Pension and Other Postretirement Benefits

Summary

The Company provides noncontributory pension and various healthcare and life insurance benefits to a significant portion of its employees and retirees. Benefits are provided through defined benefit and defined contribution plans administered by the Company, as well as multiemployer plans for certain union members. The pension plan is not fully funded and, based on current actuarial assumptions, the Company plans to contribute approximately $35.0 to the master pension trust during 2015 (of which $1.0 was contributed in January 2015) and approximately $15.0 in 2016. The Company made $196.5 in contributions during 2014. In July 2014, the Company made a payment to a Voluntary Employees Beneficiary Association (“VEBA”) trust of $3.1 pursuant to a settlement of a class action filed on behalf of certain retirees from the Company’s Zanesville Works relating to the Company’s other postretirement benefit (“OPEB”) obligations to such retirees. The Company expects to make OPEB payments, after receipt of Medicare subsidy reimbursements, of approximately $50.4 and its last remaining payment to the Zanesville VEBA trust of $3.1 in 2015.

Plan Obligations

The information below includes amounts calculated based on benefit obligation and asset valuation measurement dates of December 31, 2014 and 2013.



	Pension Benefits						Other Benefits
	2014			2013			2014			2013
Change in benefit obligations:
Benefit obligations at beginning of year	$	3,380.6		$	3,759.4		$	479.2		$	602.0
Service cost	1.7			2.4			4.9			4.7
Interest cost	146.0			138.8			21.7			21.0
Plan participants’ contributions	—			—			25.4			27.0
Actuarial loss (gain)	432.1			(214.8		)	45.1			(54.3		)
Amendments	2.0			6.0			(12.8		)	—
Dearborn acquisition	—			—			128.2			—
Contributions to Butler and Zanesville retirees’ VEBA trusts	—			—			(3.1		)	(30.8		)
Benefits paid	(416.6		)	(311.4		)	(96.6		)	(95.6		)
Medicare subsidy reimbursement received	—			—			7.3			5.2
Foreign currency exchange rate changes	(0.6		)	0.2			—			—
Benefit obligations at end of year	$	3,545.2		$	3,380.6		$	599.3		$	479.2

Change in plan assets:
Fair value of plan assets at beginning of year	$	2,808.5		$	2,591.1		$	—		$	—
Actual gain on plan assets	257.8			337.7			—			—
Employer contributions	213.9			191.1			63.9			63.4
Plan participants’ contributions	—			—			25.4			27.0
Benefits paid	(416.6		)	(311.4		)	(96.6		)	(95.6		)
Medicare subsidy reimbursement received	—			—			7.3			5.2
Fair value of plan assets at end of year	$	2,863.6		$	2,808.5		$	—		$	—
Funded status	$	(681.6	)	$	(572.1	)	$	(599.3	)	$	(479.2	)

Amounts recognized in the consolidated balance sheets:
Current liabilities	$	(2.1	)	$	(17.5	)	$	(53.5	)	$	(68.4	)
Noncurrent liabilities	(679.5		)	(554.6		)	(545.8		)	(410.8		)
Total	$	(681.6	)	$	(572.1	)	$	(599.3	)	$	(479.2	)

Amounts recognized in accumulated other comprehensive income, before tax:
Actuarial loss (gain)	$	355.7		$	(16.7	)	$	23.1		$	(19.8	)
Prior service cost (credit)	16.3			18.5			(258.1		)	(318.4		)
Total	$	372.0		$	1.8		$	(235.0	)	$	(338.2	)

The accumulated benefit obligation for all defined benefit pension plans was $3,513.7 and $3,362.1 at December 31, 2014 and 2013. All the Company’s pension plans have an accumulated benefit obligation in excess of plan assets. The amounts included in current liabilities represent only those amounts expected to be paid in the next year associated with unfunded pension and OPEB benefit plans.

During 2014, the Company provided a voluntary lump-sum settlement offer to terminated vested participants in the pension plan and as a result reduced a portion of the pension obligation. The pension plan paid approximately $105.0 in December 2014 out of the pension trust assets to participants and recognized an actuarial gain of $20.0.

As a result of new mortality tables issued in October 2014 by the Society of Actuaries, the Company revised its mortality assumptions, which significantly increased its pension and OPEB obligations. The new mortality assumptions increase the assumed life expectancy of participants in the company’s benefit plans, thereby increasing the total expected benefit payments over a longer time horizon. Included in the 2014 actuarial loss (gain) in the table above were $233.5 and $12.0 related to the change in the mortality tables on pension benefits and other postretirement benefits, respectively. The actuarial loss (gain) for pension benefits also included a $25.8 out-of-period adjustment to reduce the benefit obligation for a correction of census data used in 2012 and 2013 financial results. The effects of this adjustment were not material to the financial position or results of operations in any of the periods presented.

Assumptions used to value benefit obligations and determine pension and OPEB expense (income) are as follows:



	Pension Benefits						Other Benefits
	2014		2013		2012		2014		2013		2012
Assumptions used to determine benefit obligations at December 31:
Discount rate	3.82	%	4.53	%	3.85	%	3.90	%	4.48	%	3.77	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%	4.00	%	4.00	%	4.00	%
Subsequent year healthcare cost trend rate							7.00	%	7.00	%	7.50	%
Ultimate healthcare cost trend rate							4.50	%	4.50	%	4.50	%
Year ultimate healthcare cost trend rate begins							2020		2019		2019

Assumptions used to determine pension and OPEB expense (income) for the year ended December 31:
Discount rate	4.53	%	3.85	%	4.74	%	4.48	%	3.77	%	4.72	%
Expected return on plan assets	7.25	%	7.25	%	8.00	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%	4.00	%	4.00	%	4.00	%

The discount rate is determined by finding a hypothetical portfolio of individual high-quality corporate bonds available at the measurement date and whose coupon and principal payments were sufficient to satisfy the plans’ expected future benefit payments as defined for the projected benefit obligation. The discount rate is the single rate that is equivalent to the average yield on that hypothetical portfolio of bonds.

Assumed healthcare cost trend rates generally have a significant effect on the amounts reported for healthcare plans. However, changes in these OPEB assumptions are not expected to have a material effect on the Company as a result of the existence of caps on the share of benefits that are paid by the Company. As of December 31, 2014, a one-percentage-point change in the assumed healthcare cost trend rates would have the following effects:



	One Percentage Point
	Increase		Decrease
Effect on total service cost and interest cost components	$	0.1	$	(0.1	)
Effect on postretirement benefit obligation	4.1		(4.3		)

The following presents estimated future benefit payments to beneficiaries:



	Pension Plans		Other Benefits (a)		Medicare Subsidy (a)
2015	$	286.5	$	53.5	$	(3.1	)
2016	289.1		49.8		(1.6		)
2017	302.6		46.9		(1.6		)
2018	261.7		44.6		(1.6		)
2019	254.5		43.2		(1.6		)
2020 through 2024	1,154.8		194.3		(8.8		)


(a)	The amounts shown do not include the lump sum payment in 2015 to the VEBA trust related to the Zanesville Retiree Settlement. These amounts reflect the fact that the Company has eliminated its OPEB liability related to the group of retirees covered by the Butler Retiree Settlement after 2014 and the Zanesville Retiree Settlement after 2015.

Plan Assets

Pension assets are invested in the master pension trust and are comprised primarily of investments in indexed and actively-managed funds. A fiduciary committee establishes the target asset mix and monitors asset performance. The master pension trust’s projected long-term rate of return is determined by the AK Steel master pension trust asset allocation, which is based on the investment policy statement, and long-term capital market return assumptions for the master pension trust.

The Company has developed an investment policy which takes into account the liquidity requirements, expected investment return and expected asset risk, as well as standard industry practices. The target asset allocation for the plan assets is 60% equity, 38% fixed income, and 2% cash. Equity investments consist of individual securities and common/collective trusts with equity investment strategies diversified across multiple industry sectors and company market capitalization within specific geographical investment strategies. Fixed income investments consist of individual securities and common/collective trusts, which invest primarily in investment-grade and high-yield corporate bonds and U.S. treasury securities. The fixed income investments are diversified as to ratings, maturities, industries and other factors. The plan assets contain no significant concentrations of risk related to individual securities or industry sectors. The plan has no direct investments in the Company’s common stock or fixed income securities.

The following table sets forth by level within the fair value hierarchy a summary of the plan’s investments measured at fair value on a recurring basis at December 31, 2014 and 2013. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. See Note 16 for more information on the determination of fair value.



	Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
	(Level 1)				(Level 2)				(Level 3)				Total
	2014		2013		2014		2013		2014		2013		2014		2013
Equity Investments:
U.S. securities	$	199.4	$	176.6	$	—	$	—	$	—	$	—	$	199.4	$	176.6
U.S. common/collective trusts	—		—		862.4		840.5		—		—		862.4		840.5
EAFE common/collective trusts	—		—		272.9		277.6		—		—		272.9		277.6
Emerging market securities	—		79.4		—		—		—		—		—		79.4
Emerging market common/collective trusts	—		—		125.7		128.1		—		—		125.7		128.1
Global investments	—		—		210.7		230.8		—		—		210.7		230.8

Fixed Income Investments:
U.S. investment-grade corporate common/collective trusts	—		—		421.8		378.4		—		—		421.8		378.4
U.S. treasuries common/collective trusts	—		—		98.4		88.1		—		—		98.4		88.1
Mortgage-backed common/collective trusts	—		—		18.0		20.5		—		—		18.0		20.5
Global investments	—		—		435.4		350.8		—		—		435.4		350.8
U.S. high-yield corporate securities	—		—		178.4		191.6		—		—		178.4		191.6

Other Investments:
Private equity funds (a)	—		—		—		—		0.9		0.6		0.9		0.6

Cash and cash equivalents	39.6		45.5		—		—		—		—		39.6		45.5
Total	$	239.0	$	301.5	$	2,623.7	$	2,506.4	$	0.9	$	0.6	$	2,863.6	$	2,808.5


(a)	Consists of private equity funds that have no remaining capital commitments due from the Company.

The following sets forth activity for Level 3 assets for 2014 and 2013:



Level 3 Assets	Private Equity Funds
December 31, 2012	$	3.2
Distribution to master pension trust	(2.6		)
December 31, 2013	$	0.6
Gains (losses) recognized in other comprehensive income (loss)	0.3
December 31, 2014	$	0.9

Periodic Benefit Costs

The components of pension and OPEB expense (income) for the years 2014, 2013 and 2012 are as follows:



	Pension Benefits									Other Benefits
	2014			2013			2012			2014			2013			2012
Components of pension and OPEB expense (income):
Service cost	$	1.7		$	2.4		$	3.2		$	4.9		$	4.7		$	4.6
Interest cost	146.0			138.8			160.2			21.7			21.0			31.5
Expected return on plan assets	(202.8		)	(184.5		)	(188.3		)	—			—			—
Amortization of prior service cost (credit)	4.3			3.8			3.8			(73.2		)	(80.0		)	(77.4		)
Reversal of prior amortization related to Zanesville Retiree Settlement	—			—			—			—			—			2.5
Recognized net actuarial loss (gain):
Annual amortization	2.5			23.6			24.5			(1.3		)	2.4			0.1
Pension corridor charge	2.0			—			157.3			—			—			—
Settlement (gain) loss	0.2			(0.8		)	—			3.5			—			—
Pension and OPEB expense (income)	$	(46.1	)	$	(16.7	)	$	160.7		$	(44.4	)	$	(51.9	)	$	(38.7	)

In January 2011, the Company reached a final settlement agreement (the “Butler Retiree Settlement”) of a class action filed on behalf of certain retirees from the Company’s Butler Works relating to the Company’s OPEB obligations to such retirees. Pursuant to the Butler Retiree Settlement, AK Steel agreed to continue to provide company-paid health and life insurance to class members through December 31, 2014, and has made combined lump sum payments totaling $91.0 to a VEBA trust and to plaintiffs’ counsel, with the final payment made in 2013. Effective January 1, 2015, AK Steel transferred to the VEBA trust all OPEB obligations owed to the class members under the Company’s applicable health and welfare plans and has no further liability for OPEB benefits after December 31, 2014. For accounting purposes, a settlement of the Company’s OPEB obligations was deemed to have occurred when the Company made the final benefit payments in 2014 and a settlement loss of $3.5 was recorded in 2014.

In December 2012, the Company reached a final settlement agreement (the “Zanesville Retiree Settlement”) of a class action filed on behalf of certain retirees from the Company’s Zanesville Works relating to the Company’s OPEB obligations to such retirees. Pursuant to the Zanesville Retiree Settlement, AK Steel agreed to continue to provide company-paid health and life insurance to class members through December 31, 2015, and to make combined lump sum payments totaling $10.6 to a VEBA trust and to plaintiffs’ counsel over three years. The Company expects to make the final payment to the Zanesville VEBA trust of $3.1 in 2015. Effective January 1, 2016, AK Steel will transfer to the VEBA trust all OPEB obligations owed to the class members under the Company’s applicable health and welfare plans and will have no further liability for any claims incurred by the class members after December 31, 2015, relating to their OPEB obligations. The effect of the settlement on the Company’s total OPEB liability (prior to any funding of the VEBA trust) was an increase in that liability of approximately $3.0 in 2012. With respect to this increase, a one-time, pre-tax charge of $3.8 was recorded in 2012 for legal fees and to reverse previous amortization of the prior plan amendment.

During 2014 and 2013, the Company performed remeasurements of an unfunded supplemental retirement plan and recognized settlement (gains) losses as a result of lump sum benefit payments made to retired participants.

The estimated net gain and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income as a component of pension and OPEB expense (income) over the next fiscal year are $31.3 and $4.4, respectively. The estimated net gain and prior service credit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive income as a component of pension and OPEB expense (income) over the next fiscal year are $1.6 and $(64.7), respectively.

Defined Contribution Plans

All employees are eligible to participate in various defined contribution plans. Certain of these plans have features with matching contributions or other company contributions based on Company results. Total expense related to these plans was $12.1, $11.5 and $11.6 in 2014, 2013 and 2012, respectively.

Multiemployer Plans

The Company contributes to multiemployer pension plans under the terms of collective bargaining agreements that cover certain union-represented employees. The risks of participating in these multiemployer plans are different from single employer plans in the following aspects:


•	Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.


•	If a participating employer stops contributing to a plan, the unfunded obligations of the plan may be borne by the remaining participating employers.


•	If the Company chooses to stop participating in a multiemployer plan, it may be required to pay that plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company’s participation in these plans for the years ended December 31, 2014, 2013 and 2012, is outlined in the table below. The Company does not provide more than five percent of the total contributions to any multiemployer plan. Forms 5500 are not yet available for plan years ending in 2014.



Pension Fund	EIN/Pension Plan Number	Pension Protection Act Zone Status (a)		FIP/RP Status Pending/Implemented (b)	Contributions						Surcharge Imposed (c)	Expiration Date of Collective Bargaining Agreement
		2014	2013		2014		2013		2012
Steelworkers Pension Trust	23-6648508/499	Green	Green	No	$	8.1	$	7.3	$	7.0	No	3/31/2017 to 9/1/2018 (d)
IAM National Pension Fund’s National Pension Plan	51-6031295/002	Green	Green	No	16.5		14.8		12.6		No	5/20/2015 to 3/1/2018 (e)
					$	24.6	$	22.1	$	19.6

(a)

The most recent Pension Protection Act zone status available in 2014 and 2013 is for each plan’s year-end at December 31, 2013 and 2012, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Generally, plans in the red zone are less than 65% funded, plans in the yellow zone are between 65% and 80% funded, and plans in the green zone are at least 80% funded. The Steelworkers Pension Trust and IAM National Pension Fund’s National Pension Plan elected funding relief under section 431(b)(8) of the Internal Revenue Code and section 304(b)(8) of the Employment Retirement Income Security Act of 1974 (ERISA). This election allows those plans’ investment losses for the plan year ended December 31, 2008, to be amortized over 29 years for funding purposes.


(b)	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, as defined by ERISA.


(c)	The surcharge represents an additional required contribution due as a result of the critical funding status of the plan.

(d)

The Company or its AK Tube subsidiary is a party to three collective bargaining agreements (at its Ashland Works, Mansfield Works and at the AK Tube Walbridge plant) that require contributions to the Steelworkers Pension Trust. The labor contract for approximately 300 hourly employees at Mansfield Works expires on March 31, 2017. The labor contract for approximately 100 hourly employees at the AK Tube Walbridge plant expires January 22, 2018. The labor contract for approximately 830 hourly employees at the Ashland Works expires on September 1, 2018.

(e)

The Company is a party to three collective bargaining agreements (at its Middletown Works, Zanesville Works and Butler Works) that require contributions to the IAM National Pension Fund’s National Pension Plan. The labor contract for approximately 130 hourly employees at Zanesville Works expires on May 20, 2015. The labor contract for approximately 1,200 hourly employees at Butler Works expires on October 1, 2016. The labor contract for approximately 1,640 hourly employees at Middletown Works expires on March 15, 2018.