Note 14. Benefit Plans

Pension Plans – The Company has several non-contributory defined benefit plans for eligible employees. Benefits for certain plans are determined annually based on a specified percentage of annual earnings (based on the participant’s age or years of service) and a specified interest rate (which is established annually for all participants) applied to accrued balances. The benefits for another plan which covers salaried employees are based on formulas which include, among others, years of service and average pay. The Company’s funding policy is to make contributions in accordance with applicable governmental regulatory requirements.

Other Postretirement Benefit Plans – The Company has several postretirement benefit plans covering eligible employees and retirees. Participants generally become eligible after reaching age 55 with required years of service. Actual requirements for coverage vary by plan. Benefits for retirees who were covered by bargaining units vary by each unit and contract. Benefits for certain retirees are in the form of a Company health care account.

Benefits for retirees reaching age 65 are generally integrated with Medicare. Other retirees, based on plan provisions, must use Medicare as their primary coverage, with the Company reimbursing a portion of the unpaid amount; or are reimbursed for the Medicare Part B premium or have no Company coverage. The benefits provided by the Company are basically health and, for certain retirees, life insurance type benefits.

The Company funds certain of these benefit plans, and accrues postretirement benefits during the active service of those employees who would become eligible for such benefits when they retire. The Company uses December 31 as the measurement date for its plans.

Weighted average assumptions used to determine benefit obligations:


	Pension Benefits						Other Postretirement Benefits
December 31	2016		2015		2014		2016		2015		2014


Discount rate		3.9%		4.0%		3.7%		3.7%		3.7%		3.4%
Expected long term rate of return on plan assets		7.5%		7.5%		7.5%		5.3%		5.3%		5.3%
Rate of compensation increase		3.9% to 5.5%		3.5% to 5.5%		3.5% to 5.5%

Weighted average assumptions used to determine net periodic benefit cost:


	Pension Benefits						Other Postretirement Benefits
Year Ended December 31	2016		2015		2014		2016		2015		2014

Discount rate		4.0%		3.8%		4.4%		3.7%		3.4%		4.0%
Expected long term rate of return on plan assets		7.5%		7.5%		7.5%		5.3%		5.3%		5.3%
Rate of compensation increase		3.5% to 5.5%		3.5% to 5.5%		3.5% to 5.5%

The expected long term rate of return for plan assets is determined based on widely-accepted capital market principles, long term return analysis for global fixed income and equity markets as well as the active total return oriented portfolio management style. Long term trends are evaluated relative to market factors such as inflation, interest rates and fiscal and monetary policies, in order to assess the capital market assumptions as applied to the plan. Consideration of diversification needs and rebalancing is maintained.

Assumed health care cost trend rates:

December 31

2016

2015

2014

Health care cost trend rate assumed for next year

4.0% to 7.0%

4.0% to 7.5%

4.0% to 8.0%

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

4.0% to 5.0%

4.0% to 5.0%

Year that the rate reaches the ultimate trend rate

2017-2021

2016-2021

2015-2021

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. An increase or decrease in the assumed health care cost trend rate of 1% in each year would not have a significant impact on the Company’s service and interest cost as of December 31, 2016. An increase of 1% in each year would increase the Company’s accumulated postretirement benefit obligation as of December 31, 2016 by $2 million and a decrease of 1% in each year would decrease the Company’s accumulated postretirement benefit obligation as of December 31, 2016 by $2 million.

Net periodic benefit cost components:


	Pension Benefits									Other Postretirement Benefits

Year Ended December 31	2016			2015			2014			2016			2015			2014

(In millions)

Service cost	$	8		$	12		$	16		$	1		$	1		$	1
Interest cost		128			127			149			3			3			4
Expected return on plan assets		(177	)		(193	)		(209	)		(5	)		(5	)		(4)
Amortization of unrecognized net loss		46			42			30						1			1
Amortization of unrecognized prior service benefit		(1	)		(1	)		(1	)		(3	)		(10	)		(18)
Settlement/Curtailment		3			3			86									(86)

Net periodic benefit cost	$	7		$	(10	)	$	71		$	(4	)	$	(10	)	$	(102)

In 2016, the CNA Retirement Plan paid $88 million to settle its obligation to certain retirees through the purchase of a group annuity contract from a third party insurance company. The transaction reduced the plan’s projected benefit obligation by $86 million.

In 2015, CNA eliminated future benefit accruals associated with the CNA Retirement Plan effective June 30, 2015. This amendment resulted in a $55 million curtailment which is a decrease in the plan benefit obligation liability and a reduction of the unrecognized actuarial losses included in AOCI. In connection with the curtailment, CNA remeasured the plan benefit obligation which resulted in an increase in the discount rate used to determine the benefit obligation from 3.9% to 4.0%.

During 2014, CNA offered a limited-time lump sum settlement payment opportunity to the majority of the terminated vested participants of the CNA Retirement Plan. Settlement payments of $253 million were made from CNA Retirement Plan assets and an $84 million settlement charge was recorded by the Company in the fourth quarter of 2014 to recognize a portion of the unrecognized actuarial losses previously reflected in AOCI. This settlement charge is included in Other operating expenses in the Consolidated Statements of Income.

In the second quarter of 2014, CNA eliminated certain postretirement medical benefits associated with the CNA Health and Group Benefits Program. This change was a negative plan amendment which resulted in an $86 million curtailment gain reported in Other operating expenses in the Consolidated Statements of Income. In connection with the plan amendment, CNA remeasured the plan benefit obligation which resulted in a decrease to the discount rate used to determine the benefit obligation from 3.6% to 3.1%.

The following provides a reconciliation of benefit obligations and plan assets:


	Pension Benefits						Other Postretirement Benefits

	2016			2015			2016			2015

(In millions)

Change in benefit obligation:

Benefit obligation at January 1	$	3,227		$	3,446		$	82		$	97
Service cost		8			12			1			1
Interest cost		128			127			3			3
Plan participants’ contributions								5			5
Amendments/curtailments		1			(55	)
Actuarial (gain) loss		72			(96	)		(13	)		(11)
Benefits paid from plan assets		(188	)		(187	)		(12	)		(13)
Settlements		(101	)		(12	)
Foreign exchange		(16	)		(8	)

Benefit obligation at December 31		3,131			3,227			66			82


Change in plan assets:

Fair value of plan assets at January 1		2,500			2,713			86			87
Actual return on plan assets		211			(21	)		3			2
Company contributions		19			15			4			5
Plan participants’ contributions								5			5
Benefits paid from plan assets		(188	)		(187	)		(12	)		(13)
Settlements		(103	)		(12	)
Foreign exchange		(16	)		(8	)

Fair value of plan assets at December 31		2,423			2,500			86			86


Funded status	$	(708	)	$	(727	)	$	20		$	4


Amounts recognized in the Consolidated Balance Sheets consist of:

Other assets	$	4		$	11		$	44		$	38
Other liabilities		(712	)		(738	)		(24	)		(34)

Net amount recognized	$	(708	)	$	(727	)	$	20		$	4


Amounts recognized in Accumulated other comprehensive income (loss), not yet recognized in net periodic (benefit) cost:

Prior service credit	$	(3	)	$	(5	)	$	(6	)	$	(9)
Net actuarial loss		1,097			1,106			(2	)		8

Net amount recognized	$	1,094		$	1,101		$	(8	)	$	(1)


Information for plans with projected and accumulated benefit obligations in excess of plan assets:

Projected benefit obligation	$	3,103		$	3,129
Accumulated benefit obligation		3,089			3,114		$	24		$	34
Fair value of plan assets		2,391			2,391

The accumulated benefit obligation for all defined benefit pension plans was $3.1 billion and $3.2 billion at December 31, 2016 and 2015.

The Company employs a total return approach whereby a mix of equity and fixed maturity securities are used to maximize the long term return of plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The target allocation of plan assets is 40% to 60% invested in equity securities and limited partnerships, with the remainder primarily invested in fixed maturity securities. The intent of this strategy is to minimize the Company’s expenses by generating investment returns that exceed the growth of the plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. The investment portfolio contains a diversified blend of fixed maturity, equity and short term securities. Alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At December 31, 2016, the Company had committed $119 million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships. Investment risk is monitored through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

The table below presents the estimated amounts to be recognized from AOCI into net periodic cost (benefit) during 2017.


		Other
	Pension	Postretirement
	Benefits	Benefits

(In millions)

Amortization of net actuarial (gain) loss	$ 43	$ (1)
Amortization of prior service credit		(2)

Total estimated amounts to be recognized	$ 43	$ (3)

The table below presents the estimated future minimum benefit payments at December 31, 2016.


		Other
	Pension	Postretirement
Expected future benefit payments	Benefits	Benefits

(In millions)

2017	$ 217	$ 6
2018	210	6
2019	212	6
2020	214	5
2021	212	5
2022 – 2026	1,041	20

In 2017, it is expected that contributions of approximately $15 million will be made to pension plans and $3 million to postretirement health care and life insurance benefit plans.

Pension plan assets measured at fair value on a recurring basis are summarized below.


December 31, 2016	Level 1			Level 2			Level 3			Total
(In millions)

Fixed maturity securities:
Corporate and other bonds					$	500		$	10		$	510
States, municipalities and political subdivisions						63						63
Asset-backed						186						186
Total fixed maturities		$	-			749			10			759
Equity securities			404			105						509
Short term investments			18			35						53
Fixed income mutual funds			92									92
Other assets			15			37						52
Total limited partnerships measured at net asset value (a)												958
Total		$	529		$	926		$	10		$	2,423


December 31, 2015	Level 1			Level 2			Level 3			Total
(In millions)

Fixed maturity securities:
Corporate and other bonds					$	455		$	10		$	465
States, municipalities and political subdivisions						106						106
Asset-backed						219						219
Total fixed maturities		$	-			780			10			790
Equity securities			373			107						480
Short term investments			30			28						58
Fixed income mutual funds			95									95
Other assets						52						52
Total limited partnerships measured at net asset value (a)												1,025
Total		$	498		$	967		$	10		$	2,500

(a)

In May of 2015, the FASB issued ASU 2015-17, “Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent)” (“ASU 2015-07”), which removes the requirement to present certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient within the fair value hierarchy table. The fair value amounts presented in the tables above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The Company adopted ASU 2015-07 as of December 31, 2016, and has applied it retrospectively. Other than the presentation of the investments measured at net asset value, there were no effects to the reported amounts presented as of December 31, 2015.

The limited partnership investments held within the plans are recorded at fair value, which represents the plans’ shares of the net asset value of each partnership, as determined by the general partner. Limited partnerships comprising 87% of the carrying value as of December 31, 2016 and 2015 employ hedge fund strategies that generate returns through investing in marketable securities in the public fixed income and equity markets and the remainder were primarily invested in private debt and equity. Within hedge fund strategies, approximately 57% were equity related, 38% pursued a multi-strategy approach and 5% were focused on distressed investments at December 31, 2016.

For a discussion of the valuation methodologies used to measure fixed maturity securities, equities and short term investments, see Note 4.

The tables below present reconciliations for all pension plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2016 and 2015:


										Net
				Actual Return on Assets						Purchases,			Net Transfers
	Balance at			Still Held at			Sold During			Sales, and			In (Out) of				Balance at
2016	January 1,			December 31,			the Year			Settlements			Level 3				December 31,
(In millions)

Fixed maturity securities:
Corporate and other bonds		$	10															$	10
Total		$	10		$	-		$	-		$	-		$	-			$	10


2015
(In millions)

Fixed maturity securities:
Corporate and other bonds		$	15											$	(5	)		$	10
Total		$	15		$	-		$	-		$	-		$	(5	)		$	10

Other postretirement benefits plan assets measured at fair value on a recurring basis are summarized below.


December 31, 2016	Level 1			Level 2			Level 3			Total
(In millions)

Fixed maturity securities:
Corporate and other bonds					$	19					$	19
States, municipalities and political subdivisions						44						44
Asset-backed						15						15
Total fixed maturities		$	-			78		$	-			78
Short term investments			3									3
Fixed income mutual funds			5									5
Total		$	8		$	78		$	-		$	86


December 31, 2015			Level 1			Level 2			Level 3			Total
(In millions)

Fixed maturity securities:
Corporate and other bonds					$	17					$	17
States, municipalities and political subdivisions						42						42
Asset-backed						19						19
Total fixed maturities		$	-			78		$	-			78
Short term investments			3									3
Fixed income mutual funds			5									5
Total		$	8		$	78		$	-		$	86

There were no Level 3 assets at December 31, 2016 and 2015.

Savings Plans – The Company and its subsidiaries have several contributory savings plans which allow employees to make regular contributions based upon a percentage of their salaries. Matching contributions are made up to specified percentages of employees’ contributions. The contributions by the Company and its subsidiaries to these plans amounted to $107 million, $115 million and $125 million for the years ended December 31, 2016, 2015 and 2014.

Stock-based Compensation – In 2016, shareholders approved the Loews Corporation 2016 Incentive Compensation Plan (the “2016 Loews Plan”) which replaced a previously existing plan. The aggregate number of shares of Loews common stock authorized under the 2016 Loews Plan is 6,000,000 shares, plus up to 3,000,000 shares that may be forfeited under the prior plan. The maximum number of shares of Loews common stock with respect to which awards may be granted to any individual in any calendar year is 500,000 shares. In accordance with the 2016 Loews Plan and the prior plan, the Company’s stock-based compensation consists of the following:

SARs: SARs were granted under the prior plan. The exercise price per share may not be less than the fair market value of the common stock on the date of grant. Generally, SARs vest ratably over a four-year period and expire in ten years.

Time-based Restricted Stock Units: Time-based restricted stock units (“RSUs”) were granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested RSU. Generally, RSUs vest 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.

Performance-based Restricted Stock Units: Performance-based RSUs (“PSUs”) were granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested PSU, subject to the achievement of specified performance goals by the Company. Generally, performance-based RSUs vest, if performance goals are satisfied, 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.

In 2016, the Company granted an aggregate of 367,908 RSUs and PSUs at a weighted average grant-date fair value of $39.74 per unit. 16,079 RSUs were forfeited during the year. 5,982,880 SARs were outstanding at December 31, 2016 with a weighted average exercise price of $40.90.

The Company recognized compensation expense that decreased net income by $32 million, $14 million and $12 million for the years ended December 31, 2016, 2015 and 2014. Several of the Company’s subsidiaries also maintain their own stock-based compensation plans. Such amounts include the Company’s share of expense related to its subsidiaries’ plans.