Postemployment Benefits

Health and Welfare. Certain U.S. employees that have met age and service requirements are eligible for medical benefits and life insurance coverage during retirement. The retiree medical plan is contributory and provides benefits to retirees, their covered dependents and beneficiaries. The plan provides for annual adjustments to retiree contributions, and also contains, depending on the coverage selected, certain deductibles, co-payments, co-insurance, and coordination with Medicare. Certain management employees also maintain their status under a collective bargaining agreement, which permits them access to post-retirement medical under the multi-employer plan described below. The life insurance plan is non-contributory and covers union retirees only. The Company’s policy, in most cases, is to fund benefits payable under these plans as the obligations become due.

Postemployment Benefits. Mexican law requires that the Company provide certain postemployment benefits to its Mexican union and non-union employees. These plans provide statutorily calculated benefits which are payable upon retirement, death, disability, voluntary or involuntary termination of employees based on length of service.

The Company uses December 31 as the measurement date for its postemployment benefit obligations.

Net Periodic Benefit Cost, Plan Obligations and Funded Status

Components of the net cost (benefit) for these plans were as follows for the years ended December 31 (in millions):



	Health and Welfare									Postemployment Benefits
	2014			2013			2012			2014			2013			2012
Service cost	$	0.1		$	0.1		$	0.1		$	0.8		$	0.9		$	0.9
Interest cost	0.2			0.2			0.2			1.0			0.9			0.8
Actuarial (gain) loss (i)	0.9			(0.9		)	0.1			3.8			(1.0		)	3.1
Foreign currency (gain) loss	—			—			—			(1.5		)	(0.1		)	0.6
Prior service credit (ii)	(0.2		)	(0.2		)	(0.2		)	—			—			—
Net periodic cost (benefit) recognized	$	1.0		$	(0.8	)	$	0.2		$	4.1		$	0.7		$	5.4

_____________________


(i)	Net benefit costs above do not include a component for the amortization of actuarial gains or losses as the Company’s policy is to recognize such gains and losses immediately.


(ii)	During 2005, the Company revised its medical plan to exclude prescription drug coverage available under Medicare part D. This negative plan amendment generated an unrecognized prior service benefit of $2.3 million which is being amortized over the estimated remaining life of the affected participants of 9.5 years.

The following table reconciles the change in the benefit obligation, fair value of plan assets and the accrued benefit cost as of and for each of the years ended December 31 (in millions):



	Health and Welfare						Postemployment Benefits
	2014			2013			2014			2013
Benefit obligation at beginning of year	$	5.5		$	6.5		$	12.8		$	13.2
Service cost	0.1			0.1			0.8			0.9
Interest cost	0.2			0.2			1.0			0.9
Actuarial (gain) loss	0.9			(0.9		)	3.8			(1.0		)
Foreign currency (gain) loss	—			—			(1.5		)	(0.1		)
Benefits paid, net of retiree contributions	(0.4		)	(0.4		)	(0.8		)	(1.1		)
Benefit obligation at end of year	$	6.3		$	5.5		$	16.1		$	12.8

As of December 31, 2014 and 2013, the Company’s health and welfare and postemployment benefit obligations were unfunded.

Assumptions

The assumptions used to determine benefit obligations and costs are selected based on current and expected market conditions. Discount rates are selected based on the rates on low risk government bonds with cash flows approximating the timing of expected benefit payments. The U.S. bond market is utilized for the U.S. health and welfare obligation and the Mexico bond market is utilized for the postemployment obligation.

Weighted-average assumptions used to determine benefit obligations were as follows for the years ended December 31:



	Health and Welfare				Postemployment Benefits
	2014		2013		2014		2013
Discount rate	3.75	%	4.50	%	8.00	%	8.25	%
Rate of compensation increase	n/a		n/a		4.50	%	4.50	%

Weighted-average assumptions used to determine net benefit cost for the periods were as follows for the years ended December 31:



	Health and Welfare				Postemployment Benefits
	2014		2013		2014		2013
Discount rate	4.50	%	3.50	%	8.25	%	6.75	%
Rate of compensation increase	n/a		n/a		4.50	%	4.50	%

The following table presents the assumed health care cost trends:



	2014		2013		2012
Health care trend rate for next year	6.50	%	6.50	%	8.00	%
Ultimate trend rate	5.00	%	5.00	%	5.00	%
Year that rate reaches ultimate rate	2021		2023		2029

Cash Flows

The following table presents benefit payments expected to be paid, which reflect expected future service, as appropriate, for each of the next five years and the aggregate five years thereafter (in millions):



Year	Health and Welfare		Postemployment Benefits
2015	$	0.5	$	1.0
2016	0.5		1.0
2017	0.5		1.1
2018	0.4		1.3
2019	0.3		1.4
2020-2024	1.7		8.9

Multi-Employer Plan. Under collective bargaining agreements, KCSR participates in a multi-employer benefit plan, which provides certain post-retirement health care and life insurance benefits to eligible union employees and certain retirees. Premiums under this plan are expensed as incurred and were $3.7 million, $3.9 million and $4.3 million for the years ended December 31, 2014, 2013, and 2012, respectively.

401(k) and Profit Sharing Plan. The Company sponsors the KCS 401(k) and Profit Sharing Plan (the “401(k) plan”), whereby participants can choose to make contributions in the form of salary deductions pursuant to Section 401(k) of the Internal Revenue Code. The Company matches 401(k) contributions up to a maximum of 5% of compensation. The Company recognized expense of $2.7 million, $2.5 million and $2.3 million for the years ended December 31, 2014, 2013 and 2012, related to the KCS 401(k) and Profit Sharing Plan. The 401(k) plan includes the Company’s common stock as an investment option. The common stock is acquired by the 401(k) plan trustee through open market transactions of previously registered shares.