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Employee Benefits
 12 Months Ended
Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]  
Employee Benefits
Employee Benefits

We maintain a number of active defined contribution retirement plans for our employees. The majority of our defined benefit plans are frozen. As a result, no new employees will be permitted to enter these plans and no additional benefits for current participants in the frozen plans will be accrued.

We also have supplemental benefit plans that provide senior management with supplemental retirement, disability and death benefits. Certain supplemental retirement benefits are based on final monthly earnings. In addition, we sponsor voluntary 401(k) plans under which we may match employee contributions up to certain levels of compensation as well as profit-sharing plans under which we contribute a percentage of eligible employees' compensation to the employees' accounts.

We also provide certain medical, dental and life insurance benefits for active and retired employees and eligible dependents. The medical and dental plans and supplemental life insurance plan are contributory, while the basic life insurance plan is noncontributory. We currently do not prefund any of these plans.

We recognize the funded status of our retirement and postretirement plans in the consolidated balance sheets, with a corresponding adjustment to accumulated other comprehensive income, net of taxes. The amounts in accumulated other comprehensive income represent net unrecognized actuarial losses and unrecognized prior service costs. These amounts will be subsequently recognized as net periodic pension cost pursuant to our accounting policy for amortizing such amounts.

As part of the sale of MHE, described further in Note 2 – Acquisitions and Divestitures, we retained the benefit obligations and plan assets related to MHE, however, the benefit cost for periods presented is bifurcated between continuing and discontinued operations.

Benefit Obligation

A summary of the benefit obligation and the fair value of plan assets, as well as the funded status for the retirement and postretirement plans as of December 31, is as follows (benefits paid in the table below include only those amounts contributed directly to or paid directly from plan assets): 
(in millions)
Retirement Plans
 
Postretirement Plans
 
2013
 
2012
 
2013
 
2012
Net benefit obligation at beginning of year
$
2,171

 
$
1,834

 
$
129

 
$
129

Service cost
10

 
24

 
2

 
3

Interest cost
91

 
93

 
5

 
5

Plan participants’ contributions
—

 
1

 
4

 
5

Actuarial (gain) loss
(178
)
 
287

 
(13
)
 
3

Gross benefits paid
(77
)
 
(71
)
 
(13
)
 
(17
)
Foreign currency effect
8

 
11

 
—

 
—

Curtailment 1
(26
)
 
—

 
(11
)
 
—

Other adjustments
5

 
(8
)
 
—

 
1

Net benefit obligation at end of year
2,004

 
2,171

 
103

 
129

Fair value of plan assets at beginning of year
1,851

 
1,505

 
—

 
—

Actual return on plan assets
281

 
212

 
—

 
—

Employer contributions
27

 
193

 
9

 
12

Plan participants’ contributions
—

 
1

 
4

 
5

Gross benefits paid
(77
)
 
(71
)
 
(13
)
 
(17
)
Foreign currency effect
6

 
11

 
—

 
—

Fair value of plan assets at end of year
2,088

 
1,851

 
—

 
—

Funded status
$
84

 
$
(320
)
 
$
(103
)
 
$
(129
)
Amounts recognized in consolidated balance sheets:
 
 
 
 
 
 
 
Non-current assets
$
261

 
$
98

 
$
—

 
$
—

Current liabilities
(7
)
 
(7
)
 
(9
)
 
(11
)
Non-current liabilities
(170
)
 
(411
)
 
(94
)
 
(118
)

$
84

 
$
(320
)
 
$
(103
)
 
$
(129
)
Accumulated benefit obligation
$
2,004

 
$
2,093

 
 
 
 
Plans with accumulated benefit obligation in excess of the fair value of plan assets:
 
 
 
 
 
 
 
Projected benefit obligation
$
176

 
$
1,773

 
 
 
 
Accumulated benefit obligation
$
158

 
$
1,756

 
 
 
 
Fair value of plan assets
$
—

 
$
1,356

 
 
 
 
Amounts recognized in accumulated other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Net actuarial loss (gain)
$
227

 
$
455

 
$
(11
)
 
$
(3
)
Prior service credit
1

 
(4
)
 
(1
)
 
(1
)
Total recognized
$
228

 
$
451

 
$
(12
)
 
$
(4
)

1 
The curtailment gain for our retirement plans relates to a freeze of pension accruals for MHE employees as well as all remaining active employees in the United Kingdom ("U.K."). The curtailment gain for our postretirement plans relates to the sale of MHE on March 22, 2013.

The actuarial loss included in accumulated other comprehensive loss for our retirement plans and expected to be recognized in net periodic pension cost during the year ending December 31, 2014 is $7 million. There is no prior service credit included in accumulated other comprehensive loss for our retirement plans expected to be recognized in net periodic benefit cost during the year ending December 31, 2014.

There are immaterial amounts of prior service credit and actuarial loss included in accumulated other comprehensive loss for our postretirement plans expected to be recognized in net periodic benefit cost during the year ending December 31, 2014.

Net Periodic Cost

For purposes of determining annual pension cost, prior service costs are being amortized straight-line over the average remaining service period of employees expected to receive benefits.

A summary of net periodic benefit cost for our retirement and postretirement plans for the years ended December 31, is as follows: 
(in millions)
Retirement Plans
 
Postretirement Plans
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Service cost
$
10

 
$
24

 
$
67

 
$
2

 
$
3

 
$
3

Interest cost
91

 
93

 
99

 
5

 
5

 
6

Expected return on assets
(129
)
 
(124
)
 
(127
)
 
—

 
—

 
—

Amortization of:

 

 

 

 

 

Actuarial loss
26

 
32

 
31

 
—

 
—

 
—

Prior service credit
5

 
(1
)
 
—

 
(1
)
 
(1
)
 
(1
)
Curtailment 1
(8
)
 
—

 
—

 
(12
)
 
—

 
—

Net periodic benefit cost
$
(5
)
 
$
24

 
$
70

 
$
(6
)
 
$
7

 
$
8


1 
The curtailment gain for our retirement plans relates to a freeze of pension accruals for MHE employees as well as all remaining active employees in the United Kingdom ("U.K."). The curtailment gain for our postretirement plans relates to the sale of MHE on March 22, 2013.

Our U.K. retirement plan accounted for a benefit of $10 million in 2013, including the $8 million curtailment gain discussed above, and $3 million in 2012 and 2011 of the net periodic benefit cost attributable to the funded plans.

Other changes in plan assets and benefit obligations recognized in other comprehensive income, net of tax for the years ended December 31, are as follows: 
(in millions)
Retirement Plans
 
Postretirement Plans
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Net actuarial (gain) loss
$
(213
)
 
$
116

 
$
65

 
$
(8
)
 
$
2

 
$
(12
)
Recognized actuarial gain
(15
)
 
(20
)
 
(18
)
 
—

 
—

 
—

Prior service credit
5

 
2

 
—

 
—

 
1

 
1

Total recognized
$
(223
)
 
$
98

 
$
47

 
$
(8
)
 
$
3

 
$
(11
)


The total cost for our retirement plans was $96 million for 2013, $129 million for 2012 and $175 million for 2011. Included in the total retirement plans cost are defined contribution plans cost of $75 million for 2013, $86 million for 2012 and $88 million 2011.

Assumptions
 
Retirement Plans
 
Postretirement Plans
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Benefit obligation: 1
 
 
 
 
 
 
 
 
 
 
 
Discount rate
5.0
%
 
4.1
%
 
5.1
%
 
4.20
%
 
3.45
%
 
4.45
%
Compensation increase factor
N/A

 
N/A

 
4.5
%
 
 
 
 
 
 
Net periodic cost:
 
 
 
 
 
 
 
 
 
 
 
Weighted-average healthcare cost rate 2
 
 
 
 
 
 
7.0
%
 
7.5
%
 
8.0
%
Discount rate - U.S. plan 3
4.1
%
 
5.1
%
 
5.4
%
 
3.45
%
 
4.45
%
 
4.65
%
Discount rate - U.K. plan 3
4.8
%
 
5.1
%
 
5.5
%
 
 
 
 
 
 
Compensation increase factor - U.S. plan
N/A

 
4.5
%
 
4.5
%
 
 
 
 
 
 
Compensation increase factor - U.K. plan
5.75
%
 
5.85
%
 
6.25
%
 
 
 
 
 
 
Return on assets 4
7.25
%
 
7.75
%
 
8.0
%
 
 
 
 
 
 
1 
These assumptions for the retirement plans relate to our U.S. ERP and a compensation increase factor is no longer applicable because there are no further salary increases as the U.S. ERP was frozen in April 2012.
2 
The assumed weighted-average healthcare cost trend rate will decrease ratably from 7% in 2013 to 5% in 2020 and remain at that level thereafter. Assumed healthcare cost trends have an effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend creates the following effects:
(in millions)
1% point
increase
 
1% point
decrease
Effect on postretirement obligation
$
4

 
$
(4
)

3 
Effective January 1, 2014, we changed our discount rate assumption on our U.S. retirement plans to 5.0% from 4.1% in 2013 and changed our discount rate assumption on our U.K. plan to 4.5% from 4.8% in 2013.
4 
The expected return on assets assumption is calculated based on the plan’s asset allocation strategy and projected market returns over the long-term. Effective January 1, 2014, we changed our return on assets assumption to 7.125% from 7.25% for the U.S. plan in 2013 and to 6.75% from 7.25% for the U.K. plan in 2013.

Cash Flows

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was enacted. The Act established a prescription drug benefit under Medicare, known as “Medicare Part D”, and a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Our benefits provided to certain participants are at least actuarially equivalent to Medicare Part D, and, accordingly, we are entitled to a subsidy.

Expected employer contributions in 2014 are $23 million for our retirement plans and $10 million for our postretirement plans. In 2014, we may elect to make additional non-required contributions depending on investment performance and the pension plan status. Information about the expected cash flows for our retirement and postretirement plans and the impact of the Medicare subsidy is as follows: 
(in millions)
 
 
Postretirement Plans 2
 
Retirement 1
Plans
 
Gross
payments
 
Retiree
contributions
 
Medicare
subsidy
 
Net
payments
2014
$
76

 
$
14

 
$
(5
)
 
$
(1
)
 
$
8

2015
79

 
14

 
(5
)
 
(1
)
 
8

2016
84

 
15

 
(6
)
 
(1
)
 
8

2017
88

 
15

 
(6
)
 
(1
)
 
8

2018
92

 
15

 
(7
)
 
(1
)
 
7

2019-2023
512

 
79

 
(44
)
 
(3
)
 
32

1 
Reflects the total benefits expected to be paid from the plans or from our assets including both our share of the benefit cost and the participants’ share of the cost.
2 
Reflects the total benefits expected to be paid from our assets.

Fair Value of Plan Assets

In accordance with authoritative guidance for fair value measurements certain assets and liabilities are required to be recorded at fair value. Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value hierarchy has been established which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:
•
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.
•
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of our defined benefit plans assets as of December 31, 2013 and 2012, by asset class is as follows:
(in millions)
December 31, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash and short-term investments, and other
$
68

 
$
20

 
$
48

 
$
—

Equity securities:

 

 

 

U.S. indexes 1
514

 
145

 
369

 
—

U.S. growth and value
373

 
325

 
48

 
—

U.K.
183

 
101

 
82

 
—

International, excluding U.K.
227

 
131

 
96

 
—

Fixed income securities:

 

 

 

Long duration strategy 2
517

 
—

 
517

 
—

Intermediate duration securities
11

 
—

 
11

 
—

Agency mortgage backed securities
7

 
—

 
7

 
—

Asset backed securities
16

 
—

 
16

 
—

Non-agency mortgage backed securities 3
45

 
—

 
45

 
—

U.K. 4
66

 
—

 
66

 
—

International, excluding U.K.
61

 
—

 
61

 
—

Total
$
2,088

 
$
722

 
$
1,366

 
$
—

(in millions)
December 31, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash and short-term investments, and other
$
180

 
$
2

 
$
178

 
$
—

Equity securities:

 

 

 

U.S. indexes 1
399

 
119

 
280

 
—

U.S. growth and value
344

 
307

 
37

 
—

U.K.
154

 
85

 
69

 
—

International, excluding U.K.
225

 
137

 
87

 
1

Fixed income securities:

 

 

 

Long duration strategy 2
370

 
—

 
370

 
—

Intermediate duration securities
3

 
—

 
3

 
—

Agency mortgage backed securities
13

 
—

 
13

 
—

Asset backed securities
10

 
—

 
10

 
—

Non-agency mortgage backed securities 3
52

 
—

 
52

 
—

U.K. 4
41

 
—

 
41

 
—

International, excluding U.K.
43

 
—

 
43

 
—

Real estate:

 

 

 

U.K. 5
17

 
—

 
—

 
17

Total
$
1,851

 
$
650

 
$
1,183

 
$
18

1 
Includes securities that are tracked in the following indexes: S&P 500, S&P MidCap 400, S&P MidCap 400 Growth and S&P Smallcap 600.
2 
Includes securities that are investment grade obligations of issuers in the U.S.
3 
Includes U.S. mortgage-backed securities that are not backed by the U.S. government.
4 
Includes securities originated by the government of and other issuers from the U.K.
5 
Includes a fund which holds real estate properties in the U.K.

For securities that are quoted in active markets, the trustee/custodian determines fair value by applying securities’ prices obtained from its pricing vendors. For commingled funds that are not actively traded, the trustee applies pricing information provided by investment management firms to the unit quantities of such funds. Investment management firms employ their own pricing vendors to value the securities underlying each commingled fund. Underlying securities that are not actively traded derive their prices from investment managers, which in turn, employ vendors that use pricing models (e.g. discounted cash flow, comparables). The domestic defined benefit plans have no investment in our stock, except through the S&P 500 commingled index fund.

The trustee obtains estimated prices from vendors for securities that are not easily quotable and they are categorized accordingly as Level 3. The following tables details further information our plan assets where we have used significant unobservable inputs (Level 3): 
(in millions)
 
Beginning balance as of December 31, 2012
$
18

Capital distributions
(18
)
Ending balance as of December 31, 2013
$
—



Pension Trusts’ Asset Allocations

There are two pension trusts, one in the U.S. and one in the U.K.
•
The U.S. pension trust had assets of $1.7 billion and $1.5 billion as of December 31, 2013 and 2012, respectively, and the target allocations in 2014 include 48% domestic equities, 12% international equities, and 40% debt securities and short-term investments.
•
The U.K. pension trust had assets of $399 million and $318 million as of December 31, 2013 and 2012, respectively, and the target allocations in 2014 include 30% equities, 40% diversified growth funds, and 30% fixed income.

The pension assets are invested with the goal of producing a combination of capital growth, income, and a liability hedge. The mix of assets is established after consideration of the long-term performance and risk characteristics of asset classes. Investments are selected based on their potential to enhance returns, preserve capital, and reduce overall volatility. Holdings are diversified within each asset class. The portfolios employ a mix of index and actively managed equity strategies by market capitalization, style, geographic regions, and economic sectors. The fixed income strategies include U.S. long duration securities, opportunistic fixed income securities, and U.K. debt instruments. The short-term portfolio, whose primary goal is capital preservation for liquidity purposes, is composed of government and government-agency securities, un-invested cash, receivables, and payables. The portfolios do not employ any financial leverage.

U.S. Defined Contribution Plans

Assets of the defined contribution plans in the U.S. consist primarily of investment options which include actively managed equity, indexed equity, actively managed equity/bond funds, McGraw Hill Financial common stock, stable value, and money market strategies. There is also a self-directed mutual fund investment option. The plans purchased 261,672 and sold 1,182,318 shares of McGraw Hill Financial common stock in 2013 and purchased 620,455 and sold 869,199 shares of McGraw Hill Financial common stock in 2012. The plans held approximately 2.2 million shares of McGraw Hill Financial common stock as of December 31, 2013 and 3.7 million shares as of December 31, 2012, with market values of $172 million and $200 million, respectively. The plans received dividends on McGraw Hill Financial common stock of $3 million during the year ended December 31, 2013 and $13 million during the year ended December 31, 2012.