NOTE 13

RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

Occidental has various benefit plans for its salaried, domestic union and nonunion hourly, and certain foreign national employees.

DEFINED CONTRIBUTION PLANS

All domestic employees and certain foreign national employees are eligible to participate in one or more of the defined contribution retirement or savings plans that provide for periodic contributions by Occidental based on plan-specific criteria, such as base pay, age, level and employee contributions. Certain salaried employees participate in a supplemental retirement plan that restores benefits lost due to governmental limitations on qualified retirement benefits. The accrued liabilities for the supplemental retirement plan were $166 million and $145 million as of December 31, 2013 and 2012, respectively, and Occidental expensed $140 million in 2013, $137 million in 2012 and $110 million in 2011 under the provisions of these defined contribution and supplemental retirement plans.

DEFINED BENEFIT PLANS

Participation in defined benefit plans is limited and approximately 1,000 domestic and 1,500 foreign national employees, mainly union, nonunion hourly and certain employees that joined Occidental from acquired operations with grandfathered benefits, are currently accruing benefits under these plans.

Pension costs for Occidental’s defined benefit pension plans, determined by independent actuarial valuations, are generally funded by payments to trust funds, which are administered by independent trustees.

POSTRETIREMENT AND OTHER BENEFIT PLANS

Occidental provides medical and dental benefits and life insurance coverage for certain active, retired and disabled employees and their eligible dependents. Occidental generally funds the benefits as they are paid during the year. These benefit costs, including the postretirement costs, were approximately $229 million in 2013, $218 million in 2012 and $194 million in 2011.

OBLIGATIONS AND FUNDED STATUS

The following tables show the amounts recognized in the consolidated balance sheets of Occidental related to its pension and postretirement benefit plans and their funding status, obligations and plan asset fair values (in millions):

	Pension Benefits						Postretirement Benefits
As of December 31,	2013			2012			2013			2012
Amounts recognized in the consolidated balance sheet:
Other assets	$	104		$	24		$	—		$	—
Accrued liabilities	(6		)	(4		)	(58		)	(59		)
Deferred credits and other liabilities — other	(83		)	(136		)	(958		)	(1,068		)
	$	15		$	(116	)	$	(1,016	)	$	(1,127	)
AOCI included the following after-tax balances:
Net loss	$	66		$	134		$	225		$	324
Prior service cost	1			1			2			2
	$	67		$	135		$	227		$	326

For the years ended December 31,
Changes in the benefit obligation:
Benefit obligation — beginning of year	$	615		$	592		$	1,127		$	1,092
Service cost — benefits earned during the period	13			13			29			25
Interest cost on projected benefit obligation	24			27			43			42
Actuarial (gain) loss	(35		)	46			(126		)	26
Foreign currency exchange rate (gain) loss	(5		)	2			—			—
Benefits paid	(54		)	(57		)	(57		)	(58		)
Settlements	(35		)	(8		)	—			—
Benefit obligation — end of year	$	523		$	615		$	1,016		$	1,127

Changes in plan assets:
Fair value of plan assets — beginning of year	$	499		$	475		$	—		$	—
Actual return on plan assets	88			61			—			—
Foreign currency exchange rate loss	—			(3		)	—			—
Employer contributions	29			31			—			—
Benefits paid	(54		)	(57		)	—			—
Settlements	(24		)	(8		)	—			—
Fair value of plan assets — end of year	$	538		$	499		$	—		$	—
Funded/(Unfunded) status:	$	15		$	(116	)	$	(1,016	)	$	(1,127	)

The following table sets forth details of the obligations and assets of Occidental’s defined benefit pension plans (in millions):

	Accumulated Benefit Obligation in Excess of Plan Assets				Plan Assets in Excess of Accumulated Benefit Obligation
As of December 31, (in millions)	2013		2012		2013		2012
Projected Benefit Obligation	$	122	$	305	$	401	$	310
Accumulated Benefit Obligation	$	112	$	278	$	386	$	305
Fair Value of Plan Assets	$	39	$	171	$	499	$	328

Occidental does not expect any plan assets to be returned during 2014.

COMPONENTS OF NET PERIODIC BENEFIT COST

The following table sets forth the components of net periodic benefit costs (in millions):

	Pension Benefits									Postretirement Benefits
For the years ended December 31, (in millions)	2013			2012			2011			2013		2012		2011
Net periodic benefit costs:
Service cost — benefits earned during the period	$	13		$	13		$	12		$	29	$	25	$	22
Interest cost on projected benefit obligation	24			27			29			43		42		45
Expected return on plan assets	(31		)	(31		)	(33		)	—		—		—
Recognized actuarial loss	19			19			13			38		37		31
Other costs and adjustments	(13		)	17			—			1		1		1
Net periodic benefit cost	$	12		$	45		$	21		$	111	$	105	$	99

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year are $6 million and zero, respectively. The estimated net loss and prior service cost for the defined benefit postretirement plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year are $24 million and $1 million, respectively.

ADDITIONAL INFORMATION

The following table sets forth the weighted-average assumptions used to determine Occidental’s benefit obligation and net periodic benefit cost for domestic plans:

	Pension Benefits				Postretirement Benefits
For the years ended December 31,	2013		2012		2013		2012
Benefit Obligation Assumptions:
Discount rate	4.45	%	3.59	%	4.75	%	3.89	%
Rate of compensation increase	4.00	%	4.00	%	—		—
Net Periodic Benefit Cost Assumptions:
Discount rate	3.59	%	4.12	%	3.89	%	4.12	%
Assumed long term rate of return on assets	6.50	%	6.50	%	—		—
Rate of compensation increase	4.00	%	4.00	%	—		—

For domestic pension plans and postretirement benefit plans, Occidental based the discount rate on the Aon/Hewitt AA-AAA Universe yield curve in 2013 and 2012. The weighted-average rate of increase in future compensation levels is consistent with Occidental’s past and anticipated future compensation increases for employees participating in retirement plans that determine benefits using compensation. The assumed long-term rate of return on assets is estimated with regard to current market factors but within the context of historical returns for the asset mix that exists at year end.

For pension plans outside the United States, Occidental based its discount rate on rates indicative of government or investment grade corporate debt in the applicable country, taking into account hyperinflationary environments when necessary. The discount rates used for the foreign pension plans ranged from 1.5 percent to 10.0 percent at both December 31, 2013 and 2012. The average rate of increase in future compensation levels ranged from 1.5 percent to 10.0 percent in 2013, depending on local economic conditions. The expected long-term rate of return on plan assets was 6.5 percent in excess of local inflation in both 2013 and 2012.

The postretirement benefit obligation was determined by application of the terms of medical and dental benefits and life insurance coverage, including the effect of established maximums on covered costs, together with relevant actuarial assumptions and healthcare cost trend rates projected at an assumed U.S. Consumer Price Index (CPI) increase of 2.36 percent and 2.39 percent as of December 31, 2013 and 2012, respectively. Since 1993, participants other than certain union employees have paid for all medical cost increases in excess of increases in the CPI. For those union employees, Occidental projected that healthcare cost trend rates would decrease 0.25 percent per year from 8.0 percent in 2013 until they reach 5.0 percent in 2025, and remain at 5.0 percent thereafter. A 1-percent increase or a 1-percent decrease in these assumed healthcare cost trend rates would result in an increase of $38 million or a reduction of $32 million, respectively, in the postretirement benefit obligation as of December 31, 2013. The annual service and interest costs would not be materially affected by these changes.

The actuarial assumptions used could change in the near term as a result of changes in expected future trends and other factors that, depending on the nature of the changes, could cause increases or decreases in the plan assets and liabilities.

FAIR VALUE OF PENSION PLAN ASSETS

Occidental employs a total return investment approach that uses a diversified blend of equity and fixed-income investments to optimize the long-term return of plan assets at a prudent level of risk. The investments are monitored by Occidental’s Investment Committee in its role as fiduciary. The Investment Committee, consisting of senior Occidental executives, selects and employs various external professional investment management firms to manage specific investments across the spectrum of asset classes. Equity investments are diversified across United States and non-United States stocks, as well as differing styles and market capitalizations. Other asset classes such as private equity and real estate may be used with the goals of enhancing long-term returns and improving portfolio diversification. The target allocation of plan assets is 65 percent equity securities and 35 percent debt securities. Investment performance is measured and monitored on an ongoing basis through quarterly investment portfolio and manager guideline compliance reviews, annual liability measurements and periodic studies.

The fair values of Occidental’s pension plan assets by asset category are as follows (in millions):

	Fair Value Measurements at December 31, 2013 Using
Description	Level 1		Level 2		Level 3		Total
Asset Class:
U.S. government securities	$	16	$	—	$	—	$	16
Corporate bonds (a)	—		84		—		84
Common/collective trusts (b)	—		19		—		19
Mutual funds:
Bond funds	64		—		—		64
Blend funds	105		—		—		105
Value and growth funds	6		—		—		6
Common and preferred stocks (c)	201		—		—		201
Other	—		37		11		48
Total pension plan assets (d)	$	392	$	140	$	11	$	543

	Fair Value Measurements at December 31, 2012 Using
Description	Level 1		Level 2		Level 3		Total
Asset Class:
U.S. government securities	$	24	$	—	$	—	$	24
Corporate bonds (a)	—		83		—		83
Common/collective trusts (b)	—		11		—		11
Mutual funds:
Bond funds	84		—		—		84
Blend funds	106		—		—		106
Value and growth funds	5		—		—		5
Common and preferred stocks (c)	146		—		—		146
Other	—		35		11		46
Total pension plan assets (d)	$	365	$	129	$	11	$	505

(a) This category represents investment grade bonds of U.S. and non-U.S. issuers from diverse industries.

(b) This category includes investment funds that primarily invest in U.S. and non-U.S. common stocks and fixed-income securities.

(c) This category represents direct investments in common and preferred stocks from diverse U.S. and non-U.S. industries.

(d) Amounts exclude net payables of approximately $5 million and $6 million as of December 31, 2013 and 2012, respectively.

The activity during the years ended December 31, 2013 and 2012, for the assets using Level 3 fair value measurements was insignificant.

Occidental expects to contribute $6 million in cash to its defined benefit pension plans during 2014.

Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:

For the years ended December 31, (in millions)	Pension Benefits		Postretirement Benefits
2014	$	46	$	59
2015	$	44	$	60
2016	$	49	$	61
2017	$	41	$	62
2018	$	40	$	63
2019 — 2023	$	233	$	335