EMPLOYEE BENEFIT PLANS

Pension Plans

We historically sponsored several defined benefit pension plans covering most employees not covered by union-administered plans, including certain employees in foreign countries. These plans generally provided participants with benefits based on years of service and career-average compensation levels. We have a non-qualified supplemental pension plan covering certain U.S. employees, which provides for incremental pension payments from our funds so that total pension payments equal the amounts that would have been payable from our principal pension plans if it were not for limitations imposed by income tax regulations. The accrued pension liability related to this plan was $51 million and $44 million at December 31, 2014 and 2013, respectively.

The retirement benefits for non-grandfathered and certain non-union employees in the U.S., Canada and the United Kingdom (U.K.) are frozen. Non-grandfathered plan participants ceased accruing benefits under the plan as of the respective amendment effective date and began receiving an enhanced benefit under a defined contribution plan. All retirement benefits earned as of the amendment effective date were fully preserved and will be paid in accordance with the plan and legal requirements. The funding policy for these plans is to make contributions based on annual service costs plus amortization of unfunded past service liability, but not greater than the maximum allowable contribution deductible for federal income tax purposes. We may, from time to time, make voluntary contributions to our pension plans, which exceed the amount required by statute. The majority of the plans’ assets are invested in a master trust that, in turn, is invested primarily in commingled funds whose investments are listed stocks and bonds.

Pension Expense

Pension expense from continuing operations was as follows:



	Years ended December 31,
	2014			2013		2012
	(In thousands)
Company-administered plans:
Service cost	13,023			15,991		15,479
Interest cost	100,909			89,682		94,605
Expected return on plan assets	(115,410		)	(106,150	)	(96,342	)
Pension lump sum settlement expense	97,231			—		—
Census data adjustment	—			3,905		—
Amortization of:
Net actuarial loss	23,573			35,282		31,200
Prior service credit	(1,788		)	(1,818	)	(2,275	)
	117,538			36,892		42,667
Union-administered plans	21,118			11,226		6,746
Net pension expense	$	138,656		48,118		49,413

Company-administered plans:
U.S.	$	118,797		37,636		38,992
Foreign	(1,259		)	(744	)	3,675
	117,538			36,892		42,667
Union-administered plans	21,118			11,226		6,746
	$	138,656		48,118		49,413

In October 2014, we offered approximately 11,000 former vested employees in our U.S. defined benefit plan a one-time option to receive a lump sum distribution of their benefits. Approximately 6,200 former employees representing 60% of former vested employees offered accepted the lump sum distribution offer. In December 2014, we made payments totaling $224 million from the U.S. defined benefit plan assets, which resulted in a settlement of $259 million, representing approximately 12% of our U.S. pension plan obligations. We recognized pension lump sum settlement expense of $97 million for unrecognized actuarial losses as a result of the partial settlement of our pension plan liability. The amount of the lump sum settlement expense is based on the proportionate amount of unrecognized U.S. actuarial net losses equal to the settled percentage of our pension benefit obligation.

During 2013, we determined certain census data used to actuarially determine the value of our pension benefit obligation for the years 1998 to 2012 was inaccurate. We recorded a one-time, non-cash charge of $4 million to adjust our pension benefit obligation for prior year census data. We recorded the cumulative adjustment within "Selling, general and administrative expenses" in our Consolidated Statement of Earnings as the impact of revising our pension benefit obligation was not material to our consolidated financial statements in any individual prior period, and the cumulative amount was not material to 2013 results.

The following table sets forth the weighted-average actuarial assumptions used for Ryder’s pension plans in determining annual pension expense:



	U.S. Plans Years ended December 31,			Foreign Plans Years ended December 31,
	2014	2013	2012	2014	2013	2012
Discount rate	5.00%	4.10%	4.90%	4.57%	4.43%	4.76%
Rate of increase in compensation levels	3.00%	4.00%	4.00%	3.09%	3.55%	3.54%
Expected long-term rate of return on plan assets	6.50%	6.80%	7.05%	5.94%	6.57%	6.00%
Gain and loss amortization in years	23	23	24	27	26	27

The return on plan assets assumption reflects the weighted-average of the expected long-term rates of return for the broad categories of investments held in the plans. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns or in asset allocation strategies of the plan assets.

Obligations and Funded Status

The following table sets forth the benefit obligations, assets and funded status associated with our pension plans:



	December 31,
	2014			2013
	(In thousands)
Change in benefit obligations:
Benefit obligations at January 1	$	2,104,749		2,207,421
Service cost	13,023			15,991
Interest cost	100,909			89,682
Actuarial loss (gain)	380,595			(129,259	)
Pension settlement	(259,319		)	—
Benefits paid	(87,020		)	(82,120	)
Foreign currency exchange rate changes	(31,822		)	3,034
Benefit obligations at December 31	2,221,115			2,104,749

Change in plan assets:
Fair value of plan assets at January 1	1,832,490			1,612,927
Actual return on plan assets	178,061			201,019
Employer contribution	107,483			96,186
Benefits paid	(87,020		)	(82,120	)
Pension settlement	(223,654		)	—
Foreign currency exchange rate changes	(31,943		)	4,478
Fair value of plan assets at December 31	1,775,417			1,832,490
Funded status	$	(445,698	)	(272,259	)
Funded percent	80		%	87	%

Amounts recognized in the Consolidated Balance Sheets consisted of:



	December 31,
	2014			2013
	(In thousands)
Noncurrent asset	$	2,698		23,556
Current liability	(3,739		)	(3,660	)
Noncurrent liability	(444,657		)	(292,155	)
Net amount recognized	$	(445,698	)	(272,259	)

Amounts recognized in accumulated other comprehensive loss (pre-tax) consisted of:



	December 31,
	2014			2013
	(In thousands)
Prior service credit	$	(195	)	(2,153	)
Net actuarial loss	905,976			745,356
Net amount recognized	$	905,781		743,203

In 2015, we expect to recognize the remainder of the prior service credit and $32 million of the net actuarial loss as a component of pension expense.

The following table sets forth the weighted-average actuarial assumptions used in determining funded status:



	U.S. Plans December 31,		Foreign Plans December 31,
	2014	2013	2014	2013
Discount rate	4.15%	5.00%	3.69%	4.58%
Rate of increase in compensation levels	3.00%	3.00%	3.09%	3.09%

At December 31, 2014 and 2013, our pension obligations (accumulated benefit obligations (ABO) and projected benefit obligations (PBO) greater than the fair value of related plan assets for our U.S. and foreign plans were as follows:



	U.S. Plans December 31,			Foreign Plans December 31,		Total December 31,
	2014		2013	2014	2013	2014	2013
	(In thousands)
Accumulated benefit obligations	$	1,689,191	1,628,407	487,604	445,993	2,176,795	2,074,400
Plans with ABO in excess of plan assets:
PBO	$	1,728,643	1,656,086	9,172	9,303	1,737,815	1,665,389
ABO	$	1,689,191	1,628,407	5,620	7,740	1,694,811	1,636,147
Fair value of plan assets	$	1,289,621	1,369,574	—	—	1,289,621	1,369,574
Plans with PBO in excess of plan assets:
PBO	$	1,728,643	1,656,086	9,172	9,303	1,737,815	1,665,389
ABO	$	1,689,191	1,628,407	5,620	7,740	1,694,811	1,636,147
Fair value of plan assets	$	1,289,621	1,369,574	—	—	1,289,621	1,369,574

Plan Assets

Our pension investment strategy is to reduce the effects of future volatility on the fair value of our pension assets relative to our pension liabilities. We increase our allocation of high quality, longer-term fixed income securities and reduce our allocation of equity investments as the funded status of the plans improve. The plans utilize several investment strategies, including actively and passively managed equity and fixed income strategies. The investment policy establishes targeted allocations for each asset class that incorporate measures of asset and liability risks. Deviations between actual pension plan asset allocations and targeted asset allocations may occur as a result of investment performance and changes in the funded status from time to time. Rebalancing of our pension plan asset portfolios is evaluated periodically and rebalanced if actual allocations exceed an acceptable range. U.S. plans account for approximately 75% of our total pension plan assets. Equity securities primarily include investments in both domestic and international common collective trusts and publicly traded equities. Fixed income securities primarily include domestic collective trusts and corporate bonds. Other types of investments include private equity fund-of-funds and hedge fund-of-funds. Equity and fixed income securities in our international plans include actively and passively managed mutual funds.

The following table presents the fair value of each major category of pension plan assets and the level of inputs used to measure fair value as of December 31, 2014 and 2013:



	Fair Value Measurements at December 31, 2014
Asset Category	Total		Level 1	Level 2	Level 3
	(In thousands)
Equity securities:
U.S. common collective trusts	$	421,185	—	421,185	—
Foreign common collective trusts	405,224		—	405,224	—
Fixed income securities:
Corporate bonds	70,999		—	70,999	—
Common collective trusts	788,282		—	788,282	—
Private equity and hedge funds	89,727		—	—	89,727
Total	$	1,775,417	—	1,685,690	89,727



	Fair Value Measurements at December 31, 2013
Asset Category	Total		Level 1	Level 2	Level 3
	(In thousands)
Equity securities:
U.S. companies	$	63,346	63,346	—	—
U.S. common collective trusts	406,358		—	406,358	—
Foreign common collective trusts	431,933		—	431,933	—
Fixed income securities:
Corporate bonds	59,917		—	59,917	—
Common collective trusts	794,437		—	794,437	—
Private equity and hedge funds	76,499		—	—	76,499
Total	$	1,832,490	63,346	1,692,645	76,499

The following is a description of the valuation methodologies used for our pension assets as well as the level of input used to measure fair value:

Equity securities — These investments include common and preferred stocks and index common collective trusts that track U.S. and foreign indices. Fair values for the common and preferred stocks were based on quoted prices in active markets and were therefore classified within Level 1 of the fair value hierarchy. The common collective trusts were valued at the unit prices established by the funds’ sponsors based on the fair value of the assets underlying the funds. Since the units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy.

Fixed income securities — These investments include investment grade bonds of U.S. issuers from diverse industries, government issuers, index common collective trusts that track the Barclays Aggregate Index and other fixed income investments (primarily mortgage-backed securities). Fair values for the corporate bonds were valued using third-party pricing services. These sources determine prices utilizing market income models which factor in, where applicable, transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and volatility. Since the corporate bonds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy. The common collective trusts were valued at the unit prices established by the funds’ sponsors based on the fair value of the assets underlying the funds. Since the units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy. The other investments are not actively traded and fair values are estimated using bids provided by brokers, dealers or quoted prices of similar securities with similar characteristics or pricing models. Therefore, the other investments have been classified within Level 2 of the fair value hierarchy.

Private equity and hedge funds — These investments represent limited partnership interests in private equity and hedge funds. The partnership interests are valued by the general partners based on the underlying assets in each fund. The limited partnership interests are valued using unobservable inputs and have been classified within Level 3 of the fair value hierarchy.

The following table presents a summary of changes in the fair value of the pension plans’ Level 3 assets for the years ended December 31, 2014 and 2013:



	2014		2013
	(In thousands)
Beginning balance at January 1	$	76,499	71,207
Return on plan assets:
Relating to assets still held at the reporting date	4,903		4,258
Relating to assets sold during the period	1,882		2,194
Purchases, sales, settlements and expenses	6,443		(1,160	)
Ending balance at December 31	$	89,727	76,499

The following table details pension benefits expected to be paid in each of the next five fiscal years and in aggregate for the five fiscal years thereafter:



	(In thousands)
2015	$	94,093
2016	98,874
2017	103,272
2018	108,311
2019	113,078
2020-2024	622,761

For 2015, required pension contributions to our pension plans are estimated to be $39 million.

Multi-employer Plans

We also participate in multi-employer plans that provide defined benefits to certain employees covered by collective-bargaining agreements. Such plans are usually administered by a board of trustees comprised of the management of the participating companies and labor representatives. The net pension cost of these plans is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following respects: 1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees and former employees of other participating employers; 2) if a participating employer is no longer able to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers at annual contribution rates under the collective bargaining agreements; 3) if there is a mass withdrawal of substantially all employers from the plan, we may be required to pay that plan an annual contribution based on historical contribution levels as prescribed by federal statute; and 4) if we choose to stop participating in some of our multi-employer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability.

During 2014, we recorded estimated pension settlement charges of $13 million related to the transition of employees from two U.S. multi-employer plans into another multi-employer plan in which we participate, and our exit from two U.S. multi-employer pension plans. During 2013, we recorded estimated pension settlement charges of $3 million for the exit from a U.S. multi-employer pension plan and the restructured agreement with another U.S. multi-employer pension plan. These charges were recorded within "Selling, general, and administrative expenses" in our Consolidated Statement of Earnings and is included in the Union-administered plans expense.

Our participation in these plans is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2014 and 2013 is for the plan years ended December 31, 2013 and December 31, 2012, respectively. The zone status is based on information that we received from the plan. Among other factors, plans in the red zone are generally less than sixty-five percent funded, plans in the yellow zone are less than eighty percent funded, and plans in the green zone are at least eighty percent funded.



		Pension Protection Act Zone Status			Ryder Contributions					Expiration Date(s) of Collective-Bargaining Agreement(s)
Pension Fund	Employer Identification Number	2014	2013	FIP/RP Status Pending/ Implemented ⁽¹⁾	2014		2013	2012	Surcharge Imposed	Expiration Date(s) of Collective-Bargaining Agreement(s)
					(Dollars in thousands)
Western Conference Teamsters	91-6145047	Green	Green	No	$	2,315	2,180	1,943	No	1/12/15 to 6/30/19
IAM National	51-6031295	Green	Green	No	3,311		2,987	2,038	No	9/14/15 to 9/30/19
Automobile Mechanics Local No. 701	36-6042061	Red	Red	RP Adopted	1,632		1,530	1,527	Yes	5/31/16 to 10/31/17
Central States Southeast and Southwest Areas	36-6044243	Red	Red	RP adopted	211		226	226	No	10/31/15 to 5/31/17
Other funds					1,085		1,483	1,012
Total contributions					8,554		8,406	6,746
Pension settlement charges					12,564		2,820	—
Union-administered plans					$	21,118	11,226	6,746

_____________


(1)	The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented.

Our contributions are impacted by changes in contractual contributions rates as well as changes in the number of employees covered by each plan. Our contributions to the International Association of Machinists Motor City Pension Fund represented more than 5% of the total plan contributions for the plan year ended June 30, 2014. We have exited out of this multi-employer plan as of December 31, 2014.

Savings Plans

Employees who do not actively participate in pension plans and are not covered by union-administered plans are generally eligible to participate in enhanced savings plans. These plans provide for (i) a company contribution even if employees do not make contributions, (ii) a company match of employee contributions of eligible pay, subject to tax limits and (iii) a discretionary company match. Savings plan costs totaled $35 million in 2014, $35 million in 2013, and $33 million in 2012.

Deferred Compensation and Long-Term Compensation Plans

We have deferred compensation plans that permit eligible U.S. employees, officers and directors to defer a portion of their compensation. The deferred compensation liability, including Ryder matching amounts and accumulated earnings, totaled $40 million and $34 million at December 31, 2014 and 2013, respectively.

We have established grantor trusts (Rabbi Trusts) to provide funding for benefits payable under the supplemental pension plan, deferred compensation plans and long-term incentive compensation plans. The assets held in the trusts at December 31, 2014 and 2013 amounted to $41 million and $35 million, respectively. The Rabbi Trusts’ assets consist of short-term cash investments and a managed portfolio of equity securities, including our common stock. These assets, except for the investment in our common stock, are included in “Direct financing leases and other assets” because they are available to our general creditors in the event of insolvency. The equity securities are classified as trading securities and stated at fair value. Both realized and unrealized gains and losses are included in “Miscellaneous income, net.” The Rabbi Trusts’ investment of $2 million and $2 million in our common stock at December 31, 2014 and 2013, respectively, is reflected at historical cost and recorded against shareholders’ equity.