Annual report pursuant to Section 13 and 15(d)

Postretirement Benefits

v2.4.0.8
Postretirement Benefits
 12 Months Ended
Dec. 31, 2013
Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]  
Postretirement Benefits
Note 16 – Postretirement Benefits

Overview. The Company has defined contribution plans, qualified and nonqualified defined benefit pension plans, and other postretirement benefit plans covering substantially all of its employees. The Company's contributions to its defined contribution plans are largely discretionary and are based on various percentages of compensation, and in some instances are based on the amount of the employees' contributions to the plans. The expense related to the defined contribution plans was $35.6 million, $34.2 million and $30.9 million in 2013, 2012 and 2011, respectively. Company contributions to multiemployer plans were $0.4 million, $0.6 million and $0.5 million in 2013, 2012 and 2011, respectively. The multiemployer plans are not significant individually or in the aggregate.

The Company's domestic pension and retiree health care and life insurance benefit plans, which are discussed below, provide benefits based on years of service and, for some plans, average compensation prior to retirement. The Company uses a December 31 measurement date for these plans. The Company's foreign postretirement benefit plans are not significant individually or in the aggregate.

Plan Developments. During 2012 and 2011, the Company froze future benefit accruals for certain hourly pension plan participants. The Company recognized these actions as curtailments. Additionally, a benefit freeze in the retiree medical and life insurance benefit plan for certain hourly participants was recognized as negative plan amendment in 2012 due to the elimination of benefits earned. In connection with the negative plan amendment, the Company recognized a reduction of its benefit obligation for hourly retiree medical and life insurance benefit plans of $0.2 million in 2012.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare as well as a subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The Company's postretirement benefit obligation and net periodic benefit cost do not reflect the effects of the Act, as the Company does not anticipate qualifying for the subsidy based on its current plan designs.
 
Costs. Pension and other postretirement benefit costs included the following components for 2013, 2012 and 2011:
 
Pension Benefits
 
Other Postretirement Benefits
(in millions)
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Service cost
$
0.1

 
$
0.2

 
$
1.1

 
$
—

 
$
—

 
$
0.2

Interest cost
54.0

 
57.7

 
62.4

 
1.9

 
2.4

 
3.2

Expected return on plan assets
(57.0
)
 
(55.2
)
 
(53.3
)
 
—

 
—

 
—

Amortization of prior service costs (credits)
—

 
—

 
0.4

 
(5.7
)
 
(6.3
)
 
(5.2
)
Amortization of net actuarial losses
21.4

 
21.9

 
21.3

 
1.3

 
0.7

 
1.0

Curtailment loss
—

 
0.1

 
0.3

 
—

 
—

 
—

Net pension and other benefit costs
$
18.5

 
$
24.7

 
$
32.2

 
$
(2.5
)
 
$
(3.2
)
 
$
(0.8
)

Benefit Obligations and Funded Status. A reconciliation of the changes in the benefit obligations and fair value of assets over the two-year period ending December 31, 2013, and a statement of the funded status at December 31 for these years for the Company's pension and other postretirement benefit plans follow:
 
Pension Benefits
 
Other Postretirement Benefits
(in millions)
2013
 
2012
 
2013
 
2012
Reconciliation of benefit obligation:
 
 
 
 
 
 
 
Benefit obligation at previous December 31
$
1,388.0

 
$
1,319.3

 
$
58.0

 
$
69.9

Service cost
0.1

 
0.2

 
—

 
—

Interest cost
54.0

 
57.7

 
1.9

 
2.4

Participant contributions
—

 
—

 
1.1

 
1.3

Actuarial (gains) losses
(116.4
)
 
84.5

 
(5.2
)
 
(5.5
)
Benefit payments
(76.4
)
 
(73.7
)
 
(8.1
)
 
(9.9
)
Plan amendments
—

 
—

 
—

 
(0.2
)
Benefit obligation at December 31
1,249.3

 
1,388.0

 
47.7

 
58.0

 
 
 
 
 
 
 
 
Reconciliation of fair value of plan assets:
 
 
 
 
 
 
 
Fair value of plan assets at previous December 31
898.6

 
795.7

 
—

 
—

Actual return on plan assets
80.0

 
107.6

 
—

 
—

Employer contributions
53.8

 
69.0

 
7.0

 
8.6

Participant contributions
—

 
—

 
1.1

 
1.3

Benefit payments
(76.4
)
 
(73.7
)
 
(8.1
)
 
(9.9
)
Fair value of plan assets at December 31
956.0

 
898.6

 
—

 
—

 
 
 
 
 
 
 
 
Funded status at December 31
$
(293.3
)
 
$
(489.4
)
 
$
(47.7
)
 
$
(58.0
)


The amounts included in the Company's Consolidated Balance Sheets as of December 31, 2013 and 2012, were as follows:
 
Pension Benefits
 
Other Postretirement Benefits
(in millions)
2013
 
2012
 
2013
 
2012
Accrued expenses
$
3.8

 
$
4.0

 
$
5.8

 
$
7.1

Postretirement benefit liabilities
289.5

 
485.4

 
41.9

 
50.9

Net amount recognized
$
293.3

 
$
489.4

 
$
47.7

 
$
58.0



As of December 31, 2013 and 2012, the projected and accumulated benefit obligations for all of the Company's pension plans were in excess of plan assets. The projected and accumulated benefit obligations and fair value of plan assets for the Company's qualified and nonqualified pension plans at December 31 were as follows:
(in millions)
2013
 
2012
Projected benefit obligation
$
1,249.3

 
$
1,388.0

Accumulated benefit obligation
$
1,249.3

 
$
1,388.0

Fair value of plan assets
$
956.0

 
$
898.6

Funded status
77
%
 
65
%


The funded status of these pension plans includes the projected and accumulated benefit obligations for the Company's unfunded, nonqualified pension plan of $37.9 million and $42.3 million at December 31, 2013 and 2012, respectively.

The Company's nonqualified pension plan and other postretirement benefit plans are not funded.

Accumulated Other Comprehensive Income (Loss). The following pretax activity related to pensions and other postretirement benefits was recorded in Accumulated other comprehensive income (loss) as of December 31:
 
Pension Benefits
 
Other Postretirement Benefits
(in millions)
2013
 
2012
 
2013
 
2012
Prior service costs (credits)
 
 
 
 
 
 
 
Beginning balance
$
—

 
$
0.1

 
$
(18.2
)
 
$
(24.3
)
Prior service credits arising during the period
—

 
—

 
—

 
(0.2
)
Amount recognized as component of net benefit costs
—

 
(0.1
)
 
5.7

 
6.3

Ending balance
—

 
—

 
(12.5
)
 
(18.2
)
 
 
 
 
 
 
 
 
Net actuarial losses
 
 
 
 
 
 
 
Beginning balance
602.1

 
591.9

 
8.8

 
15.0

Actuarial (gains) losses arising during the period
(139.4
)
 
32.1

 
(5.2
)
 
(5.5
)
Amount recognized as component of net benefit costs
(21.4
)
 
(21.9
)
 
(1.3
)
 
(0.7
)
Ending balance
441.3

 
602.1

 
2.3

 
8.8

 
 
 
 
 
 
 
 
Total
$
441.3

 
$
602.1

 
$
(10.2
)
 
$
(9.4
)


The estimated pretax prior service cost and net actuarial loss in Accumulated other comprehensive income (loss) at December 31, 2013, expected to be recognized as components of net periodic benefit cost in 2014 for the Company's pension plans, are $0.0 million and $15.0 million, respectively. The estimated pretax prior service credit and net actuarial loss in Accumulated other comprehensive income (loss) at December 31, 2013, expected to be recognized as components of net periodic benefit cost in 2014 for the Company's other postretirement benefit plans, are $0.8 million and $0.0 million, respectively.
  
Prior service costs and credits associated with other postretirement benefits are being amortized on a straight-line basis over the average future working lifetime to full eligibility for active hourly plan participants and over the average remaining life expectancy for those plans' participants who are fully eligible for benefits. Actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or the market value of assets are amortized over the remaining service period of active plan participants and over the average remaining life expectancy of inactive plan participants.

Other Postretirement Benefits. Once participants eligible for other postretirement benefits turn 65 years old, the health care benefits become a flat dollar amount based on age and years of service. The assumed health care cost trend rate for other postretirement benefits for pre-age 65 benefits as of December 31 was as follows:
 
Pre-age 65 Benefits
 
2013
 
2012
Health care cost trend rate for next year
7.3
%
 
7.5
%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
4.5
%
 
4.5
%
Year rate reaches the ultimate trend rate
2028

 
2028



The health care cost trend rate assumption has an effect on the amounts reported. A one percent change in the assumed health care trend rate at December 31, 2013, would have the following effects:
(in millions)
One Percent Increase
 
One Percent Decrease
Effect on total service and interest cost
$
—

 
$
—

Effect on accumulated postretirement benefit obligation
$
0.3

 
$
(0.3
)


The Company monitors the cost of health care and life insurance benefit plans and reserves the right to make additional changes or terminate these benefits in the future.

Assumptions. Weighted average assumptions used to determine pension and other postretirement benefit obligations at December 31 were as follows:
 
Pension Benefits
 
Other Postretirement Benefits
 
2013
 
2012
 
2013
 
2012
Discount rate
4.85
%
 
4.00
%
 
4.40
%
 
3.60
%
Rate of compensation increase(A)
—

 
—

 
—

 
—


(A) Assumption used in determining pension benefit obligation only. The rate of compensation increase was reduced to 0.00% at December 31, 2008, as a result of the decision to freeze future benefit accruals for those plans where benefits are based on average compensation.

Weighted average assumptions used to determine net pension and other postretirement benefit costs for the years ended December 31 were as follows:
 
2013
 
2012
 
2011
Discount rate for pension benefits(A)
4.00%
 
4.50%
 
5.20%-5.30%
Discount rate for other postretirement benefits(A)
3.60%
 
4.20%
 
4.65%-4.80%
Long-term rate of return on plan assets(B)
6.50%
 
7.00%
 
7.25%
Rate of compensation increase(B)
—
 
—
 
—

(A) Range of discount rates in 2011 reflects the remeasurements of pension and postretirement benefit costs during the year due to negative plan amendments and curtailments recognized.    

(B) Assumption used in determining pension benefit cost only.

The Company utilizes a yield curve analysis to determine the discount rates for pension and other postretirement benefit obligations. The yield curve analysis matches the cash flows of the Company's benefit obligations. For 2011, the yield curve consisted of spot interest rates at half year increments for each of the next 30 years and was developed based on pricing and yield information for high quality corporate bonds rated Aa by Moody's, excluding callable bonds, bonds of less than a minimum size and other filtering criteria. Beginning in 2012, the criteria used to select bonds for the yield curve was expanded to include other high quality bonds such as those rated Aa by either Moody's or Standard & Poor's, private placement bonds that are traded in reliance with Rule 144A and are at least two years from date of issuance, bonds with make-whole provisions and bonds issued by foreign corporations that are denominated in U.S. dollars. Additionally, the Company's yield curve methodology was modified in 2012 to only include bonds having a yield that is greater than the regression mean yield curve as the Company believes this methodology represents a more appropriate estimate of the rates at which the Company could effectively settle its pension obligations.

The Company evaluates its assumption regarding the estimated long-term rate of return on plan assets based on historical experience, future expectations of investment returns, asset allocations, investment strategies and views of investment professionals. The Company's long-term rate of return on assets assumptions of 6.50 percent for 2013, 7.00 percent for 2012, and 7.25 percent for 2011, reflect expectations of projected weighted average market returns for the plans' assets. These changes in expected returns reflected adjustments to the Company's targeted asset allocation.

Master Trust Investments. Assets of the Company's Master Pension Trust (Trust) are invested solely in the interest of the plan participants for the purpose of providing benefits to participants and their beneficiaries. Investment decisions within the Trust are made after giving appropriate consideration to the prevailing facts and circumstances that a prudent person acting in a like capacity would use in a similar situation, and follow the guidelines and objectives established within the investment policy statement for the Trust. In general, the Trust's investment strategy is to invest in a diversified portfolio of assets that will generate returns equal to or in excess of the discount rate used to measure plan liabilities. The excess returns generated from this strategy will contribute to improving the funded position of the plan. In order for returns to exceed the discount rate, the Trust will invest in equities and other asset classes which have had historically higher rates of returns than fixed income investments. These asset classes have also had lower correlations to changes in plan liabilities resulting from changes in the discount rate. All investments are continually monitored and reviewed, with a focus on asset allocation, investment vehicles and performance of the individual investment managers, as well as overall Trust performance. Over time, the Company will be shifting a greater percentage of the Trust's assets into long-term fixed-income securities, with an objective of achieving an improved matching of asset returns with changes in liabilities. The Company will consider these changes in asset allocation based on a number of factors including improvements in the plans' funded position, performance of equity investments and changes in the discount rate used to measure plan liabilities.
The Trust asset allocation at December 31, 2013 and 2012, and target allocations for 2014 are as follows:
 
2013
 
2012
 
Target
Allocations for 2014
Equity securities:
 
 
 
 
 
United States
25%
 
37%
 
15%
International
5%
 
7%
 
5%
Fixed-income securities
46%
 
49%
 
80%
Short-term investments
24%
 
7%
 
—
Total
100%
 
100%
 
100%


The fair values of the Trust's pension assets at December 31, 2013, by asset class were as follows:
 
Fair Value Measurements at December 31, 2013 (A)
(in millions)
 
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Observable Inputs
 
Significant Unobservable Inputs
Asset Class
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Short-term investments
$
237.0

 
$
—

 
$
237.0

 
$
—

Equity securities: (B) 
 
 
 
 
 
 
 
United States
243.8

 
—

 
243.8

 
—

International
46.8

 
—

 
46.8

 
—

Fixed-income securities:
 
 
 
 
 
 
 
Government securities (C)
70.2

 
27.8

 
42.4

 
—

Corporate securities (D)
157.0

 
—

 
157.0

 
—

Commingled funds (E)
208.0

 
—

 
208.0

 
—

Other investments (F) 
9.0

 
—

 
9.0

 
—

Total pension assets at fair value
971.8

 
$
27.8

 
$
944.0

 
$
—

Other liabilities (G)
(15.8
)
 
 
 
 
 
 
Total pension plan net assets
$
956.0

 
 
 
 
 
 

(A) See Note 6 – Fair Value Measurements for a description of levels within the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety. A description of the valuation methodologies is provided following these tables. There were no transfers in and/or out of Level 1, Level 2 and Level 3 in 2013.

(B) The equity assets are invested in two indexed funds based on the Russell 3000 Index (U.S.) and the MSCI EAFE Equity Index (International). The Trust did not directly own any of the Company's common stock as of December 31, 2013.

(C) Government securities are comprised of U.S. Treasury bonds and other government securities.

(D) Corporate securities consist primarily of investment grade bonds issued by companies in diversified industries.

(E) This class includes commingled funds that primarily invest in investment grade corporate securities and government-related securities. This class also includes investments in non-agency collateralized mortgage obligation and mortgage-backed securities, futures and options.

(F) Other investments consist primarily of interest rate swaps.

(G) This class includes interest receivable and receivables/payables for securities sold/purchased.







The fair values of the Trust's pension assets at December 31, 2012, by asset class were as follows:
 
Fair Value Measurements at December 31, 2012 (A)
(in millions)
 
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Observable Inputs
 
Significant Unobservable Inputs
Asset Class
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Short-term investments
$
62.0

 
$
0.1

 
$
61.9

 
$
—

Equity securities: (B) 
 
 
 
 
 
 
 
United States
336.7

 
—

 
336.7

 
—

International
60.6

 
—

 
60.6

 
—

Fixed-income securities:
 
 
 
 
 
 
 
Government securities (C)
146.5

 
102.7

 
43.8

 
—

Corporate securities (D)
117.5

 
—

 
117.5

 
—

Commingled funds (E)
174.2

 
—

 
174.2

 
—

Total pension assets at fair value
897.5

 
$
102.8

 
$
794.7

 
$
—

Other assets (F)
1.1

 
 
 
 
 
 
Total pension plan net assets
$
898.6

 
 
 
 
 
 

(A) See Note 6 – Fair Value Measurements for a description of levels within the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety. A description of the valuation methodologies is provided following these tables. There were no transfers in and/or out of Level 1, Level 2 and Level 3 in 2012.

(B) The equity assets are invested in two indexed funds based on the Russell 3000 Index (U.S.) and the MSCI EAFE Equity Index (International). The Trust did not directly own any of the Company's common stock as of December 31, 2012.

(C) Government securities are comprised primarily of U.S. Treasury bonds and other government securities.

(D) Corporate securities consist primarily of investment grade bonds issued by companies in diversified industries.

(E) This class includes commingled funds that primarily invest in investment grade corporate securities and government-related securities. This class also includes investments in non-agency collateralized mortgage obligation and mortgage-backed securities, futures and options.

(F) This class includes interest receivable and receivables/payables for securities sold/purchased.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. See Note 6 – Fair Value Measurements for further description of the procedures the Company performs with respect to its Level 2 measurements:

Equity securities: The indexed equity funds are valued at the net asset value (NAV) provided by the investment managers. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding. The indexed equity funds are invested in portfolios of equity securities with the goal of matching returns to specific indices. Investments in United States equity securities are invested in an index fund that tracks the Russell 3000 index, which is an all cap market index. International equities are invested in an index fund that tracks the MSCI EAFE index, which is an index that tracks international equity markets of developed countries worldwide.

Corporate debt securities: Corporate debt securities are valued based on prices provided by third-party pricing sources, which are based on estimated prices at which a dealer would pay for or sell a security.

Government debt securities: U.S. Treasury bonds are valued using quoted market prices in active markets. Other agency securities are valued based on prices provided by third-party pricing sources, which are based on estimated prices at which a dealer would pay for or sell a security.

Short-term investments, commingled funds: Short-term investments and commingled funds are valued at the NAV provided by the investment managers. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding. Investments in fixed income commingled funds include long-duration corporate bonds and government-related securities with the goal of preserving capital and maximizing total return consistent with prudent investment management.
Other investments: Derivative instruments are valued using market indices.

There were no pension plan assets using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and December 31, 2012.

Expected Cash Flows. The expected cash flows for the Company's pension and other postretirement benefit plans follow:
(in millions)
Pension Benefits
 
Other Postretirement Benefits
Company contributions expected to be made in 2014 (A)
$
55.8

 
$
5.8

Expected benefit payments (which reflect future service):
 
 
 
2014
$
80.6

 
$
5.8

2015
$
82.1

 
$
5.3

2016
$
83.1

 
$
4.8

2017
$
83.8

 
$
4.4

2018
$
84.1

 
$
4.1

2019-2023
$
419.1

 
$
15.4


(A) The Company currently anticipates contributing approximately $52.0 million to fund the qualified pension plans and approximately $3.8 million to cover benefit payments in the unfunded, nonqualified pension plan in 2014. Company contributions are subject to change based on market conditions or Company discretion.

The Company also provides postemployment benefits to qualified former or inactive employees. The pretax prior service credits in Accumulated other comprehensive income (loss) recognized in income was $1.3 million in both 2013 and 2012. The estimated pretax prior service credit in Accumulated other comprehensive income (loss) at December 31, 2013, expected to be recognized in income in 2014, is $1.3 million.