NOTE 15. PENSION BENEFITS

The Company sponsors a qualified defined benefit pension plan (the “Pension Plan”). The Pension Plan covers approximately 9,500 participants and beneficiaries, of which 2,200 are active employees. The Pension Plan is closed to new employees hired after January 1, 2006. The Pension Plan is generally non-contributory, but participation requires or required some employees to contribute 3% of pay, as defined, per year. Benefits for participants who are or were required to contribute to the Pension Plan are based on compensation during plan participation and the number of years of participation. Benefits for the vast majority of participants who are not required to contribute to the Pension Plan are based on years of service and final average pay, as defined. The Company funds the Pension Plan in accordance with the requirements of ERISA.

NOTE 15. PENSION BENEFITS (Continued)

Changes in Fair Value of Plan Assets and Changes in Projected Benefit Obligation for the Pension Plan for the years ended December 31, 2014 and 2013 were:



DOLLARS IN MILLIONS
DOLLARS IN MILLIONS	2014			2013
Fair Value of Plan Assets at Beginning of Year	$	524.5		$	457.6
Actual Return on Plan Assets	41.7			34.5
Employer Contributions	—			55.0
Benefits Paid	(23.2		)	(22.6		)
Fair Value of Plan Assets at End of Year	543.0			524.5
Projected Benefit Obligation at Beginning of Year	515.5			553.9
Service Cost	8.7			10.8
Interest Cost	24.8			22.4
Benefits Paid	(23.2		)	(22.6		)
Plan Amendments	(0.6		)	—
Actuarial Losses (Gains)	108.8			(49.0		)
Projected Benefit Obligation at End of Year	634.0			515.5
Funded Status—Plan Assets in Excess (Deficit) of Projected Benefit Obligation	$	(91.0	)	$	9.0
Unamortized Amount Reported in AOCI at End of Year:
Accumulated Actuarial Loss	$	(178.6	)	$	(86.3	)
Prior Service Credit	0.5			—
Unamortized Amount Reported in AOCI at End of Year	$	(178.1	)	$	(86.3	)
Accumulated Benefit Obligation at End of Year	$	608.2		$	496.2

The measurement dates of the assets and liabilities at end of year presented in the preceding table under the headings, “2014” and “2013” were December 31, 2014 and December 31, 2013, respectively.

The weighted-average discount rate and rate of increase in future compensation levels used to estimate the components of the Projected Benefit Obligation for the Pension Plan at December 31, 2014 and 2013 were:

Weighted-average asset allocations for the Pension Plan at December 31, 2014 and 2013 by asset category were:



ASSET CATEGORY	2014		2013
Cash and Short-term Investments	4	%	8	%
Corporate Bonds and Notes	29		27
Common and Preferred Stocks	43		34
Exchange Traded Funds	12		22
Other Assets	12		9
Total	100	%	100	%

The investment objective of the Pension Plan is to produce current income and long-term capital growth through a combination of equity and fixed income investments which, together with appropriate employer contributions and any required employee contributions, is adequate to provide for the payment of the benefit obligations of the Pension Plan. The assets of the Pension Plan may be invested in fixed income and equity investments or any other investment vehicle or financial instrument deemed appropriate. Fixed income investments may include cash and short-term instruments, U.S. Government securities, corporate bonds, mortgages and other fixed income investments. Equity investments may include various types of stock, such as large-cap, mid-cap and small-cap stocks, and may also include investments in investment companies, collective investment funds and

NOTE 15. PENSION BENEFITS (Continued)

Kemper common stock (subject to Section 407 and other requirements of ERISA). The Pension Plan has not invested in Kemper common stock.

The trust investment committee for the Pension Plan, along with its third party fiduciary advisor, periodically reviews the performance of the Pension Plan’s investments and asset allocation. Several external investment managers, one of which is Fayez Sarofim & Co. (see Note 23, “Related Parties,” to the Consolidated Financial Statements), manage the equity investments of the trust for the Pension Plan. Each manager is allowed to exercise investment discretion, subject to limitations, if any, established by the trust investment committee for the Pension Plan. All other investment decisions are made by the Company, subject to general guidelines as set by the trust investment committee for the Pension Plan.

The Company determines its Expected Long Term Rate of Return on Plan Assets based primarily on the Company’s expectations of future returns, with consideration to historical returns, for the Pension Plan’s investments, based on target allocations of the Pension Plan’s investments.

Fair value measurements for the Pension Plan’s assets at December 31, 2014 are summarized below:



DOLLARS IN MILLIONS	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	18.4	$	—	$	—	$	18.4
States and Political Subdivisions	—		3.3		—		3.3
Corporate Bonds and Notes	—		136.6		—		136.6
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		6.4		—		6.4
Common Stocks:
Manufacturing	98.8		15.0		—		113.8
Other Industries	79.3		2.3		—		81.6
Other Equity Interests:
Collective Investment Funds	—		30.0		—		30.0
Exchange Traded Funds	65.5		—		—		65.5
Limited Liability Companies and Limited Partnerships	—		—		64.5		64.5
Short-term Investments	21.5		—		—		21.5
Receivables and Other	1.0		—		0.4		1.4
Total	$	284.5	$	193.6	$	64.9	$	543.0

Additional information pertaining to the changes in the fair value of the Pension Plan’s assets classified as Level 3 for the year ended December 31, 2014 is presented below:



DOLLARS IN MILLIONS	Other Equity Interests		Receivables and Other			Total
Balance at Beginning of Year	$	46.9	$	0.5		$	47.4
Return on Plan Assets Held	3.4		—			3.4
Purchases, Sales and Settlements, Net	14.2		(0.1		)	14.1
Balance at End of Year	$	64.5	$	0.4		$	64.9

NOTE 15. PENSION BENEFITS (Continued)

Fair value measurements for the Pension Plan’s assets at December 31, 2013 are summarized below:



DOLLARS IN MILLIONS	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	12.1	$	—	$	—	$	12.1
States and Political Subdivisions	—		3.1		—		3.1
Corporate Bonds and Notes	—		127.0		—		127.0
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		4.0		—		4.0
Common Stocks:
Manufacturing	97.5		7.8		—		105.3
Other Industries	67.2		1.8		—		69.0
Other Equity Interests:
Exchange Traded Funds	111.7		—		—		111.7
Limited Liability Companies and Limited Partnerships	—		—		46.9		46.9
Short-term Investments	42.6		—		—		42.6
Receivables and Other	2.3		—		0.5		2.8
Total	$	333.4	$	143.7	$	47.4	$	524.5

Additional information pertaining to the changes in the fair value of the Pension Plan’s assets classified as Level 3 for the year ended December 31, 2013 is presented below:



DOLLARS IN MILLIONS	Other Equity Interests		Receivables and Other			Total
Balance at Beginning of Year	$	26.9	$	0.6		$	27.5
Return on Plan Assets Held	3.5		—			3.5
Purchases, Sales and Settlements, Net	16.5		(0.1		)	16.4
Balance at End of Year	$	46.9	$	0.5		$	47.4

The components of Comprehensive Pension Expense (Income) for the Pension Plan for the years ended December 31, 2014, 2013 and 2012 were:



DOLLARS IN MILLIONS	2014			2013			2012
Service Cost Earned During the Year	$	8.7		$	10.8		$	10.8
Interest Cost on Projected Benefit Obligation	24.8			22.4			22.4
Expected Return on Plan Assets	(34.9		)	(29.7		)	(29.8		)
Amortization of Actuarial Loss	9.7			26.2			18.8
Settlements	—			—			0.3
Pension Expense Recognized in Consolidated Statements of Income	8.3			29.7			22.5
Unrecognized Pension Loss (Gain) Arising During the Year	102.0			(53.8		)	34.8
Prior Service Credit Arising During the Year	(0.6		)	—			—
Amortization of Accumulated Unrecognized Pension Loss	(9.7		)	(26.2		)	(18.8		)
Comprehensive Pension Expense (Income)	$	100.0		$	(50.3	)	$	38.5

NOTE 15. PENSION BENEFITS (Continued)

The Company estimates that Pension Expense for the Pension Plan for the year ended December 31, 2015 will include expense of $23.0 million resulting from the amortization of the related accumulated actuarial loss included in AOCI at December 31, 2014.

Total Pension Expense Recognized in the Consolidated Statements of Income as presented in the preceding table includes service cost benefits earned and reported in discontinued operations of $0.5 million for the year ended December 31, 2012.

The weighted-average discount rate, rate of increase in future compensation levels and expected long-term rate of return on plan assets used to develop the components of Pension Expense for the Pension Plan for the years ended December 31, 2014, 2013 and 2012 were:



	2014		2013		2012
Discount Rate	4.90	%	4.05	%	4.60	%
Rate of Increase in Future Compensation Levels	3.05		3.08		3.27
Expected Long Term Rate of Return on Plan Assets	7.00		7.00		7.00

On September 3, 2013, the Company made a voluntary cash contribution of $55.0 million to the Pension Plan. The Company did not contribute to the Pension Plan in 2014 or 2012. The Company does not expect that it will be required to contribute to the Pension Plan in 2015, but could make a voluntary contribution pursuant to the maximum funding limits under ERISA.

The following benefit payments (net of participant contributions), which consider expected future service, as appropriate, are expected to be paid from the Pension Plan:



DOLLARS IN MILLIONS	Years Ending December 31,
DOLLARS IN MILLIONS	2015		2016		2017		2018		2019		2020-2024
Estimated Pension Benefit Payments	$	25.2	$	26.5	$	27.8	$	29.2	$	30.4	$	169.6

The Company also sponsors a non-qualified supplemental defined benefit pension plan (the “Supplemental Plan”). The unfunded liability related to the Supplemental Plan was $31.0 million and $23.3 million at December 31, 2014 and 2013, respectively. Pension expense for the Supplemental Plan was $1.8 million, $1.8 million and $1.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. An actuarial loss of $7.0 million before taxes, an actuarial gain of $1.5 million before taxes and an actuarial loss of $1.3 million before taxes are included in Other Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012, respectively.

The Company also sponsors several defined contribution benefit plans covering most of its employees. The Company made contributions to those plans of $7.3 million, $7.3 million and $7.8 million in 2014, 2013 and 2012, respectively.

Discount Rate

Rate of Increase in Future Compensation Levels