Plans

Defined Benefit Plans

PPG has defined benefit pension plans that cover certain employees worldwide. The principal defined benefit pension plans are those in the U.S., Canada, the Netherlands and the U.K. which, in the aggregate represent approximately 96% of the projected benefit obligation at December 31, 2014, of which the U.S. defined benefit pension plans represent the majority. PPG also sponsors welfare benefit plans that provide postretirement medical and life insurance benefits for certain U.S. and Canadian employees and their dependents. These programs require retiree contributions based on retiree-selected coverage levels for certain retirees and their dependents and provide for sharing of future benefit cost increases between PPG and participants based on management discretion. The Company has the right to modify or terminate certain of these benefit plans in the future.

U.S. Defined Benefit Plans

Salaried and certain hourly employees in the U.S. hired on or after October 1, 2004, or rehired on or after October 1, 2012 are not eligible for postretirement medical benefits. Salaried employees in the U.S. hired, rehired or transferred to salaried status on or after January 1, 2006, and certain U.S. hourly employees hired in 2006 or thereafter are eligible to participate in a defined contribution retirement plan. These employees are not eligible for defined benefit pension plan benefits. In 2011, the Company approved amendments related to certain U.S. defined benefit plans so that depending upon the affected employee's combined age and years of service to PPG, certain employees stopped accruing benefits either during 2011 or at some point in the future. The affected employees will participate in the various Company’s defined contribution retirement plans from the date their benefits under their respective defined benefit plans are frozen. The Company has amended other defined benefit plans in other countries in a similar way and plans to continue reviewing and potentially changing other PPG defined benefit plans in the future.

Separation and Merger of Commodity Chemicals Business

On January 28, 2013, PPG completed the separation of its commodity chemicals business and the merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf, as discussed in Note 2, “Acquisitions and Dispositions.” PPG transferred the defined benefit pension plan and other postretirement benefit liabilities for the affected employees in the U.S., Canada, and Taiwan in the separation resulting in a net partial settlement loss of $33 million that was recorded in the first quarter of 2013. This transaction lowered the projected benefit obligation of PPG's defined benefit pension plans by approximately $550 million and the accumulated benefit obligation of the other postretirement benefit plans by $165 million. In 2013, PPG transferred to Axiall U.S. pension assets of $421 million and then in 2014, an additional $86 million in U.S. pension assets and $11 million in Canadian assets were transferred upon the completion of the calculation of the total amount required to be transferred. Expense amounts related to these plans for 2013 and 2012 is included within "Income from discontinued operations, net of tax" and is excluded from the expense disclosures in the remainder of this footnote.

As a part of the separation activities related to the separation and merger transaction of the former commodity chemicals business, the Company reorganized its U.S. defined benefit pension plans. The decision to reorganize these plans was finalized in August 2013. As a result of this reorganization, certain of these newly formed plans have no active participants and as such the amortization periods of the unrecognized net actuarial losses of these plans were changed to the average remaining life expectancy of the plan participants from the average remaining service period of plan participants in accordance with the accounting guidance for retirement benefits. This change reduced the Company's 2013 annual pension expense by approximately $18 million.

Plan Termination

During June 2014, PPG terminated one of the defined benefit pension plans containing only participants who are no longer accruing benefits, which lowered the projected benefit obligation and plan assets of PPG’s defined benefit pension plans by approximately $41 million. Additionally, PPG recorded an immaterial settlement loss related to the termination of the plan.

Postretirement medical

Beginning in 2004, PPG's other postretirement benefit plan provided a retiree prescription drug benefit which was at least actuarially equivalent to Medicare Part D. Therefore, PPG received the federal subsidy provided for under the Medicare Act of 2003. The federal subsidy is not subject to U.S. federal income tax and is recorded as a reduction in annual net periodic benefit cost of other postretirement benefits. During the period from January 1, 2010 to December 31, 2012 the Company provided a self-insured plan for certain retirees and their dependents that was at least actuarially equivalent to Medicare Part D and received the subsidy under the Medicare Act of 2003 for those retirees and their dependents.

In 2012, the Company decided, effective January 1, 2013, to move to an Employee Group Waiver Plan ("EGWP") for certain Medicare-eligible retirees and their dependents. The EGWP includes a fully-insured Medicare Part D prescription drug plan. As such, beginning in 2013 PPG was no longer eligible to receive the federal subsidy provided under the Medicare Act of 2003 for these retirees and their dependents.

The following table sets forth the changes in projected benefit obligations (“PBO”) (as calculated as of December 31), plan assets, the funded status and the amounts recognized in the accompanying consolidated balance sheet for the Company’s defined benefit pension and other postretirement benefit plans:



	Pensions						Other Postretirement Benefits
($ in millions)	2014			2013			2014			2013
Projected benefit obligation, January 1	$	5,240		$	5,784		$	1,070		$	1,362
Service cost	52			57			15			20
Interest cost	230			218			47			49
Plan amendments	—			(25		)	—			(8		)
Actuarial losses / (gains) - net	846			(267		)	125			(160		)
Benefits paid	(390		)	(304		)	(44		)	(60		)
Plan transfers	36			327			—			40
Foreign currency translation adjustments	(229		)	12			(12		)	(8		)
Curtailment and special termination benefits	(6		)	(18		)	—			—
Impact of commodity chemicals transaction	—			(548		)	—			(165		)
Other	(4		)	4			(5		)	—
Projected benefit obligation, December 31	$	5,775		$	5,240		$	1,196		$	1,070
Market value of plan assets, January 1	$	4,701		$	4,750
Actual return on plan assets	658			267
Company contributions	41			174
Participant contributions	2			2
Benefits paid	(375		)	(283		)
Plan transfers	35			352
Plan settlements	(4		)	(51		)
Plan expenses and other-net	(4		)	(2		)
Foreign currency translation adjustments	(198		)	(11		)
Impact of commodity chemicals transaction	(22		)	(496		)
Other	5			(1		)
Market value of plan assets, December 31	$	4,839		$	4,701
Funded Status	$	(936	)	$	(539	)	$	(1,196	)	$	(1,070	)
Amounts recognized in the Consolidated Balance Sheet:
Other assets (long-term)	86			224			—			—
Accounts payable and accrued liabilities	(27		)	(19		)	(64		)	(63		)
Accrued pensions	(995		)	(744		)	—			—
Other postretirement benefits	—			—			(1,132		)	(1,007		)
Net liability recognized	$	(936	)	$	(539	)	$	(1,196	)	$	(1,070	)

The PBO is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation (“ABO”) is the actuarial present value of benefits attributable to employee service rendered to date, but does not include the effects of estimated future pay increases. The ABO for all defined benefit pension plans as of December 31, 2014 and 2013 was $5,624 million and $5,064 million, respectively.

The following table details the pension plans where the benefit liability exceeds the fair value of the plan assets:



	Pensions
($ in millions)	2014		2013
Plans with PBO in Excess of Plan Assets:
Projected benefit obligation	$	4,864	$	2,377
Fair value of plan assets	3,879		1,619
Plans with ABO in Excess of Plan Assets:
Accumulated benefit obligation	$	4,453	$	2,242
Fair value of plan assets	3,584		1,617

Amounts (pretax) not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss include the following:



($ in millions)	Pensions						Other Postretirement Benefits
	2014			2013			2014			2013
Accumulated net actuarial losses	$	1,910		$	1,542		$	366		$	254
Accumulated prior service credit	(20		)	(26		)	(34		)	(45		)
Total	$	1,890		$	1,516		$	332		$	209

The accumulated net actuarial losses for pensions and other postretirement benefits relate primarily to declines in the discount rate as well as an updated mortality assumption. The accumulated net actuarial losses exceed 10% of the higher of the market value of plan assets or the PBO at the beginning of the year, therefore, amortization of such excess has been included in net periodic benefit costs for pension and other postretirement benefits in each of the last three years. The amortization period is the average remaining service period of active employees expected to receive benefits unless a plan is mostly inactive in which case the amortization period is the average remaining life expectancy of the plan participants. Accumulated prior service cost (credit) is amortized over the future service periods of those employees who are active at the dates of the plan amendments and who are expected to receive benefits.

The decrease in accumulated other comprehensive loss (pretax) in 2014 relating to defined benefit pension and other postretirement benefits consists of:



($ in millions)	Pensions			Other Postretirement Benefits
Net actuarial loss arising during the year	$	494		$	125
Impact of curtailments	(11		)	—
Amortization of actuarial loss	(77		)	(11		)
Amortization of prior service cost	2			10
Foreign currency translation adjustments and other	(34		)	(1		)
Net change	$	374		$	123

The net actuarial losses arising during 2014 related to the Company’s pension and other postretirement benefit plans were primarily due to a decrease in the discount rate as well as an updated mortality assumption.

The estimated amounts of accumulated net actuarial loss and prior service (credit) for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2015 are $116 million and $(2) million, respectively. The estimated amounts of accumulated net actuarial loss and prior service (credit) for the other postretirement benefit plans that will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost in 2015 are $32 million and $(9) million, respectively.

Net periodic benefit cost for the three years ended December 31, 2014, included the following:



	Pensions									Other Postretirement Benefits
($ in millions)	2014			2013			2012			2014			2013			2012
Service cost	$	52		$	57		$	54		$	15		$	20		$	19
Interest cost	230			218			217			47			49			50
Expected return on plan assets	(297		)	(286		)	(261		)	—			—			—
Amortization of prior service cost (credit)	(2		)	(2		)	—			(10		)	(9		)	(10		)
Amortization of actuarial losses	77			102			133			11			28			31
Curtailments and special termination benefits	8			18			—			—			—			—
Net periodic benefit cost	$	68		$	107		$	143		$	63		$	88		$	90

Net periodic benefit cost is included in Cost of sales, exclusive of depreciation and amortization, Selling, general and administrative and Research and development in the accompanying consolidated statement of income.

Assumptions

The following weighted average assumptions were used to determine the benefit obligation for the Company’s defined benefit pension and other postretirement plans as of December 31, 2014 and 2013:



	2014		2013
Discount rate⁽¹⁾	3.8	%	4.6	%
Rate of compensation increase	2.0	%	3.5	%


(1)	The discount rate for U.S. defined benefit pension and other postretirement plans was 4% as of December 31, 2014.

The following weighted average assumptions were used to determine the net periodic benefit cost for the Company’s defined benefit pension and other postretirement benefit plans for the three years in the period ended December 31, 2014:



	2014		2013		2012
Discount rate	4.6	%	4.1	%	4.6	%
Expected return on assets	6.5	%	6.5	%	7.0	%
Rate of compensation increase	3.0	%	4.0	%	3.9	%

These assumptions for each plan are reviewed on an annual basis. In determining the expected return on plan asset assumption, the Company evaluates the mix of investments that comprise each plan’s assets and external forecasts of future long-term investment returns. The Company compares the expected return on plan assets assumption to actual historic returns to ensure reasonability. The global expected return on plan assets assumption to be used in determining 2015 net periodic pension expense will be 6.10% (7.25% for the U.S. plans only).

In 2014, the Company updated the mortality tables used to calculate its U.S. defined benefit pension and other postretirement benefit liabilities. In October 2014, the Society of Actuaries' Retirement Plans Experience Committee released new mortality tables known as RP 2014. The new tables released reflect a long period of significant improvement in mortality. The Company considered these new tables and performed a review of its own mortality history, as well as the industry in which the Company operates to assess future improvements in mortality rates based on its U.S. population. The Company chose to value its U.S. defined benefit pension and other postretirement benefit liabilities using a slightly modified assumption of future mortality which better approximates our plan participant population and reflects significant improvement in life expectancy over the previously used mortality table, known as RP 2000.

The weighted-average healthcare cost trend rate (inflation) used for 2014 was 6.3% declining to a projected 4.5% in the year 2024. For 2015, the assumed weighted-average healthcare cost trend rate used will be 6.4% declining to a projected 4.5% in the year 2024. These assumptions are reviewed on an annual basis. In selecting rates for current and long-term health care cost assumptions, the Company takes into consideration a number of factors including the Company’s actual health care cost increases, the design of the Company’s benefit programs, the demographics of the Company’s active and retiree populations and external expectations of future medical cost inflation rates. If these 2015 health care cost trend rates were increased or decreased by one percentage point per year, such increase or decrease would have the following effects:



	One-Percentage Point
($ in millions)	Increase		Decrease
Increase (decrease) in the aggregate of service and interest cost components of annual expense	$	8	$	(6	)
Increase (decrease) in the benefit obligation	$	138	$	(105	)

Contributions to Defined Benefit Plans

PPG was not required to make a mandatory contribution to its U.S. defined benefit plans in 2014 and does not currently expect to have to make a mandatory contribution in 2015. PPG made voluntary contributions to these plans of $2 million and $50 million in 2014 and 2013, respectively. PPG did not make any contributions to its U.S. defined benefit plans in 2012. PPG made contributions to its non-U.S. defined benefit pension plans of $39 million in 2014, $124 million in 2013, and $80 million in 2012. PPG expects to make mandatory contributions to its non-U.S. plans in the range of $10 million to $20 million in 2015.

Benefit Payments

The estimated benefits expected to be paid under the Company's defined benefit pension and other postretirement benefit plans (in millions) are:



($ in millions)	Pensions		Other Postretirement Benefits
2015	$	297	$	67
2016	286		68
2017	270		69
2018	273		69
2019	276		70
2020 to 2024	1,425		345

Beginning in 2012, the Company initiated a lump sum payout program that gave certain terminated vested participants in certain U.S. defined benefit pension plans the option to take a one-time lump sum cash payment in lieu of receiving a future monthly annuity. PPG paid approximately $61 million and $22 million in 2014 and 2013, respectively, in lump sum benefits to terminated vested participants who elected to participate in the program.

Plan Assets

Each PPG sponsored defined benefit pension plan is managed in accordance with the requirements of local laws and regulations governing defined benefit pension plans for the exclusive purpose of providing pension benefits to participants and their beneficiaries. Investment committees comprised of PPG managers have fiduciary responsibility to oversee the management of pension plan assets by third party asset managers. Pension plan assets are held in trust by financial institutions and managed on a day-to-day basis by the asset managers. The asset managers receive a mandate from each investment committee that is aligned with the asset allocation targets established by each investment committee to achieve the plan’s investment strategies. The performance of the asset managers is monitored and evaluated by the investment committees throughout the year.

Pension plan assets are invested to generate investment earnings over an extended time horizon to help fund the cost of benefits promised under the plans while mitigating investment risk. The asset allocation targets established for each pension plan are intended to diversify the investments among a variety of asset categories and among a variety of individual securities within each asset category to mitigate investment risk and provide each plan with sufficient liquidity to fund the payment of pension benefits to retirees.

The following summarizes the weighted average target pension plan asset allocation as of December 31, 2014 and 2013 for all PPG defined benefit plans:



Asset Category	Dec. 31, 2014	Dec. 31, 2013
Equity securities	30-65%	30-65%
Debt securities	30-65%	30-65%
Real estate	0-10%	0-10%
Other	0-10%	0-10%

The fair values of the Company’s pension plan assets at December 31, 2014, by asset category, are as follows:



($ in millions)			Level 1⁽¹⁾		Level 2⁽¹⁾		Level 3⁽¹⁾		Total
Asset Category
Equity securities:
	U.S.
		Large cap	$	—	$	278	$	—	$	278
		Small cap	—		112		—		112
		PPG common stock	102		—		—		102
	Non-U.S.
		Developed and emerging markets⁽²⁾	107		688		—		795
Debt securities:
	Cash and cash equivalents		—		40		—		40
	Corporate⁽³⁾
		U.S.⁽⁴⁾	—		1,121		124		1,245
		Developed and emerging markets⁽²⁾	—		232		—		232
	Diversified⁽⁵⁾		—		477		—		477
	Government
		U.S.⁽⁴⁾	223		42		—		265
		Developed markets	—		504		—		504
	Other⁽⁶⁾		—		153		22		175
Real estate, hedge funds, and other			—		148		466		614
	Total		$	432	$	3,795	$	612	$	4,839


(1)	These levels refer to the accounting guidance on fair value measurement described in Note 9, “Financial Instruments, Hedging Activities and Fair Value Measurements.”


(2)	These amounts represent holdings in investment grade debt or equity securities of issuers in both developed markets and emerging economies.


(3)	This category represents investment grade debt securities from a diverse set of industry issuers.


(4)	These investments are primarily long duration fixed income securities.


(5)	This category represents commingled funds invested in diverse portfolios of debt securities.


(6)	This category includes mortgage-backed and asset backed debt securities, municipal bonds and other debt securities including derivatives.

The fair values of the Company’s pension plan assets at December 31, 2013, by asset category, are as follows:



($ in millions)			Level 1⁽¹⁾		Level 2⁽¹⁾		Level 3⁽¹⁾		Total
Asset Category
Equity securities:
	U.S.
		Large cap	$	6	$	378	$	—	$	384
		Small cap	—		172		—		172
		PPG common stock	85		—		—		85
	Non-U.S.
		Developed and emerging markets⁽²⁾	17		795		—		812
Debt securities:
	Cash and cash equivalents		—		115		—		115
	Corporate⁽³⁾
		U.S.⁽⁴⁾	—		750		131		881
		Developed and emerging markets⁽²⁾	—		200		—		200
	Diversified⁽⁵⁾		—		698		—		698
	Government
		U.S.⁽⁴⁾	201		36		—		237
		Developed markets	—		331		—		331
	Other⁽⁶⁾		—		161		27		188
Real estate, hedge funds, and other			—		124		474		598
	Total		$	309	$	3,760	$	632	$	4,701


(1)	These levels refer to the accounting guidance on fair value measurement described in Note 9, “Financial Instruments, Hedging Activities and Fair Value Measurements.”


(2)	These amounts represent holdings in investment grade debt or equity securities of issuers in both developed markets and emerging economies.


(3)	This category represents investment grade debt securities from a diverse set of industry issuers.


(4)	These investments are primarily long duration fixed income securities.


(5)	This category represents commingled funds invested in diverse portfolios of debt securities.


(6)	This category includes mortgage-backed and asset backed debt securities, municipal bonds and other debt securities including derivatives.

The change in the fair value of the Company’s Level 3 pension assets for the years ended December 31, 2014 and 2013 was as follows:



($ in millions)	Real Estate			Other Debt Securities			Hedge Funds & Other Assets			Total
Balance, January 1, 2013	$	176		$	27		$	316		$	519
Realized gain	7			1			55			63
Unrealized gain for positions still held	18			—			14			32
Transfers in/(out)	21			(1		)	(5		)	15
Foreign currency gain	—			—			3			3
Balance, December 31, 2013	$	222		$	27		$	383		$	632
Realized gain	17			1			3			21
Unrealized gain for positions still held	8						5			13
Transfers out	(34		)	(1		)	(4		)	(39		)
Foreign currency loss	(3		)	(4		)	(8		)	(15		)
Balance, December 31, 2014	$	210		$	23		$	379		$	612

Real Estate properties are externally appraised at least annually by reputable, independent appraisal firms. Property valuations are also reviewed on a regular basis and are adjusted if there has been a significant change in circumstances related to the property since the last valuation.

Other debt securities consist of insurance contracts, which are externally valued by insurance companies based on the present value of the expected future cash flows. Hedge funds consist of a wide range of investments which target a relatively stable investment return. The underlying funds are valued at different frequencies, some monthly and some quarterly, based on the value of the underlying investments. Other assets consist primarily of small investments in private equity funds and senior secured debt obligations of non-investment grade borrowers.

Retained Liabilities and Legacy Settlement Charges

PPG has retained certain liabilities for pension and post-employment benefits earned for service up to the date of sale of its former automotive glass and service business, totaling approximately $945 million and $914 million at December 31, 2014 and 2013, respectively, for employees who were active as of the divestiture date and for individuals who were retirees of the business as of the divestiture date. PPG recognized expense of approximately $19 million, $30 million and $35 million related to these obligations in 2014, 2013, and 2012, respectively.

There have been multiple PPG facilities closed in Canada related to the former automotive glass and services business as well as other PPG businesses. These various plant closures have resulted in partial and full windups, and related settlement charges, of pension plans for various hourly and salary employees employed by these locations. The charges are recorded for the individual plans when a particular windup is approved by the Canadian pension authorities and the Company has made all contributions to the various plan. The Company recorded settlement charges of $2 million and $16 million in the 2014 and 2013, respectively. There will be additional windup charges of $55 million to $70 million related to these plant closures in 2015 and 2016. The expected cash contributions related to these windups total $10 million to $20 million during these periods.

Other Plans

Defined Contribution Plans

The Company recognized expense for defined contribution pension plans in 2014, 2013 and 2012 of $55 million, $49 million and $41 million, respectively. The Company's annual cash contributions to defined contribution pension plans approximated the expense recognized in 2014, 2013 and 2012. As of December 31, 2014 and 2013, the Company’s liability for contributions to be made to the defined contribution pension plans was $14 million and $17 million, respectively.

Employee Savings Plan

PPG’s Employee Savings Plan (“Savings Plan”) covers substantially all employees in the U.S., Puerto Rico and Canada. The Company makes matching contributions to the Savings Plan, at management's discretion, based upon participants’ savings, subject to certain limitations. For most participants not covered by a collective bargaining agreement, Company-matching contributions are established each year at the discretion of the Company and are applied to participant savings up to a maximum of 6% of eligible participant compensation. For those participants whose employment is covered by a collective bargaining agreement, the level of Company-matching contribution, if any, is determined by the relevant collective bargaining agreement.

The Company-matching contribution was 75% on the first 6% of compensation contributed by eligible employees in 2012. In 2013, the Company match was increased to 100% on the first 6% of compensation contributed by eligible employees. The Company-matching contribution remained at 100% for 2014.

Compensation expense and cash contributions related to the Company match of participant contributions to the Savings Plan for 2014, 2013, and 2012 totaled $42 million, $36 million and $28 million, respectively. A portion of the Savings Plan qualifies under the Internal Revenue Code as an Employee Stock Ownership Plan. As a result, the dividends on PPG shares held by that portion of the Savings Plan totaling $14 million, $15 million and $18 million for 2014, 2013, and 2012, respectively, were tax deductible to the Company for U.S. Federal tax purposes.

Deferred Compensation Plan

The Company has a deferred compensation plan for certain key managers which allows them to defer a portion of their compensation in a phantom PPG stock account or other phantom investment accounts. The amount deferred earns a return based on the investment options selected by the participant. The amount owed to participants is an unfunded and unsecured general obligation of the Company. Upon retirement, death, disability, termination of employment, scheduled payment or unforeseen emergency, the compensation deferred and related accumulated earnings are distributed in accordance with the participant’s election in cash or in PPG stock, based on the accounts selected by the participant.

The plan provides participants with investment alternatives and the ability to transfer amounts between the phantom non-PPG stock investment accounts. To mitigate the impact on compensation expense of changes in the market value of the liability, the Company has purchased a portfolio of marketable securities that mirror the phantom non-PPG stock investment accounts selected by the participants, except the money market accounts. These investments are carried by PPG at fair market value, and the changes in market value of these securities are also included in income from continuing operations. Trading occurs in this portfolio to align the securities held with the participant’s phantom non-PPG stock investment accounts, except the money market accounts.

The cost of the deferred compensation plan, comprised of dividend equivalents accrued on the phantom PPG stock account, investment income and the change in market value of the liability, was expense in 2014, 2013 and 2012 of $10 million, $18 million and $10 million, respectively. These amounts are included in “Selling, general and administrative” in the accompanying consolidated statement of income. The change in market value of the investment portfolio was income of $8 million, $17 million, and $8 million in 2014, 2013 and 2012, respectively, of which $2.9 million, $3.4 million and $0.9 million was realized gains, and is also included in “Selling, general and administrative.”

The Company’s obligations under this plan, which are included in “Accounts payable and accrued liabilities” and “Other liabilities” in the accompanying consolidated balance sheet, totaled $119 million and $114 million as of December 31, 2014 and 2013, respectively, and the investments in marketable securities, which are included in “Investments” and “Other current assets” in the accompanying consolidated balance sheet, were $79 million and $75 million as of December 31, 2014 and 2013, respectively.