NOTE 13RETIREMENT 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 $163 million and $166 million as of December 31, 2014 and 2013, respectively, and Occidental expensed $146 million in 2014, $140 million in 2013 and $137 million in 2012 under the provisions of these defined contribution and supplemental retirement plans.

DEFINED BENEFIT PLANS

Participation in defined benefit plans is limited and approximately 700 domestic and 1,300 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 $215 million in 2014, $229 million in 2013 and $218 million in 2012.

SPIN-OFF OF CALIFORNIA RESOURCES

In connection with the spin-off of California Resources, Occidental entered into an Employee Matters Agreement with California Resources, see Note 17, which provides that employees of California Resources no longer participate in benefit plans sponsored or maintained by Occidental as of the separation date. Upon separation, the Occidental pension and postretirement plans transferred assets and obligations to the California Resources plans resulting in a net decrease in sponsored pension and postretirement plan obligations of $15 million and $72 million, respectively. Additionally, as a result of the transfer of unrecognized losses to California Resources, deferred income taxes and other comprehensive income decreased $14 million and $36 million, respectively.

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,	2014		2013		2014		2013
Amounts recognized in the consolidated balance sheet:
Other assets	$	57	$	104	$	—	$	—
Accrued liabilities	(6)		(6)		(57)		(58)
Deferred credits and other liabilities — other	(68)		(83)		(980)		(958)
	$	(17)	$	15	$	(1,037)	$	(1,016)
AOCI included the following after-tax balances:
Net loss	$	83	$	66	$	255	$	225
Prior service cost	—		1		1		2
	$	83	$	67	$	256	$	227

For the years ended December 31,
Changes in the benefit obligation:
Benefit obligation — beginning of year	$	523	$	615	$	1,016	$	1,127
Service cost — benefits earned during the period	11		13		24		29
Interest cost on projected benefit obligation	23		24		44		43
Actuarial (gain) loss	53		(35)		83		(126)
Foreign currency exchange rate (gain) loss	(9)		(5)		—		—
Spin-off of California Resources	(105)		—		(72)		—
Benefits paid	(43)		(54)		(59)		(57)
Settlements	—		(35)		—		—
Benefit obligation — end of year	$	453	$	523	$	1,036	$	1,016

Changes in plan assets:
Fair value of plan assets — beginning of year	$	538	$	499	$	—	$	—
Actual return on plan assets	24		88		—		—
Employer contributions	7		29		—		—
Spin-off of California Resources	(90)		—		—		—
Benefits paid	(43)		(54)		—		—
Settlements	—		(24)		—		—
Fair value of plan assets — end of year	$	436	$	538	$	—	$	—
Funded/(Unfunded) status:	$	(17)	$	15	$	(1,036)	$	(1,016)

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,	2014		2013		2014		2013
Projected Benefit Obligation	$	173	$	122	$	280	$	401
Accumulated Benefit Obligation	$	168	$	112	$	280	$	386
Fair Value of Plan Assets	$	100	$	39	$	336	$	499

Occidental does not expect any plan assets to be returned during 2015.

COMPONENTS OF NET PERIODIC BENEFIT COST

The following table sets forth the components of net periodic benefit costs:

	Pension Benefits						Postretirement Benefits
For the years ended December 31, (in millions)	2014		2013		2012		2014		2013		2012
Net periodic benefit costs:
Service cost — benefits earned during the period	$	11	$	13	$	13	$	24	$	29	$	25
Interest cost on projected benefit obligation	23		24		27		44		43		42
Expected return on plan assets	(33)		(31)		(31)		—		—		—
Recognized actuarial loss	6		19		19		20		38		37
Other costs and adjustments	(8)		(13)		17		1		1		1
Net periodic benefit cost	$	(1)	$	12	$	45	$	89	$	111	$	105

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 $10 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 $29 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,	2014		2013	2014	2013
Benefit Obligation Assumptions:
Discount rate	3.81%		4.45%	3.99%	4.75%
Rate of compensation increase	—	(a)	4.00%	—	—
Net Periodic Benefit Cost Assumptions:
Discount rate	4.45%		3.59%	4.75%	3.89%
Assumed long term rate of return on assets	6.50%		6.50%	—	—
Rate of compensation increase	4.00%	(a)	4.00%	—	—

(a)

Plans requiring a salary increase assumption were separated with California Resources.

For domestic pension plans and postretirement benefit plans, Occidental based the discount rate on the Aon/Hewitt AA-AAA Universe yield curve in 2014 and 2013. As of December 31, 2014, the use of a weighted average rate of increase in future compensation levels was not necessary as the retirement plans determining benefits using compensation were transferred in connection with the California Resources spin-off. At December 31, 2013, the weighted average rate of increase in future compensation levels was 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.

In 2014, Occidental adopted the Society of Actuaries 2014 Mortality Tables Report and Mortality Improvement Scale, which updated the mortality assumptions that private defined benefit retirement plans in the United States use in the actuarial valuations that determine a plan sponsor’s pension obligations. The updated mortality data reflects increasing life expectancies in the United States, and affected plans generally expect the value of the actuarial obligations to increase, depending on the specific demographic characteristics of the plan participants and the types of benefits. The changes in the mortality table results in an increase of $27 million and $98 million in the pension and postretirement benefit obligation at December 31, 2014.

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 percent at both December 31, 2014 and 2013. The average rate of increase in future compensation levels ranged from 1.5 percent to 10 percent in 2014, depending on local economic conditions.

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 1.79 percent and 2.36 percent as of December 31, 2014 and 2013, 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 7.75 percent in 2014 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 $55 million or a reduction of $47 million, respectively, in the postretirement benefit obligation as of December 31, 2014. 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 Pension and Retirement Trust and Investment Committee (Pension Committee) in its role as fiduciary. The Pension 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, 2014 Using
Description	Level 1		Level 2		Level 3		Total

Asset Class:
U.S. government securities	$	15	$	—	$	—	$	15
Corporate bonds (a)	—		76		—		76
Common/collective trusts (b)	—		13		—		13
Mutual funds:
Bond funds	42		—		—		42
Blend funds	68		—		—		68
Common and preferred stocks (c)	196		—		—		196
Other	—		38		1		39
Total pension plan assets (d)	$	321	$	127	$	1	$	449

(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

(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 $13 million and $5 million as of December 31, 2014 and 2013, respectively.

The activity during the years ended December 31, 2014 and 2013, 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 2015.

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

2015	$	38	$	58
2016	$	37	$	59
2017	$	33	$	59
2018	$	32	$	59
2019	$	32	$	60
2020— 2024	$	191	$	304