Pension, Other Postretirement Benefits and Savings Plans

We provide employees with defined benefit pension or defined contribution savings plans. Our hourly U.S. pension plans are frozen and 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.

During the first quarter of 2014, we made contributions of $1,167 million, including discretionary contributions of $907 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 were 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 accrual freezes to pension plans related to our North America SBU, we recognized curtailment charges of $33 million in the first quarter of 2014.

In the first quarter of 2014, our largest U.K. pension plans were merged and lump sum payments were made to settle certain obligations of those plans prior to the merger, which resulted in a settlement charge of $5 million. As a result of these transactions we were required to remeasure the benefit obligations and assets of these plans at January 31, 2014.

In the first quarter of 2014, we also ceased production at one of our manufacturing facilities in Amiens, France and recorded curtailment gains of $22 million during 2014, which is included in rationalization charges, related to the termination of employees at that facility who were participants in France's retirement indemnity plan.

During the first quarter of 2013, we made $34 million of required contributions and $834 million of discretionary contributions to fully fund our salaried 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.

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.

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



	Pension Plans
	U.S.									Non-U.S.									Other Postretirement Benefits
(In millions)	2014			2013			2012			2014			2013			2012			2014			2013			2012
Benefits cost:
Service cost	$	15		$	45		$	39		$	34		$	39		$	31		$	4		$	6		$	6
Interest cost	256			243			261			131			131			143			19			19			24
Expected return on plan assets	(311		)	(335		)	(299		)	(118		)	(111		)	(117		)	(1		)	(1		)	(1		)
Amortization of prior service cost (credit)	1			17			23			1			1			2			(45		)	(45		)	(40		)
Amortization of net losses	114			205			179			35			50			45			8			12			11
Net periodic cost	75			175			203			83			110			104			(15		)	(9		)	—
Curtailments/settlements	32			—			1			(13		)	4			11			—			—			—
Termination benefits	—			—			—			—			—			1			—			—			—
Total benefits cost	$	107		$	175		$	204		$	70		$	114		$	116		$	(15	)	$	(9	)	$	—
Recognized in other comprehensive (income) loss before tax and minority:
Prior service (credit) cost from plan amendments	$	(1	)	$	(30	)	$	—		$	1		$	(1	)	$	6		$	—		$	—		$	(82	)
Increase (decrease) in net actuarial losses	292			(374		)	665			(78		)	(128		)	372			3			(51		)	(4		)
Amortization of prior service (cost) credit in net periodic cost	(1		)	(17		)	(23		)	(1		)	(1		)	(2		)	45			47			40
Amortization of net losses in net periodic cost	(114		)	(205		)	(179		)	(36		)	(53		)	(43		)	(8		)	(13		)	(11		)
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures	(32		)	—			(1		)	(16		)	(3		)	(11		)	—			—			—
Total recognized in other comprehensive loss (income) before tax and minority	144			(626		)	462			(130		)	(186		)	322			40			(17		)	(57		)
Total recognized in total benefits cost and other comprehensive loss (income) before tax and minority	$	251		$	(451	)	$	666		$	(60	)	$	(72	)	$	438		$	25		$	(26	)	$	(57	)

Total benefits (credit) cost for our other postretirement benefits was $(24) million, $(24) million and $(17) million for our U.S. plans in 2014, 2013 and 2012, respectively, and $9 million, $15 million and $17 million for our non-U.S. plans in 2014, 2013 and 2012, 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 net actuarial loss for the defined benefit pension plans that will be amortized from AOCL into benefits cost in 2015 is $110 million for our U.S. plans and $37 million 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 2015 are a benefit of $45 million and expense of $8 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 2014 and 2013 and the amounts recognized in our Consolidated Balance Sheet at December 31, 2014 and 2013 are as follows:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2014			2013			2014			2013			2014			2013
Change in benefit obligation:
Beginning balance	$	(5,981	)	$	(6,756	)	$	(3,129	)	$	(3,220	)	$	(388	)	(474		)
Newly adopted plans	—			—			(3		)	(3		)	—			—
Service cost — benefits earned	(15		)	(45		)	(34		)	(39		)	(4		)	(6		)
Interest cost	(256		)	(243		)	(131		)	(131		)	(19		)	(19		)
Plan amendments	1			30			(2		)	1			—			—
Actuarial (loss) gain	(693		)	605			(394		)	89			—			50
Participant contributions	—			—			(2		)	(2		)	(16		)	(16		)
Curtailments/settlements	1			—			69			13			—			—
Foreign currency translation	—			—			284			18			17			21
Benefit payments	436			428			164			145			49			56
Ending balance	$	(6,507	)	$	(5,981	)	$	(3,178	)	$	(3,129	)	$	(361	)	$	(388	)
Change in plan assets:
Beginning balance	$	4,800		$	4,100		$	2,455		$	2,354		$	5		$	6
Actual return on plan assets	711			104			505			140			—			—
Company contributions to plan assets	1,167			1,016			118			111			2			2
Cash funding of direct participant payments	9			8			44			27			31			38
Participant contributions	—			—			2			2			16			16
Settlements	(1		)	—			(39		)	(13		)	—			—
Foreign currency translation	—			—			(200		)	(21		)	—			(1		)
Benefit payments	(436		)	(428		)	(164		)	(145		)	(49		)	(56		)
Ending balance	$	6,250		$	4,800		$	2,721		$	2,455		$	5		$	5
Funded status at end of year	$	(257	)	$	(1,181	)	$	(457	)	$	(674	)	$	(356	)	$	(383	)

Other postretirement benefits funded status was $(190) million and $(206) million for our U.S. plans at December 31, 2014 and 2013, respectively, and $(166) million and $(177) million for our non-U.S. plans at December 31, 2014 and 2013, respectively.

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



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2014			2013			2014			2013			2014			2013
Noncurrent assets	$	9		$	51		$	274		$	59		$	—		$	—
Current liabilities	(10		)	(12		)	(24		)	(25		)	(28		)	(33		)
Noncurrent liabilities	(256		)	(1,220		)	(707		)	(708		)	(328		)	(350		)
Net amount recognized	$	(257	)	$	(1,181	)	$	(457	)	$	(674	)	$	(356	)	$	(383	)

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



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2014			2013			2014			2013			2014			2013
Prior service cost (credit)	$	(4	)	$	31		$	4		$	7		$	(152	)	$	(199	)
Net actuarial loss	2,985			2,806			854			981			99			106
Gross amount recognized	2,981			2,837			858			988			(53		)	(93		)
Deferred income taxes	(177		)	(125		)	(141		)	(120		)	(1		)	12
Minority shareholders’ equity	(62		)	(57		)	(109		)	(153		)	1			1
Net amount recognized	$	2,742		$	2,655		$	608		$	715		$	(53	)	$	(80	)

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



	Pension Plans				Other Postretirement Benefits
	2014		2013		2014		2013
Discount rate:
— U.S.	3.89	%	4.51	%	3.59	%	4.06	%
— Non-U.S.	3.31		4.36		4.89		6.62
Rate of compensation increase:
— U.S.	N/A		N/A		N/A		N/A
— Non-U.S.	2.88		3.11		N/A		4.32

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



	Pension Plans						Other Postretirement Benefits
	2014		2013		2012		2014		2013		2012
Discount rate:
— U.S.	4.40	%	3.77	%	4.52	%	4.06	%	3.30	%	3.98	%
— Non-U.S.	4.36		4.12		5.07		6.62		5.64		5.91
Expected long term return on plan assets:
— U.S.	5.47		7.16		8.50		N/A		N/A		N/A
— Non-U.S.	5.12		5.01		5.56		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.	3.11		3.23		3.36		4.32		4.12		3.71

For 2014, a weighted average discount rate of 4.40% 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, 2013 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 4.36% 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 2014, an assumed weighted average long term rate of return of 5.47% was used for the U.S. pension plans. In developing the long term rate of return, we evaluated input from our pension fund consultant on asset class return expectations, including determining the appropriate rate of return for our 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 5.12% was used. Input from local pension fund consultants concerning asset class return expectations and long term inflation form the basis of this assumption.

The U.S. pension plan mortality assumption is based on our actual historical experience. At December 31, 2014, this assumption was updated to reflect future mortality improvements based on recently published actuarial tables. For our non-U.S. locations, mortality assumptions are based on published actuarial tables which include projections of future mortality improvements.

The following table presents estimated future benefit payments from the plans as of December 31, 2014. 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
2015	$	458	$	143	$	31	$	1
2016	447		144		28		1
2017	434		150		27		1
2018	431		157		27		1
2019	422		163		26		1
2020-2024	2,032		991		124		6

The following table presents selected information on our pension plans:



	U.S.				Non-U.S.
(In millions)	2014		2013		2014		2013
All plans:
Accumulated benefit obligation	$	6,495	$	5,966	$	3,040	$	3,008
Plans not fully-funded:
Projected benefit obligation	$	5,087	$	4,101	$	1,112	$	2,106
Accumulated benefit obligation	5,076		4,086		994		2,004
Fair value of plan assets	4,822		2,869		384		1,375

Certain non-U.S. subsidiaries maintain unfunded pension plans consistent with local practices and requirements. At December 31, 2014, these plans accounted for $288 million of our accumulated pension benefit obligation, $348 million of our projected pension benefit obligation, and $132 million of our AOCL adjustment. 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.

We expect to contribute approximately $50 million to $75 million to our funded non-U.S. pension plans in 2015.

Assumed health care cost trend rates at December 31 follow:



	2014		2013
Health care cost trend rate assumed for the next year	7.0	%	7.5	%
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		2022

A 1% change in the assumed health care cost trend would have increased (decreased) the accumulated other postretirement benefits obligation at December 31, 2014 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	$	22	$	(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.
	2014		2013		2014		2013
Cash and short term securities	4	%	3	%	1	%	3	%
Equity securities	6		41		15		23
Debt securities	90		55		73		59
Alternatives	—		1		11		15
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 global high quality and high yield fixed income securities, short term interest bearing deposits, and private equities. The target asset allocation of our U.S. pension plans is 94% in duration-matched fixed income securities and 6% in equity securities. 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.

Prior to the funding and change in target asset allocation of our hourly U.S. pension plans in 2014, we utilized certain derivative instruments to reduce the short-term funded status volatility of those plans. Equity volatility was managed by entering into equity collars with a zero net cost at initiation. The equity collar strategy was 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 was 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 $4.0 billion and as of that date were in a liability position of $125 million.

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 15% equities, 75% fixed income, and 10% alternative investments.

The fair values of our pension plan assets at December 31, 2014, 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	$	229	$	218	$	11	$	—	$	32		$	27	$	5	$	—
Equity Securities
Common and Preferred Stock:
Non-U.S. Companies	—		—		—		—		19			19		—		—
Commingled Funds	12		—		12		—		328			19		309		—
Mutual Funds	—		—		—		—		70			7		63		—
Partnership Interests	362		—		133		229		—			—		—		—
Debt Securities
Corporate Bonds	2,678		—		2,678		—		179			17		162		—
Government Bonds	1,401		—		1,401		—		616			57		559		—
Asset Backed Securities	123		—		123		—		4			2		2		—
Commingled Funds	960		—		960		—		1,204			—		1,204		—
Mutual Funds	468		—		468		—		28			23		5		—
Alternatives
Commingled Funds	—		—		—		—		129			—		7		122
Real Estate	—		—		—		—		136			—		2		134
Other Investments	2		—		—		2		24			3		—		21
Total Investments	6,235		$	218	$	5,786	$	231	2,769			$	174	$	2,318	$	277
Other	15								(48		)
Total Plan Assets	$	6,250							$	2,721

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

At December 31, 2014 and 2013, 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.

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, 2014:



	U.S.						Non-U.S.
(In millions)	Partnership Interests			Other			Commingled Funds			Real Estate			Other
Balance, beginning of year	$	209		$	6		$	163		$	170		$	19
Realized gains (losses)	31			—			1			1			—
Unrealized gains (losses) relating to instruments still held at the reporting date	(15		)	—			7			18			—
Purchases, sales, issuances and settlements (net)	4			(4		)	(42		)	(47		)	5
Foreign currency translation	—			—			(7		)	(8		)	(3		)
Balance, end of year	$	229		$	2		$	122		$	134		$	21

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

Other postretirement benefits plan assets at December 31, 2014 and 2013, 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 $112 million, $106 million and $97 million for 2014, 2013 and 2012, respectively.