and government bonds and fixed income derivatives.


(3)	Consists of property funds and trusts holding direct real estate investments.


(4)	Consists of limited partnerships, private equity and hedge funds.



			Fair Value Measurements Using
	Balance at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	5	$	5	$	—	$	—
Equity investments:
Pooled funds: (1)
Global	274		—		274		—
North America	65		—		65		—
Fixed income investments:
Pooled funds: (1)
Fixed income securities	472		—		472		—
Derivatives	23		—		23		—
Fixed income securities (2)	64		—		64		—
Derivatives (2)	28		—		28		—
Other investments:
Pooled funds: (1)
Commodities	30		—		30		—
REITS	5		—		5		—
Real estate (3)	17		—		—		17
Alternative investments (4)	11		—		—		11
Derivatives	15		—		15		—
Total	$	1,009	$	5	$	976	$	28


(1)	Consists of various equity, fixed income, commodity, and real estate mutual fund type investment vehicles.


(2)	Consists of corporate and government bonds and fixed income derivatives.


(3)	Consists of property funds and trusts holding direct real estate investments.


(4)	Consists of limited partnerships, private equity and hedge funds.

The following table presents the changes in the Level 3 fair-value category in the Company's other pension plans for the years ended December 31, 2013 and December 31, 2012 (in millions):



	Fair Value Measurements Using Level 3 Inputs
	Real Estate			Alternative Investments			Total
Balance at January 1, 2012	$	37		$	11		$	48
Actual return on plan assets:
Relating to assets still held at December 31, 2012	(2		)	—			(2		)
Relating to assets sold during 2012	—			—			—
Purchases, sales and settlements—net	—			—			—
Transfers in/(out) of Level 3	(18		)	—			(18		)
Foreign exchange	—			—			—
Balance at December 31, 2012	17			11			28
Actual return on plan assets:
Relating to assets still held at December 31, 2013	(1		)	1			—
Relating to assets sold during 2013	—			1			1
Purchases, sales and settlements—net	—			(4		)	(4		)
Transfers in/(out) of Level 3	—			—			—
Foreign exchange	1			(1		)	—
Balance at December 31, 2013	$	17		$	8		$	25

Investment Policy and Strategy

The U.S. investment policy, as established by the Aon Retirement Plan Governance and Investment Committee ("RPGIC"), seeks reasonable asset growth at prudent risk levels within target allocations, which are 49% equity investments, 30% fixed income investments, and 21% other investments. Aon believes that plan assets are well-diversified and are of appropriate quality. The investment portfolio asset allocation is reviewed quarterly and re-balanced to be within policy target allocations. The investment policy is reviewed at least annually and revised, as deemed appropriate by the RPGIC. The investment policies for international plans are generally established by the local pension plan trustees and seek to maintain the plans' ability to meet liabilities and to comply with local minimum funding requirements. Plan assets are invested in diversified portfolios that provide adequate levels of return at an acceptable level of risk. The investment policies are reviewed at least annually and revised, as deemed appropriate to ensure that the objectives are being met. At December 31, 2013, the weighted average targeted allocation for the U.K. and non-U.S. plans was 31% for equity investments and 69% for fixed income investments.

Cash Flows

Contributions

Based on current assumptions, the Company expects to contribute approximately $173 million and $212 million, respectively, to its U.S. and non-U.S. pension plans during 2014.

Estimated Future Benefit Payments

Estimated future benefit payments for plans are as follows at December 31, 2013 (in millions):



	U.K.		U.S.		Other
2014	$	156	$	152	$	45
2015	157		158		46
2016	168		166		48
2017	181		173		49
2018	190		171		51
2019 – 2023	1,143		868		280

U.S. and Canadian Other Post-Retirement Benefits

The following table provides an overview of the accumulated projected benefit obligation, fair value of plan assets, funded status and net amount recognized as of December 31, 2013 and 2012 for the Company's other material post-retirement benefit plans located in the U.S. and Canada (in millions):



	2013			2012
Accumulated projected benefit obligation	$	118		$	134
Fair value of plan assets	20			20
Funded status	(98		)	(114		)
Unrecognized prior-service credit	(9		)	(15		)
Unrecognized loss	18			37
Net amount recognized	$	(89	)	$	(92	)

Other information related to the Company's other post-retirement benefit plans are as follows:



	2013	2012	2011
Net periodic benefit cost recognized (millions)	$4	$1	$6
Weighted-average discount rate used to determine future benefit obligations	4.44 - 4.95	3.67 – 4.00	4.33 – 5.00
Weighted-average discount rate used to determine net periodic benefit costs	3.67 - 4.00	4.33 – 5.00	4.92 – 6.00

Amounts recognized in Accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost at December 31, 2013 are $18 million and $9 million of net loss and prior service credit, respectively. The amount in Accumulated other comprehensive income expected to be recognized as a component of net periodic benefit cost during 2014 is $1 million and $5 million of net loss and prior service credit, respectively.

Based on current assumptions, the Company expects:


•	To contribute $6 million to fund material other post-retirement benefit plans during 2014.


•	Estimated future benefit payments will be approximately $8 million each year for 2014 through 2018, and $40 million in aggregate for 2019-2023.

The accumulated post-retirement benefit obligation is increased by $5 million and decreased by $5 million by a respective 1% increase or decrease to the assumed health care trend rate. The service cost and interest cost components of net periodic benefits cost is increased by $0.5 million and decreased by $0.5 million by a respective 1% increase or decrease to the assumed healthcare trend rate.

For most of the participants in the U.S. plan, Aon's liability for future plan cost increases for pre-65 and Medical Supplement plan coverage is limited to 5% per annum. Although the net employer trend rates range from 8% to 5% per year, because of this cap, these plans are effectively limited to 5% per year in the future. During 2012, Aon recognized a plan amendment that phases out post-retirement coverage in its U.S. plan over the next two years. The amendment resulted in recognition of prior service credits of $5 million in 2012 in net periodic benefit cost. The impact of this amendment also resulted in a new prior service credit of $10 million which will impact net periodic benefit cost in future periods as it is recognized over the average remaining service life of the employees.