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. These plans in the aggregate represent approximately 96% of the projected benefit obligation at December 31, 2015, of which the U.S. defined benefit pension plans represent the majority.

U.S. Defined Benefit Plans

As of January 1, 2006, the Company closed the salaried defined benefit plans to new entrants. The defined benefit plan of certain hourly employees was closed to new entrants in 2006 or thereafter. Eligible employees participate in a defined contribution retirement plan. Further 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 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.

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

PPG sponsors welfare benefit plans that provide postretirement medical and life insurance benefits for certain U.S. and Canadian employees and their dependents of which the U.S. welfare benefit plans represent approximately 91% of the projected benefit obligation at December 31, 2015. 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 post retirement medical benefits.

The U.S. welfare benefit plans include an Employee Group Waiver Plan (“EGWP”) for certain Medicare-eligible retirees and their dependents which includes a fully-insured Medicare Part D prescription drug plan. As such, PPG is not eligible to receive the federal subsidy provided under the Medicare Act of 2003 for these retirees and their dependents.

These plans in the U.S. and Canada 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, amend or terminate certain of these benefit plans in the future.

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)	2015			2014			2015			2014
Projected benefit obligation, January 1	$	5,775		$	5,240		$	1,196		$	1,070
Service cost	59			52			17			15
Interest cost	201			230			45			47
Actuarial (gains) / losses - net	(143		)	846			(104		)	125
Benefits paid	(271		)	(390		)	(52		)	(44		)
Plan transfers	—			36			—			—
Foreign currency translation adjustments	(237		)	(229		)	(19		)	(12		)
Curtailment and special termination benefits	(8		)	(6		)	—			—
Other	(27		)	(4		)	1			(5		)
Projected benefit obligation, December 31	$	5,349		$	5,775		$	1,084		$	1,196
Market value of plan assets, January 1	$	4,839		$	4,701
Actual return on plan assets	(19		)	658
Company contributions	289			41
Participant contributions	2			2
Benefits paid	(249		)	(375		)
Plan transfers	—			35
Plan settlements	(17		)	(4		)
Plan expenses and other-net	(4		)	(4		)
Foreign currency translation adjustments	(214		)	(198		)
Impact of commodity chemicals transaction	—			(22		)
Other	—			5
Market value of plan assets, December 31	$	4,627		$	4,839
Funded Status	$	(722	)	$	(936	)	$	(1,084	)	$	(1,196	)
Amounts recognized in the Consolidated Balance Sheet:
Other assets (long-term)	57			86			—			—
Accounts payable and accrued liabilities	(67		)	(27		)	(63		)	(64		)
Accrued pensions	(712		)	(995		)	—			—
Other postretirement benefits	—			—			(1,021		)	(1,132		)
Net liability recognized	$	(722	)	$	(936	)	$	(1,084	)	$	(1,196	)

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, 2015 and 2014 was $5,220 million and $5,624 million, respectively.

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



	Pensions
($ in millions)	2015		2014
Plans with PBO in Excess of Plan Assets:
Projected benefit obligation	$	4,717	$	4,864
Fair value of plan assets	3,937		3,879
Plans with ABO in Excess of Plan Assets:
Accumulated benefit obligation	$	4,351	$	4,453
Fair value of plan assets	3,676		3,584

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



($ in millions)	Pensions						Other Postretirement Benefits
	2015			2014			2015			2014
Accumulated net actuarial losses	$	1,872		$	1,910		$	228		$	366
Accumulated prior service credit	(18		)	(20		)	(24		)	(34		)
Total	$	1,854		$	1,890		$	204		$	332

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 (pre-tax) in 2015 relating to defined benefit pension and other postretirement benefits consists of:



($ in millions)	Pensions			Other Postretirement Benefits
Net actuarial loss / (gain) arising during the year	$	171		$	(104	)
Impact of curtailments	(7		)	—
Amortization of actuarial loss	(125		)	(32		)
Amortization of prior service cost	2			9
Foreign currency translation adjustments	(59		)	(3		)
Other	(18		)	2
Net change	$	(36	)	$	(128	)

The 2015 net actuarial loss related to the Company’s pension and other postretirement benefit plans of $67 million was primarily due to an actual loss on asset performance for the year. This loss on asset performance was largely offset by an increase in the weighted average discount rate used to determine the benefit obligation at December 31, 2015.

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 2016 are $124 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 2016 are $18 million and $(9) million, respectively.

Net periodic benefit cost for the three years ended December 31, 2015, included the following:



	Pensions									Other Postretirement Benefits
($ in millions)	2015			2014			2013			2015			2014			2013
Service cost	$	59		$	52		$	57		$	17		$	15		$	20
Interest cost	201			230			218			45			47			49
Expected return on plan assets	(295		)	(297		)	(286		)	—			—			—
Amortization of prior service credit	(2		)	(2		)	(2		)	(9		)	(10		)	(9		)
Amortization of actuarial losses	125			77			102			32			11			28
Curtailments and special termination benefits	8			8			18			—			—			—
Net periodic benefit cost	$	96		$	68		$	107		$	85		$	63		$	88

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, 2015 and 2014:



	2015		2014
Discount rate⁽¹⁾	4.1	%	3.8	%
Rate of compensation increase	2.0	%	2.0	%


(1)	The discount rate for U.S. defined benefit pension and other postretirement plans was 4.5% and 4.0% as of December 31, 2015 and 2014, respectively.

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, 2015:



	2015		2014		2013
Discount rate	3.8	%	4.6	%	4.1	%
Expected return on assets	6.1	%	6.5	%	6.5	%
Rate of compensation increase	2.0	%	3.0	%	4.0	%

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. For 2015, the return on plan assets assumption for PPG’s U.S. defined benefit pension plans was 7.25%. A change in the rate of return of 100 basis points, with other assumptions held constant, would impact 2016 net periodic pension expense by approximately $26 million. The global expected return on plan assets assumption to be used in determining 2016 net periodic pension expense will be 6.10% (7.15% for the U.S. plans only).

The discount rate used in accounting for pensions and other postretirement benefits is determined by reference to a current yield curve and by considering the timing and amount of projected future benefit payments. In 2016, the Company will change the method it uses to estimate the service and interest cost components of net periodic benefit cost for pension and other postretirement benefit costs for substantially all of its U.S. and foreign plans. Historically, the service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period. The Company has elected to use a full yield curve approach (“Split-rate” method) in the estimation of these components of benefit cost by applying specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company will make this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. This change does not affect the measurement of the Company’s total benefit obligations. The Company will account for this change as a change in estimate and, accordingly, will recognize its effect prospectively beginning in fiscal year 2016. We expect 2016 defined benefit expense to decrease by approximately $20 million to $25 million. A change in the discount rate of 100 basis points, with all other assumptions held constant, would impact 2016 net periodic benefit expense for our defined benefit pension and other postretirement benefit plans by approximately $27 million and $16 million, respectively.

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 2015 was 6.4% declining to a projected 4.5% in the year 2024. For 2016, the assumed weighted-average healthcare cost trend rate used will be 6.3% declining to a projected 4.5% between 2016 and 2039 for medical and prescription drug costs, respectively. 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 2016 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	$	9	$	(6	)
Increase (decrease) in the benefit obligation	$	120	$	(91	)

Contributions to Defined Benefit Plans



($ in millions)	December 31,
	2015		2014		2013
U.S. defined benefit pension voluntary contributions	$	250	$	2	$	50
Non-U.S. defined benefit pension plans	$	39	$	39	$	124

PPG did not have a mandatory contribution to its U.S. defined benefit pension plans in 2015, 2014 or 2013, and PPG does not expect to be required to make contributions to its U.S. defined benefit pension plans in 2016. Some contributions to PPG’s non-U.S. defined benefit pension plans were required by local funding requirements. PPG expects to make mandatory contributions to its non-U.S. plans in the range of $35 million to $40 million in 2016. We may make voluntary contributions to our defined benefit pension plans in 2016 and beyond.

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
2016	$	337	$	65
2017	276		66
2018	279		66
2019	282		67
2020	286		67
2021 to 2024	1,459		319

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 in 2014, 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, 2015 and 2014 for all PPG defined benefit plans:



Asset Category	Dec. 31, 2015	Dec. 31, 2014
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, 2015, 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	$	—	$	336	$	—	$	336
		Small cap	—		104		—		104
		PPG common stock	87		—		—		87
	Non-U.S.
		Developed and emerging markets⁽²⁾	91		690		—		781
Debt securities:
	Cash and cash equivalents		—		51		—		51
	Corporate⁽³⁾
		U.S.⁽⁴⁾	—		1,016		125		1,141
		Developed and emerging markets⁽²⁾	—		146		—		146
	Diversified⁽⁵⁾		—		581		—		581
	Government
		U.S.⁽⁴⁾	173		65		—		238
		Developed markets	—		383		—		383
	Other⁽⁶⁾		—		159		21		180
Real estate, hedge funds, and other			—		110		489		599
	Total		$	351	$	3,641	$	635	$	4,627


(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, 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 change in the fair value of the Company’s Level 3 pension assets for the years ended December 31, 2015 and 2014 was as follows:



($ in millions)	Real Estate			Other Debt Securities			Hedge Funds & Other Assets			Total
Balance, January 1, 2014	$	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
Realized gain	15			1			—			16
Unrealized gain/(loss) for positions still held	12			—			(4		)	8
Transfers (out)/in	(24		)	(1		)	38			13
Foreign currency loss	(4		)	(2		)	(8		)	(14		)
Balance, December 31, 2015	$	209		$	21		$	405		$	635

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 $867 million and $945 million at December 31, 2015 and 2014, 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 $17 million, $19 million and $30 million related to these obligations in 2015, 2014, and 2013, respectively.

PPG has retained certain liabilities for pension and post-retirement benefits earned for service up to the date of sale of its former automotive glass and service business for employees who were active as of the divestiture date and for individuals who were retirees of the business as of the divestiture date. There have been multiple PPG facilities closures 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 individual plan. The Company recorded settlement charges of $7 million and $2 million in 2015 and 2014, respectively. Additional windup charges of $40 million to $50 million will be taken in 2016 related to these plant closures. The 2016 cash contributions related to these windups are estimated to be $5 million to $10 million.

Other Plans

Defined Contribution Plans

The Company recognized expense for defined contribution retirement plans in 2015, 2014 and 2013 of $60 million, $55 million and $49 million, respectively. The Company’s annual cash contributions to defined contribution retirement plans approximated the expense recognized in 2015, 2014, and 2013. As of December 31, 2015 and 2014, the Company’s liability for contributions to be made to the defined contribution retirement plans was $12 million and $14 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.

In 2013, the Company-matching contribution was increased to 100%, from 75%, on the first 6% of compensation contributed by eligible employees. The Company-matching contribution remained at 100% for 2015.

In 2016, the Company terminated its U.S. defined contribution plan and subsequently merged the plan into the Savings Plan. Under the combined plan, eligible employees will continue to receive a contribution equal to between 2% and 5% of annual compensation, based on age and years of service.

Compensation expense and cash contributions related to the Company match of participant contributions to the Savings Plan for 2015, 2014, and 2013 totaled $44 million, $42 million and $36 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 $13 million, $14 million and $15 million for 2015, 2014, and 2013, 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 2015, 2014 and 2013 of $5 million, $10 million and $18 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 $3 million, $8 million, and $17 million in 2015, 2014 and 2013, respectively, of which approximately $3.0 million annually 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 $124 million and $119 million as of December 31, 2015 and 2014, respectively, and the investments in marketable securities, which are included in “Investments” and “Other current assets” in the accompanying consolidated balance sheet, were $81 million and $79 million as of December 31, 2015 and 2014, respectively.