Pension, Other Postretirement Benefits and Savings Plans

We provide employees with defined benefit pension or defined contribution savings plans. Our principal hourly U.S. pension plans provide benefits based on length of service. The principal salaried U.S. pension plans are frozen and provide benefits based on final five-year average earnings formulas. Salaried employees who made voluntary contributions to these plans receive higher benefits.

Subsequent to December 31, 2013, we made contributions of approximately $1,150 million, including discretionary contributions of approximately $900 million, to fully fund our hourly U.S. pension plans. As a result, and in accordance with our master collective bargaining agreement with the United Steelworkers, the hourly U.S. pension plans will be frozen to future accruals effective April 30, 2014. Following these contributions, the Company changed its target asset allocation for these plans to a portfolio of substantially all fixed income securities designed to offset the future impact of discount rate movements on the plans' funded status. As a result of the future accrual freeze, we recognized a curtailment charge of $32 million in January 2014.

We expect to contribute approximately $1.3 billion to our funded U.S. and non-U.S. pension plans in 2014, inclusive of our first quarter 2014 U.S. pension contribution of approximately $1,150 million, which included discretionary contributions of approximately $900 million.

During the first quarter of 2013, we made $34 million of required contributions and $834 million of discretionary contributions to fully fund our frozen U.S. pension plans. Following these contributions, the Company changed its target asset allocation for these plans to a portfolio of substantially all fixed income securities designed to offset the future impact of discount rate movements on the plans' funded status. As a result of the asset allocation change, we were required to remeasure the benefit obligations and assets of the affected plans at February 28, 2013.

During 2012, we recognized a settlement charge of $9 million related to the purchase of annuities from existing plan assets to settle obligations of one of our U.K. pension plans. During 2011, we recognized settlement charges of $15 million related to one of our U.S. pension plans. The 2011 settlement charges resulted from total lump sum benefit payments exceeding annual service and interest cost for the plan.

We also provide certain U.S. employees and employees at certain non-U.S. subsidiaries with health care benefits or life insurance benefits upon retirement. Substantial portions of the health care benefits for U.S. salaried retirees are not insured and are funded from operations.

During 2012, we announced certain changes to our U.S. and Canadian salaried other postretirement benefit plans, primarily the elimination of coverage in 2013 for participants who are or become at least age 65 and eligible for government subsidized programs. As a result of these actions, we were required to remeasure the benefit obligations of the affected plans which resulted in the reduction of our U.S. other postretirement benefit obligation by $56 million and our Canadian other postretirement benefit obligation by $18 million in 2012.

Total benefits cost and amounts recognized in other comprehensive (income) loss follows:



	Pension Plans
	U.S.									Non-U.S.									Other Postretirement Benefits
(In millions)	2013			2012			2011			2013			2012			2011			2013			2012			2011
Benefits cost:
Service cost	$	45		$	39		$	41		$	39		$	31		$	32		$	6		$	6		$	6
Interest cost	243			261			283			131			143			150			19			24			30
Expected return on plan assets	(335		)	(299		)	(306		)	(111		)	(117		)	(131		)	(1		)	(1		)	—
Amortization of prior service cost (credit)	17			23			23			1			2			2			(45		)	(40		)	(37		)
Amortization of net losses	205			179			134			50			45			38			12			11			10
Net periodic cost	175			203			175			110			104			91			(9		)	—			9
Curtailments/settlements	—			1			15			4			11			1			—			—			—
Termination benefits	—			—			—			—			1			1			—			—			—
Total benefits cost	$	175		$	204		$	190		$	114		$	116		$	93		$	(9	)	$	—		$	9
Recognized in other comprehensive (income) loss before tax and minority:
Prior service (credit) cost from plan amendments	$	(30	)	$	—		$	—		$	(1	)	$	6		$	—		$	—		$	(82	)	$	—
(Decrease) increase in net actuarial losses	(374		)	665			735			(128		)	372			45			(51		)	(4		)	15
Amortization of prior service (cost) credit in net periodic cost	(17		)	(23		)	(23		)	(1		)	(2		)	(2		)	47			40			37
Amortization of net losses in net periodic cost	(205		)	(179		)	(134		)	(53		)	(43		)	(38		)	(13		)	(11		)	(10		)
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures	—			(1		)	(15		)	(3		)	(11		)	(4		)	—			—			—
Total recognized in other comprehensive (income) loss before tax and minority	(626		)	462			563			(186		)	322			1			(17		)	(57		)	42
Total recognized in total benefits cost and other comprehensive (income) loss before tax and minority	$	(451	)	$	666		$	753		$	(72	)	$	438		$	94		$	(26	)	$	(57	)	$	51

Total benefits (credit) cost for our other postretirement benefits was $(24) million, $(17) million and $(12) million for our U.S. plans in 2013, 2012 and 2011, respectively, and $15 million, $17 million and $21 million for our non-U.S. plans in 2013, 2012 and 2011, respectively.

We use the fair value of our pension assets in the calculation of pension expense for substantially all of our pension plans.

The estimated prior service cost and net actuarial loss for the defined benefit pension plans that will be amortized from AOCL into benefits cost in 2014 are $1 million and $115 million, respectively, for our U.S. plans and $1 million and $40 million, respectively, for our non-U.S. plans.

The estimated prior service credit and net actuarial loss for the other postretirement benefit plans that will be amortized from AOCL into benefits cost in 2014 are a benefit of $45 million and expense of $9 million, respectively.

The Medicare Prescription Drug Improvement and Modernization Act provides plan sponsors a federal subsidy for certain qualifying prescription drug benefits covered under the sponsor’s postretirement health care plans. Our other postretirement benefits cost is presented net of this subsidy.

The change in benefit obligation and plan assets for 2013 and 2012 and the amounts recognized in our Consolidated Balance Sheet at December 31, 2013 and 2012 are as follows:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2013			2012			2013			2012			2013			2012
Change in benefit obligation:
Beginning balance	$	(6,756	)	$	(5,975	)	$	(3,220	)	$	(2,736	)	$	(474	)	(582		)
Newly adopted plans	—			—			(3		)	(24		)	—			—
Service cost — benefits earned	(45		)	(39		)	(39		)	(31		)	(6		)	(6		)
Interest cost	(243		)	(261		)	(131		)	(143		)	(19		)	(24		)
Plan amendments	30			—			1			—			—			82
Actuarial gain (loss)	605			(863		)	89			(383		)	50			6
Participant contributions	—			—			(2		)	(3		)	(16		)	(31		)
Curtailments/settlements	—			1			13			39			—			—
Termination benefits	—			—			—			(1		)	—			—
Foreign currency translation	—			—			18			(88		)	21			2
Benefit payments	428			381			145			150			56			79
Ending balance	$	(5,981	)	$	(6,756	)	$	(3,129	)	$	(3,220	)	$	(388	)	$	(474	)
Change in plan assets:
Beginning balance	$	4,100		$	3,523		$	2,354		$	2,091		$	6		$	6
Actual return on plan assets	104			497			140			158			—			—
Company contributions to plan assets	1,016			454			111			193			2			2
Cash funding of direct participant payments	8			8			27			29			38			46
Participant contributions	—			—			2			3			16			31
Settlements	—			(1		)	(13		)	(39		)	—			—
Foreign currency translation	—			—			(21		)	69			(1		)	—
Benefit payments	(428		)	(381		)	(145		)	(150		)	(56		)	(79		)
Ending balance	$	4,800		$	4,100		$	2,455		$	2,354		$	5		$	6
Funded status at end of year	$	(1,181	)	$	(2,656	)	$	(674	)	$	(866	)	$	(383	)	$	(468	)

Other postretirement benefits funded status was $(206) million and $(246) million for our U.S. plans at December 31, 2013 and 2012, respectively, and $(177) million and $(222) million for our non-U.S. plans at December 31, 2013 and 2012, respectively.

The funded status recognized in the Consolidated Balance Sheets consists of:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2013			2012			2013			2012			2013			2012
Current assets	$	—		$	—		$	—		$	2		$	—		$	—
Noncurrent assets	51			—			59			33			—			—
Current liabilities	(12		)	(8		)	(25		)	(23		)	(33		)	(39		)
Noncurrent liabilities	(1,220		)	(2,648		)	(708		)	(878		)	(350		)	(429		)
Net amount recognized	$	(1,181	)	$	(2,656	)	$	(674	)	$	(866	)	$	(383	)	$	(468	)

The amounts recognized in AOCL, net of tax, consist of:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2013			2012			2013			2012			2013			2012
Prior service cost (credit)	$	31		$	78		$	7		$	12		$	(199	)	$	(246	)
Net actuarial loss	2,806			3,385			981			1,162			106			170
Gross amount recognized	2,837			3,463			988			1,174			(93		)	(76		)
Deferred income taxes	(125		)	(125		)	(120		)	(157		)	12			4
Minority shareholders’ equity	(57		)	(67		)	(153		)	(174		)	1			2
Net amount recognized	$	2,655		$	3,271		$	715		$	843		$	(80	)	$	(70	)

The following table presents significant weighted average assumptions used to determine benefit obligations at December 31:



	Pension Plans				Other Postretirement Benefits
	2013		2012		2013		2012
Discount rate:
— U.S.	4.51	%	3.71	%	4.06	%	3.30	%
— Non-U.S.	4.36		4.12		6.62		5.64
Rate of compensation increase:
— U.S.	N/A		N/A		N/A		N/A
— Non-U.S.	3.11		3.23		4.32		4.12

The following table presents significant weighted average assumptions used to determine benefits cost for the years ended December 31:



	Pension Plans						Other Postretirement Benefits
	2013		2012		2011		2013		2012		2011
Discount rate:
— U.S.	3.77	%	4.52	%	5.20	%	3.30	%	3.98	%	4.62	%
— Non-U.S.	4.12		5.07		5.54		5.64		5.91		6.52
Expected long term return on plan assets:
— U.S.	7.16		8.50		8.50		N/A		N/A		N/A
— Non-U.S.	5.01		5.56		6.29		N/A		N/A		N/A
Rate of compensation increase:
— U.S.	N/A		N/A		N/A		N/A		N/A		N/A
— Non-U.S.	3.23		3.36		3.43		4.12		3.71		3.99

For 2013, a weighted average discount rate of 3.77% was used for the U.S. pension plans. This rate was developed from a portfolio of bonds from issuers rated AA or higher by established rating agencies as of December 31, 2012, and the applicable interim remeasurement date, with cash flows similar to the timing of our expected benefit payment cash flows. For our non-U.S. locations, a weighted average discount rate of 4.12% was used. This rate was developed based on the nature of the liabilities and local environments, using available bond indices, yield curves, and long term inflation.

For 2013, an assumed weighted average long term rate of return of 7.16% was used for the U.S. pension plans. In developing the long term rate of return, we evaluated the compound annualized returns of our U.S. pension fund over a period of 15 years or more through December 31, 2012. In addition, we evaluated input from our pension fund consultant on asset class return expectations, including determining the appropriate rate of return for our frozen U.S. pension plans, which are primarily invested in fixed income securities. For our non-U.S. locations, an assumed weighted average long term rate of return of 5.01% was used. Input from local pension fund consultants concerning asset class return expectations and long term inflation form the basis of this assumption.

The following table presents estimated future benefit payments from the plans as of December 31, 2013. Benefit payments for other postretirement benefits are presented net of retiree contributions:



	Pension Plans				Other Postretirement Benefits
(In millions)	U.S.		Non-U.S.		Without Medicare Part D Subsidy		Medicare Part D Subsidy Receipts
2014	$	456	$	151	$	35	$	(1	)
2015	448		153		33		(1		)
2016	439		160		32		(1		)
2017	433		165		31		(1		)
2018	433		169		30		(1		)
2019-2023	2,095		946		144		(6		)

The following table presents selected information on our pension plans:



	U.S.				Non-U.S.
(In millions)	2013		2012		2013		2012
All plans:
Accumulated benefit obligation	$	5,966	$	6,738	$	3,008	$	3,094
Plans not fully-funded:
Projected benefit obligation	$	4,101	$	6,756	$	2,106	$	2,668
Accumulated benefit obligation	4,086		6,738		2,004		2,564
Fair value of plan assets	2,869		4,100		1,375		1,770

Certain non-U.S. subsidiaries maintain unfunded pension plans consistent with local practices and requirements. At December 31, 2013, these plans accounted for $303 million of our accumulated pension benefit obligation, $352 million of our projected pension benefit obligation, and $73 million of our AOCL adjustment. At December 31, 2012, these plans accounted for $318 million of our accumulated pension benefit obligation, $366 million of our projected pension benefit obligation, and $99 million of our AOCL adjustment.

Assumed health care cost trend rates at December 31 follow:



	2013		2012
Health care cost trend rate assumed for the next year	7.5	%	8.2	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.0		5.0
Year that the rate reaches the ultimate trend rate	2022		2017

A 1% change in the assumed health care cost trend would have increased (decreased) the accumulated other postretirement benefits obligation at December 31, 2013 and the aggregate service and interest cost for the year then ended as follows:



(In millions)	1% Increase		1% Decrease
Accumulated other postretirement benefits obligation	$	21	$	(18	)
Aggregate service and interest cost	2		(2		)

Our pension plan weighted average investment allocation at December 31, by asset category, follows:



	U.S.				Non-U.S.
	2013		2012		2013		2012
Cash and short term securities	3	%	5	%	3	%	2	%
Equity securities	41		62		23		27
Debt securities	55		32		59		58
Alternatives	1		1		15		13
Total	100	%	100	%	100	%	100	%

Our pension investment policy recognizes the long term nature of pension liabilities, the benefits of diversification across asset classes and the effects of inflation. The portfolio for plans that are fully funded is designed to offset the future impact of discount rate movements on the funded status for those plans. The diversified portfolio for plans that are not fully funded is designed to maximize returns consistent with levels of liquidity and investment risk that are prudent and reasonable. All assets are managed externally according to target asset allocation guidelines we have established. Manager guidelines prohibit the use of any type of investment derivative without our prior approval. Portfolio risk is controlled by having managers comply with guidelines, establishing the maximum size of any single holding in their portfolios and by using managers with different investment styles. We periodically undertake asset and liability modeling studies to determine the appropriateness of the investments.

The portfolio of our U.S. pension plan assets includes holdings of U.S., non-U.S., and private equities, global high quality and high yield fixed income securities, short term interest bearing deposits, and derivatives. Prior to January 31, 2014, the target asset allocation of our hourly U.S. pension plans was 70% equities and 30% fixed income. The target asset allocation of our frozen U.S. pension plans and our hourly U.S. pension plans, effective February 1, 2014, is substantially all fixed income. Actual U.S. pension fund asset allocations are reviewed on a periodic basis and the pension funds are rebalanced to target ranges on an as needed basis.

We continue to utilize certain derivative instruments to reduce the short-term funded status volatility of our hourly U.S. pension plans. Equity volatility is managed by entering into equity collars with a zero net cost at initiation. The equity collar strategy is designed to limit downside risk and cap upside benefits, resulting in lower equity volatility for the hourly U.S. pension plans. As of December 31, 2013, equity collars were in place on approximately 75% of the hourly U.S. pension plans' equity allocation of $1.8 billion and as of that date were in a liability position of $129 million. Interest rate volatility is managed by entering into short term zero cost interest rate swaptions. As of December 31, 2013, interest rate swaptions were in place on approximately 55% of the hourly U.S. pension plans' obligation of $4 billion and as of that date were in a liability position of $125 million. We intend to discontinue utilizing these instruments when the hourly U.S. plans' investments have been transferred to a portfolio of substantially all fixed income securities.

The portfolios of our non-U.S. pension plans include holdings of U.S. and non-U.S. equities, global high quality and high yield fixed income securities, hedge funds, currency derivatives, insurance contracts, and short term interest bearing deposits. The weighted average target asset allocation of the non-U.S. pension funds is approximately 25% equities, 60% fixed income, and 15% alternative investments.

The fair values of our pension plan assets at December 31, 2013, by asset category are as follows:



	U.S.										Non-U.S.
(In millions)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Other Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Cash and Short Term Securities	$	156		$	139	$	17		$	—	$	63		$	35	$	28	$	—
Equity Securities
Common and Preferred Stock:
U.S. Companies	55			55		—			—		23			23		—		—
Non-U.S. Companies	534			531		3			—		79			79		—		—
Commingled Funds	1,161			—		1,161			—		428			23		405		—
Mutual Funds	—			—		—			—		54			7		47		—
Partnership Interests	328			—		119			209		—			—		—		—
Equity Collars	(129		)	—		(129		)	—
Debt Securities
Corporate Bonds	1,215			—		1,214			1		157			15		142		—
Government Bonds	737			—		735			2		533			56		477		—
Asset Backed Securities	46			—		45			1		5			3		2		—
Commingled Funds	624			—		624			—		751			1		750		—
Mutual Funds	150			—		150			—		34			27		7		—
Interest Rate Swaptions	(125		)	—		(125		)	—
Alternatives
Commingled Funds	—			—		—			—		171			—		8		163
Real Estate	37			37		—			—		173			—		3		170
Other Investments	3			—		1			2		24			3		2		19
Total Investments	4,792			$	762	$	3,815		$	215	2,495			$	272	$	1,871	$	352
Other	8										(40		)
Total Plan Assets	$	4,800									$	2,455

The fair values of our pension plan assets at December 31, 2012, by asset category are as follows:



	U.S.								Non-U.S.
(In millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Cash and Short Term Securities	$	218	$	207	$	11	$	—	$	56		$	32	$	24	$	—
Equity Securities
Common and Preferred Stock:
U.S. Companies	64		64		—		—		50			50		—		—
Non-U.S. Companies	721		715		6		—		119			119		—		—
Commingled Funds	1,487		—		1,487		—		376			21		355		—
Mutual Funds	—		—		—		—		101			13		88		—
Partnership Interests	254		—		63		191		—			—		—		—
Debt Securities
Corporate Bonds	519		—		518		1		130			15		115		—
Government Bonds	332		—		332		—		482			58		424		—
Asset Backed Securities	54		—		54		—		5			2		3		—
Commingled Funds	381		—		381		—		723			10		713		—
Mutual Funds	16		—		16		—		44			39		5		—
Alternatives
Commingled Funds	—		—		—		—		150			3		4		143
Real Estate	48		48		—		—		142			—		4		138
Other Investments	2		—		—		2		19			—		—		19
Total Investments	4,096		$	1,034	$	2,868	$	194	2,397			$	362	$	1,735	$	300
Other	4								(43		)
Total Plan Assets	$	4,100							$	2,354

At December 31, 2013 and 2012, the Plans did not directly hold any of our common stock.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement. Valuation methodologies used for assets and liabilities measured at fair value are as follows:


•	Cash and Short Term Securities: Cash and cash equivalents consist of U.S. and foreign currencies. Foreign currencies are reported in U.S. dollars based on currency exchange rates readily available in active markets. Short term securities are valued at the net asset value of units held at year end, as determined by the investment manager.

•

Equity Securities: Common and preferred stock are valued at the closing price reported on the active market on which the individual securities are traded. Commingled funds are valued at the net asset value of units held at year end, as determined by a pricing vendor or the fund family. Mutual funds are valued at the net asset value of shares held at year end, as determined by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the fund family if an active market is not available. Partnership interests are priced based on valuations using the partnership’s available financial statements coinciding with our year end, adjusted for any cash transactions which occurred between the date of those financial statements and our year end. Equity collars are valued at the average of the year end bid evaluation price and ask evaluation price reported on an over the counter exchange.

•

Debt Securities: Corporate and government bonds, including asset backed securities, are valued at the closing price reported on the active market on which the individual securities are traded, or based on institutional bid evaluations using proprietary models if an active market is not available. Commingled funds are valued at the net asset value of units held at year end, as determined by a pricing vendor or the fund family. Mutual funds are valued at the net asset value of shares held at year end, as determined by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the fund family if an active market is not available. Interest rate swaptions are valued at the average of the year end bid evaluation price and ask evaluation price as determined by a pricing vendor.

•

Alternatives: Commingled funds are invested in hedge funds and currency derivatives, which are valued at the net asset value as determined by the fund manager based on the most recent financial information available, which typically represents significant unobservable data. Real estate held in real estate investment trusts are valued at the closing price reported on the active market on which the individual securities are traded. Participation in real estate funds are valued at the net asset value as determined by the fund manager based on the most recent financial information available, which typically represents significant unobservable data. Other investments include derivative financial instruments, which are primarily valued using independent pricing sources which utilize industry standard derivative valuation models and directed insurance contracts, which are valued as reported by the issuer.

The methods 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 the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. During 2013, the Company determined that Level 2 was the more appropriate classification for $423 million of certain non-U.S. government bonds which were previously classified as Level 1. Accordingly, we have revised the presentation in the asset category table at December 31, 2012 to correct the classification.

The following table sets forth a summary of changes in fair value of the pension plan investments classified as Level 3 for the year ended December 31, 2013:



	U.S.				Non-U.S.
(In millions)	Partnership Interests		Other		Commingled Funds		Real Estate		Other
Balance, beginning of year	$	191	$	3	$	143	$	138	$	19
Realized gains (losses)	6		—		—		—		—
Unrealized gains relating to instruments still held at the reporting date	12		—		16		9		—
Purchases, sales, issuances and settlements (net)	—		3		—		19		—
Foreign currency translation	—		—		4		4		—
Balance, end of year	$	209	$	6	$	163	$	170	$	19

The following table sets forth a summary of changes in fair value of the pension plan investments classified as Level 3 for the year ended December 31, 2012:



	U.S.				Non-U.S.
(In millions)	Partnership Interests		Other		Commingled Funds		Real Estate		Other
Balance, beginning of year	$	157	$	2	$	122	$	122	$	19
Realized gains (losses)	4		—		—		—		—
Unrealized gains relating to instruments still held at the reporting date	—		—		5		—		—
Purchases, sales, issuances and settlements (net)	30		—		10		10		—
Transfers in to Level 3	—		1		—		—		—
Foreign currency translation	—		—		6		6		—
Balance, end of year	$	191	$	3	$	143	$	138	$	19

Other postretirement benefits plan assets at December 31, 2013 and 2012, which relate to a non-U.S. plan, are invested primarily in mutual funds and are considered a Level 1 investment.

Savings Plans

Substantially all employees in the U.S. and employees of certain non-U.S. locations are eligible to participate in a defined contribution savings plan. Expenses recognized for contributions to these plans were $106 million, $97 million and $98 million for 2013, 2012 and 2011, respectively.