Postretirement Benefits

Defined Benefit Plans

We provide postretirement benefits to a substantial portion of our employees and retirees. Costs associated with postretirement benefits include pension and postretirement health care expenses for employees, retirees, surviving spouses and dependents.

Obligations and Funded Status

A summary of the changes in benefit obligations and plan assets is as follows:



	Pension Benefits						Health and Life Insurance Benefits
(in millions)	2014			2013			2014			2013
Change in benefit obligations
Benefit obligations at beginning of year	$	3,943		$	4,492		$	1,674		$	1,866
Amendments	—			3			—			—
Service cost	12			20			5			7
Interest on obligations	158			143			68			62
Actuarial loss (gain)	176			(334		)	319			(142		)
Curtailments	(2		)	(33		)	—			—
Contractual termination benefits	23			—			2			—
Currency translation	49			(15		)	—			—
Plan participants' contributions	—			—			40			28
Subsidy receipts	—			—			34			41
Benefits paid	(318		)	(333		)	(185		)	(188		)
Benefit obligations at end of year	$	4,041		$	3,943		$	1,957		$	1,674
Change in plan assets
Fair value of plan assets at beginning of year	$	2,519		$	2,411		$	447		$	437
Actual return on plan assets	206			284			26			66
Currency translation	42			(22		)	—			—
Employer contributions	164			165			2			3
Benefits paid	(304		)	(319		)	(60		)	(59		)
Fair value of plan assets at end of year	$	2,627		$	2,519		$	415		$	447
Funded status at year end	$	(1,414	)	$	(1,424	)	$	(1,542	)	$	(1,227	)



	Pension Benefits						Health and Life Insurance Benefits
(in millions)	2014			2013			2014			2013
Amounts recognized in our Consolidated Balance Sheets consist of:
Current liability	$	(15	)	$	(14	)	$	(79	)	$	(73	)
Noncurrent liability	(1,399		)	(1,410		)	(1,463		)	(1,154		)
Net liability recognized	$	(1,414	)	$	(1,424	)	$	(1,542	)	$	(1,227	)

Amounts recognized in our accumulated other comprehensive loss consist of:
Net actuarial loss	$	2,019		$	1,947		$	664		$	354
Net prior service cost (benefit)	1			1			(6		)	(10		)
Net amount recognized	$	2,020		$	1,948		$	658		$	344

The accumulated benefit obligation for pension benefits, a measure that excludes the effect of prospective salary and wage increases, was $4 billion and $3.9 billion at October 31, 2014 and 2013, respectively.

The cumulative postretirement benefit adjustment included in the Consolidated Statement of Stockholders' Deficit at October 31, 2014 is net of $537 million of deferred taxes related to the Company's postretirement benefit plans.

Information for pension plans with accumulated benefit obligations in excess of plan assets were as follows:



(in millions)	2014		2013
Projected benefit obligations	$	4,041	$	3,943
Accumulated benefit obligations	4,021		3,933
Fair value of plan assets	2,627		2,519

Generally, the pension plans are non-contributory. Our policy is to fund the pension plans in accordance with applicable U.S. and Canadian government regulations and to make additional contributions from time to time. As of October 31, 2014, we have met all regulatory funding requirements. In 2014, we contributed $164 million to our pension plans to meet regulatory funding requirements. In August 2014, HATFA, including extension of pension funding interest rate relief, was signed into law. As a result, we lowered our funding expectations. We expect to contribute $148 million to our pension plans during 2015.

We primarily fund other post-employment benefit ("OPEB") obligations, such as retiree medical, in accordance with a 1993 settlement agreement (the "1993 Settlement Agreement"), which requires us to fund a portion of the plans' annual service cost to a retiree benefit trust (the "Base Trust"). The 1993 Settlement Agreement resolved a class action lawsuit originally filed in 1992 regarding the restructuring of the Company's then applicable retiree health care and life insurance benefits. In 2014, we contributed $2 million to our OPEB plans to meet legal funding requirements. We expect to contribute $2 million to our OPEB plans during 2015.

We have certain unfunded pension plans, under which we make payments directly to employees. Benefit payments of $14 million for both 2014 and 2013, are included within the amount of "Benefits paid" in the "Change in benefit obligation" section above, but are not included in the "Change in plan assets" section, because the payments are made directly by us and not by separate trusts that are used in the funding of our other pension plans.

We also have certain OPEB benefits that are paid from Company assets (instead of trust assets). Payments from Company assets, net of participant contributions and subsidy receipts, result in differences between benefits paid as presented under "Change in benefit obligation" and "Change in plan assets" of $51 million and $60 million for 2014 and 2013, respectively.

Components of Net Periodic Benefit Expense and Other Amounts Recognized in Other Comprehensive Loss (Income)

The components of our postretirement benefits expense included in our Consolidated Statements of Operations for the years ended October 31 consist of the following:



(in millions)	2014		2013		2012
Pension expense	$	106	$	116	$	122
Health and life insurance expense	54		61		81
Total postretirement benefits expense	$	160	$	177	$	203

Components of Net Periodic Benefit Expense

Net postretirement benefits expense included in our Consolidated Statements of Operations, and other amounts recognized in our Consolidated Statements of Stockholders' Deficit, for the years ended October 31 is comprised of the following:



	Pension Benefits									Health and Life Insurance Benefits
(in millions)	2014			2013			2012			2014			2013			2012
Service cost for benefits earned during the period	$	12		$	20		17			$	5		$	7		$	7
Interest on obligation	158			143			169			68			62			83
Amortization of cumulative loss	94			128			112			16			29			38
Amortization of prior service cost (benefit)	—			1			1			(4		)	(4		)	(5		)
Curtailments	—			4			5			—			—			(3		)
Contractual termination benefits	23			—			2			2			—			(2		)
Retrospective payments to retirees	—			—			—			—			—			(2		)
Premiums on pension insurance	12			9			8			—			—			—
Expected return on assets	(193		)	(189		)	$	(192	)	(33		)	(33		)	(35		)
Net postretirement benefits expense	$	106		$	116		$	122		$	54		$	61		$	81
Other Changes in plan assets and benefit obligations recognized in other comprehensive loss (income)
Actuarial net loss (gain)	$	164		$	(422	)	$	469		$	326		$	(175	)	$	(58	)
Amortization of cumulative loss	(94		)	(128		)	(112		)	(16		)	(29		)	(38		)
Prior service cost (benefit)	—			(1		)	(1		)	—			—			—
Amortization of prior service benefit (cost)	—			(1		)	(1		)	4			4			5
Curtailments	—			(33		)	—			—			—			3
Currency translation	1			—			2			—			—			—
Total recognized in other comprehensive loss (income)	$	71		$	(585	)	$	357		$	314		$	(200	)	$	(88	)
Total net postretirement benefits expense and other comprehensive loss (income)	$	177		$	(469	)	$	479		$	368		$	(139	)	$	(7	)

In the fourth quarter of 2014, the Company recognized contractual termination charges of $11 million related to our Indianapolis, Indiana foundry facility and our Waukesha, Wisconsin foundry operations. See Note 3, Restructurings and Impairments for further discussion.

Based on a ruling received from the Financial Services Tribunal in Ontario, Canada, in the third quarter of 2014, the Company recognized contractual termination charges of $14 million related to the 2011 closure of its Chatham, Ontario plant. The Company has appealed this ruling. These charges were in addition to the previous curtailment and contractual termination charges recognized in the third quarter of 2011. There was also a remeasurement of the pension plan for hourly employees during the third quarter of 2014. The discount rate used to measure the pension benefit obligation was 3.8% at remeasurement, compared to 4.1% at October 31, 2013. As a result of the plan remeasurement, net actuarial gains of $10 million were recognized as a component of Accumulated other comprehensive loss in the third quarter of 2014. See Note 3, Restructurings and Impairments for further discussion.

In the fourth quarter of 2013, the Company made the decision to freeze all benefit accruals for the non-represented participants in the pension plans effective December 31, 2013. The plan freeze resulted in curtailment charges of $4 million and a reduction in the pension obligation of $33 million which was recognized as a component of AOCL. During 2012, the Company recognized a charge of $7 million due to plan curtailments and contractual termination charges related to the VSP and additional salaried employee terminations. See Note 3, Restructurings and Impairments, for more information on cost-reduction and restructuring activities.

The Early Retiree Reinsurance Program ("ERRP") was created under the Patient Protection and Affordable Care Act ("PPACA") to provide temporary financial assistance to health plan sponsors who provide retirement health coverage to pre-Medicare retirees. Under the terms of ERRP, no amounts were collected and deposited into the retiree benefit trust in 2014 and 2013, compared to $3 million in 2012. The amounts collected in 2012 were deposited into the retiree benefit trust and accounted for as part of the actual return on assets.

The estimated amounts for the defined benefit pension plans and the other postretirement benefit plans that will be amortized from AOCL into net periodic benefit expense over the next fiscal year are as follows:



(in millions)	Pension Benefits		Health and Life Insurance Benefits
Amortization of prior service cost (benefit)	$	—	$	(4	)
Amortization of cumulative losses	98		39

Cumulative unrecognized actuarial gains and losses for postretirement benefit plans, where substantially all of the plan participants are inactive, are amortized over the average remaining life expectancy of the inactive plan participants. Otherwise, cumulative gains and losses are amortized over the average remaining service period of active employees.

Plan amendments unrelated to negotiated labor contracts are amortized over the average remaining service period of active employees or the remaining life expectancy of the inactive participants based upon the nature of the amendment and the participants impacted. Plan amendments arising from negotiated labor contracts are amortized over the length of the contract.

Assumptions

The weighted average rate assumptions used in determining benefit obligations for the years ended October 31, 2014 and 2013 were:



	Pension Benefits				Health and Life Insurance Benefits
	2014		2013		2014		2013
Discount rate used to determine present value of benefit obligation at end of year	3.7	%	4.1	%	3.7	%	4.1	%
Expected rate of increase in future compensation levels	3.5	%	3.5	%	—		—

The weighted average rate assumptions used in determining net postretirement benefits expense for 2014, 2013, and 2012 were:



	Pension Benefits						Health and Life Insurance Benefits
	2014		2013		2012		2014		2013		2012
Discount rate^(A)	4.1	%	3.2	%	4.1	%	4.1	%	3.4	%	4.2	%
Expected long-term rate of return on plan assets	7.8	%	8.0	%	8.3	%	7.8	%	8.0	%	8.3	%
Expected rate of increase in future compensation levels	3.5	%	3.5	%	3.5	%	—		—		—

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(A)	In 2012 for pension benefits, the weighted average discount rate used to compute the expense for the period of November 1, 2011 through July 31, 2012 was 4.2%. Due to plan remeasurements at July 31, 2012 at a rate of 3.3%, the weighted average discount rate for the full fiscal year 2012 was 4.1%.

The actuarial assumptions used to compute the net postretirement benefits expense (income) are based upon information available as of the beginning of the year, specifically market interest rates, past experience, and our best estimate of future economic conditions. Changes in these assumptions may impact the measurement of future benefit costs and obligations. In computing future costs and obligations, we must make assumptions about such things as employee mortality and turnover, expected salary and wage increases, discount rates, expected returns on plan assets, and expected future cost increases. Three of these items have a significant impact on the level of expense recognized: (i) discount rates, (ii) expected rates of return on plan assets, and (iii) healthcare cost trend rates.

We determine the discount rate for our U.S. pension and OPEB obligations by matching anticipated future benefit payments for the plans to the Citigroup yield curve to establish a weighted average discount rate for each plan.

We determine our assumption as to expected return on plan assets by evaluating historical performance, investment community forecasts, and current market conditions. We consider the current asset mix as well as our targeted asset mix when establishing the expected return on plan assets.

Health care cost trend rates have been established through a review of actual recent cost trends and projected future trends. Our retiree medical and drug cost trend assumptions are our best estimate of expected inflationary increases to healthcare costs. Due to the number of former employees and their beneficiaries included in our retiree population (approximately 37,000), the trend assumptions are based upon both our specific trends and nationally expected trends.

The weighted average rate of increase in the per capita cost of postretirement health care benefits provided through U.S. plans representing 91% of our other postretirement benefit obligation, is projected to be 7.80% in 2015 and was estimated as 8.25% for 2014. Our projections assume that the rate will decrease to 5% by the year 2020 and remain at that level each year thereafter.

The effect of changing the health care cost trend rate by one-percentage point for each future year is as follows:



(in millions)	One-Percentage Point Increase		One-Percentage Point Decrease
Effect on total of service and interest cost components	$	10	$	(9	)
Effect on postretirement benefit obligation	239		(207		)

Plan Assets

The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2 and 3). See Note 13, Fair Value Measurements, for a discussion of the fair value hierarchy.

The following describes the methods and significant assumptions used to estimate fair value of the investments:


•	Cash and short-term investments—Valued at cost plus earnings from investments for the period, which approximates fair market value due to the short-term duration. Cash equivalents are valued at net asset value as provided by the administrator of the fund.


•	U.S. Government and agency securities—Valued at the closing price reported on the active market on which the security is traded or valued by the trustee at year-end using various pricing services of financial institutions, including Interactive Data Corporation, Standard & Poor's and Telekurs.


•	Corporate debt securities—Valued by the trustee at year-end using various pricing services of financial institutions, including Interactive Data Corporation, Standard & Poor's and Telekurs.


•	Common and preferred stock—Valued at the closing price reported on the active market on which the security is traded.


•	Collective trusts, Partnerships/joint venture interests and Hedge funds—Valued at the net asset value provided by the administrator of the fund. The net asset value is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding.


•	Derivatives -Valued monthly for the trustee using various pricing services of financial institutions, including Interactive Data Corporation, Standard & Poor’s and Telekurs. Valued monthly by the trustee using various providers of derivatives pricing, most notably Numerix, Markit and Super Derivatives.

The fair value of the pension and other postretirement benefit plan assets by category is summarized below:

Pension Assets



	2014										2013
(in millions)	Level 1		Level 2		Level 3			Total			Level 1		Level 2		Level 3			Total
Asset Category
Cash and Cash Equivalents	$	112	$	—	$	—		$	112		$	107	$	—	$	—		$	107
Equity
U.S. Large Cap	227		—		—			227			207		—		—			207
U.S. Small-Mid Cap	313		—		—			313			350		—		—			350
Canadian	44		—		—			44			93		—		—			93
International	244		—		—			244			254		—		—			254
Emerging Markets	108		—		—			108			105		—		—			105
Equity derivative	—		—		(106		)	(106		)	—		—		(72		)	(72		)
Fixed Income
Corporate Bonds	—		200		—			200			—		147		—			147
Government Bonds	—		630		—			630			—		494		—			494
Asset Backed Securities	—		8		—			8			—		8		—			8
Fixed income derivative	—		—		1			1			—		—		(13		)	(13		)
Collective Trusts and Other
Common and Preferred Stock	—		531		—			531			—		583		—			583
Commodities	—		58		—			58			—		68		—			68
Hedge Funds	—		—		106			106			—		—		101			101
Private Equity	—		—		94			94					—		103			103
Exchange Traded Funds	9		—		—			9			6		—		—			6
Mutual Funds	29		—		—			29			32		—		—			32
Real Estate	—		—		1			1			—		—		1			1
Total^(A)	$	1,086	$	1,427	$	96		$	2,609		$	1,154	$	1,300	$	120		$	2,574

___________________

(A)

For October 31, 2014 and 2013, the totals exclude $9 million and $8 million of receivables, respectively, which are included in the change in plan assets table. In addition, the table above includes the fair value of Canadian pension assets translated at the exchange rates as of October 31, 2014 and 2013, respectively, while the change in plan asset table includes the fair value of Canadian pension assets translated at historical foreign currency rates.

The table below presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy for pension assets for the years ended October 31, 2014 and 2013:



(in millions)	Hedge Funds		Private Equity			Real Estate		Fixed Income Derivative			Equity Derivatives
Balance at November 1, 2012	$	92	$	92		$	1	$	19		$	4
Unrealized gains (losses)	8		18			—		(32		)	(90		)
Realized gains	1		—			—		4			10
Purchases, issuances, and settlements	—		(7		)	—		(4		)	4
Balance at October 31, 2013	$	101	$	103		$	1	$	(13	)	$	(72	)
Unrealized gains (losses)	5		10			—		14			(43		)
Realized gains	—		15			—		—			—
Purchases, issuances, and settlements	—		(34		)	—		—			9
Balance at October 31, 2014	$	106	$	94		$	1	$	1		$	(106	)

Other Postretirement Benefits



	2014								2013
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Asset Category
Cash and Cash Equivalents	$	16	$	—	$	—	$	16	$	32	$	—	$	—	$	32
Equity
U.S. Large Cap	28		—		—		28		28		—		—		28
U.S. Small-Mid Cap	60		—		—		60		69		—		—		69
International	60		—		—		60		65		—		—		65
Emerging Markets	19		—		—		19		22		—		—		22
Fixed Income
Corporate Bonds	—		55		—		55		—		52		—		52
Government Bonds	—		49		—		49		—		43		—		43
Asset Backed Securities	—		3		—		3		—		4		—		4
Collective Trusts and Other
Common Stock	—		69		—		69		—		71		—		71
Commodities	—		10		—		10		—		13		—		13
Hedge Funds	—		—		22		22		—		—		21		21
Private Equity	—		—		23		23		—		—		26		26
Total^(A)	$	183	$	186	$	45	$	414	$	216	$	183	$	47	$	446

__________________


(A)	For both October 31, 2014 and 2013, the totals exclude $1 million of receivables, which are included in the change in plan asset table.

The table below presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy for other postretirement benefit assets for the years ended October 31, 2014 and 2013:



(in millions)	Hedge Funds		Private Equity
Balance at November 1, 2012	$	19	$	23
Unrealized gains	2		5
Realized gains	—		—
Purchases, issuances, and settlements	—		(2		)
Balance at October 31, 2013	$	21	$	26
Unrealized gains	1		3
Realized gains	—		4
Purchases, issuances, and settlements	—		(10		)
Balance at October 31, 2014	$	22	$	23

The investment strategy of the postretirement pension plans (the "Plans") is based on sound investment practices that emphasize long-term investment fundamentals. The objective of the strategy is to maximize long-term returns consistent with prudent levels of risk. In establishing the investment strategy of the Plans, the following factors were taken into account: (i) the time horizon available for investment, (ii) the nature of the Plan's cash flows and liabilities, and (iii) other factors that affect the Plan's risk tolerance.

The strategy is to manage the Plans to achieve fully funded status within the time horizon mandated under Pension Protection Act of 2006 after giving effect to the Preservation of Access to Care for Medicare Beneficiaries, Pension Relief Act of 2010, MAP-21, and HATFA with a prudent amount of risk. As part of that strategy, the Plans are invested in a diversified portfolio across a wide variety of asset classes. This includes areas such as large and small capitalization equities, international and emerging market equities, high quality fixed income, convertible bonds and alternative assets such as commodities, hedge fund of funds, and private equity funds. As a result of our diversification strategies, we believe we have minimized concentrations of risk within the investment portfolios.

In February 2012, the Plans entered into a three-year put spread collar hedge covering a majority of the Plans' assets. The hedge will provide protection against large equity losses while allowing participation in equity gains up to a limit per annum over the three-year term of the hedge. In addition to the asset hedge, in February 2012, the Plans entered into a three-year zero cost swaption collar. The hedge is designed to protect the liabilities of the Plans against lower interest rates, while allowing participation in the positive benefits that would result if interest rates rise up to a predefined level over the life of the hedge. Given the improvements in the equity markets and changes to the shape of the yield curve, the hedge positions were restructured in March 2013 by monetizing gains generated by the swaption strategy and using the proceeds to increase the equity protection level to reflect the increase in equity values since the inception of the hedge in February 2012. The result was that we were able to maintain the equity protection and swaption collar strategies and receive more attractive equity downside protection with no impact on collateral requirements. In May 2014, as participation in equity gains beyond the original 10% per annum became restricted by the hedging strategy, the current hedge ratio was reduced from 100% to 90%. The strategy was implemented by purchasing additional upside exposure through shorter dated, low transaction cost at-the-money S&P 500 Index call options with a notional value of $183 million.

In line with the Plans' return objectives and risk parameters, target asset allocations, which were established following a 2009 asset liability study, are approximately 55% equity investments, 30% fixed income investments, 10% alternative investments (commodities, hedge funds and private equity), and 5% cash.

All assets are managed by external investment managers. Each investment manager is expected to prudently manage the assets in a manner consistent with the investment objectives, guidelines, and constraints outlined in their Investment Management Agreements and the Investment Policy Statement. Managers are not permitted to invest outside of the asset class mandate (e.g., equity, fixed income, alternatives) or strategy for which they are appointed. In July 2013, a portion of the equity portfolio was allocated to index funds. The areas indexed were the large cap growth and large cap value strategies. Approximately 15% of the Plans' assets were indexed.

Expected Future Benefit Payments

The expected future benefit payments for the years ending October 31, 2015 through 2019 and the five years ending October 31, 2024 are estimated as follows:



(in millions)	Pension Benefit Payments		Other Postretirement Benefit Payments^(A)
2015	$	312	$	143
2016	304		132
2017	296		137
2018	288		130
2019	280		127
2020 through 2024	1,278		600

________________________


(A)	Payments are net of expected participant contributions and expected federal subsidy receipts.

Defined Contribution Plans and Other Contractual Arrangements

Our defined contribution plans cover a substantial portion of domestic salaried employees and certain domestic represented employees. The defined contribution plans contain a 401(k) feature and provide most participants with a matching contribution from the Company. Effective February 1, 2013, the Company changed the timing for depositing the matching contributions to the end of the calendar year. Many participants covered by the plans receive annual Company contributions to their retirement accounts based on an age-weighted percentage of the participant's eligible compensation for the calendar year. Defined contribution expense pursuant to these plans was $27 million in both 2014 and 2013, and $41 million in 2012.

In accordance with the 1993 Settlement Agreement, an independent Retiree Supplemental Benefit Trust (the "Supplemental Trust") was established. The Supplemental Trust, and the benefits it provides to certain retirees pursuant to a certain Retiree Supplemental Benefit Program under the 1993 Settlement Agreement ("Supplemental Benefit Program"), is not part of the Company's consolidated financial statements. The assets of the Supplemental Trust arise from three sources: (i) the Company's 1993 contribution to the Supplemental Trust of 25.5 million shares of our Class B common stock, which were subsequently sold by the Supplemental Trust prior to 2000, (ii) contingent profit-sharing contributions made by the Company pursuant to a certain Supplemental Benefit Trust Profit Sharing Plan ("Supplemental Benefit Profit Sharing Plan"), and (iii) net investment gains on the Supplemental Trust's assets, if any.

The Company's contingent profit sharing obligations under the Supplemental Benefits Profit Sharing Plan will continue until certain funding targets defined by the 1993 Settlement Agreement are met ("Profit Sharing Cessation"). Upon Profit Sharing Cessation, the Company would assume responsibility for (i) establishing the investment policy for the Supplemental Trust, (ii) approving or disapproving of certain additional supplemental benefits to the extent such benefits would result in higher expenditures than those contemplated upon the Profit Sharing Cessation, and (iii) making additional contributions to the Supplemental Trust as necessary to make up for investment and/or actuarial losses. We have recorded no profit sharing accruals based on the operating performance of the entities that are included in the determination of qualifying profits. For more information, see Note 15, Commitments and Contingencies, for a discussion of pending litigation regarding the Supplemental Benefit Profit Sharing Plan.