6. EMPLOYEE BENEFIT PLANS

PENSION AND OTHER POSTRETIREMENT DEFINED BENEFIT PLANS We sponsor various qualified and non-qualified defined benefit pension plans for our eligible associates. We also maintain hourly and salaried benefit plans that provide postretirement medical, dental, vision, legal and life insurance benefits (OPEB) to our eligible retirees and their dependents in the U.S.

AAM and GM share proportionally in the cost of OPEB for eligible retirees based on the length of service an employee had with AAM and GM. We have included in our OPEB obligation the amounts expected to be received pursuant to this agreement of $255.9 million and $273.0 million at December 31, 2013 and December 31, 2012, respectively. We have also recorded a corresponding asset for these amounts on our Consolidated Balance Sheet, $13.9 million that is classified as a current asset and $242.0 million that is classified as a noncurrent asset as of December 31, 2013.

Actuarial valuations of our benefit plans were made as of December 31, 2013 and 2012. The principal weighted-average assumptions used in the year-end valuation of our U.S. and U.K. plans appear in the following table. The U.S. discount rates are based on an actuarial review of a hypothetical portfolio of long-term, high quality corporate bonds matched against the expected payment stream for each of our plans. The U.K. discount rate is based on a review of long-term bonds, in consideration of the average duration of plan liabilities. The assumptions for expected return on plan assets are based on future capital market expectations for the asset classes represented within our portfolios and a review of long-term historical returns. The rates of increase in compensation and health care costs are based on current market conditions, inflationary expectations and historical information.



	Pension Benefits												OPEB
	2013				2012				2011				2013		2012		2011
	U.S.		U.K		U.S.		U.K		U.S.		U.K.
Discount rate	5.00	%	4.50	%	4.10	%	4.30	%	5.10	%	4.65	%	4.95	%	4.05	%	5.10	%
Expected return on plan assets	7.50	%	5.15	%	7.50	%	4.35	%	8.00	%	4.60	%	N/A		N/A		N/A
Rate of compensation increase	4.00	%	3.60	%	4.00	%	3.15	%	4.00	%	3.25	%	4.00	%	4.00	%	4.00	%

The accumulated benefit obligation for all defined benefit pension plans was $744.5 million and $828.4 million at December 31, 2013 and December 31, 2012, respectively. As of December 31, 2013, the accumulated benefit obligation for our underfunded defined benefit pension plans was $612.6 million, the projected benefit obligation was $621.3 million and the fair value of assets for these plans was $570.1 million. The following table summarizes the changes in projected benefit obligations and plan assets and reconciles the funded status of the benefit plans, which is the net benefit plan liability:



	Pension Benefits						OPEB
	December 31,						December 31,
	2013			2012			2013			2012
	(in millions)						(in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	842.8		$	716.7		$	601.3		$	588.4
Service cost	3.4			3.1			0.4			0.4
Interest cost	33.8			35.1			13.2			15.1
Plan amendments	—			6.1			(8.1		)	—
Actuarial loss (gain)	(92.6		)	97.3			(0.7		)	(7.1		)
Change in GM portion of OPEB obligation	—			—			(17.0		)	2.4
Participant contributions	0.4			0.5			—			—
Special and contractual termination benefits	—			12.8			—			18.3
Settlements	—			—			—			(4.7		)
Benefit payments	(35.3		)	(34.2		)	(11.2		)	(11.5		)
Currency fluctuations	2.9			5.4			—			—
Net change	(87.4		)	126.1			(23.4		)	12.9
Benefit obligation at end of year	$	755.4		$	842.8		$	577.9		$	601.3

Change in plan assets
Fair value of plan assets at beginning of year	$	695.4		$	441.7		$	—		$	—
Actual return on plan assets	49.2			57.3			—			—
Employer contributions	0.8			225.4			11.2			11.5
Participant contributions	0.4			0.5			—			—
Benefit payments	(35.3		)	(34.2		)	(11.2		)	(11.5		)
Currency fluctuations	2.9			4.7			—			—
Net change	18.0			253.7			—			—
Fair value of plan assets at end of year	$	713.4		$	695.4		$	—		$	—

Amounts recognized in our balance sheets are as follows:



	Pension Benefits						OPEB
	December 31,						December 31,
	2013			2012			2013			2012
	(in millions)						(in millions)
Noncurrent assets	$	9.3		$	11.8		$	—		$	—
Current liabilities	(2.3		)	(1.3		)	(30.8		)	(28.6		)
Noncurrent liabilities	(49.0		)	(157.9		)	(547.1		)	(572.7		)
Net liability	$	(42.0	)	$	(147.4	)	$	(577.9	)	$	(601.3	)

Pre-tax amounts recorded in accumulated other comprehensive income (AOCI), not yet recognized in net periodic benefit cost as of December 31, 2013 and 2012, consists of:



	Pension Benefits						OPEB
	December 31,						December 31,
	2013			2012			2013		2012
	(in millions)						(in millions)
Net actuarial gain (loss)	$	(194.3	)	$	(298.6	)	$	4.9	$	3.3
Net prior service credit (cost)	0.8			(4.7		)	18.1		11.8
Total amounts recorded	$	(193.5	)	$	(303.3	)	$	23.0	$	15.1

The components of net periodic benefit cost are as follows:



	Pension Benefits									OPEB
	2013			2012			2011			2013			2012			2011
	(in millions)									(in millions)
Service cost	$	3.4		$	3.1		$	4.8		$	0.4		$	0.4		$	0.9
Interest cost	33.8			35.1			37.1			13.2			15.1			17.1
Expected asset return	(45.8		)	(34.7		)	(31.9		)	—			—			—
Amortized actuarial loss	8.9			7.8			4.5			0.9			0.6			0.4
Amortized prior service cost (credit)	5.4			0.5			(0.1		)	(1.8		)	(2.0		)	(3.2		)
Special and contractual
termination benefits	—			12.8			—			—			16.2			—
Curtailment gain	—			—			—			—			(21.8		)	—
Settlement	—			—			0.1			—			(5.2		)	—
Net periodic benefit cost	$	5.7		$	24.6		$	14.5		$	12.7		$	3.3		$	15.2

Our postretirement cost sharing asset from GM is measured on the same basis as the portion of the obligation to which it relates. The actuarial gains and losses related to the GM portion of the OPEB obligation are recognized immediately in the Consolidated Statement of Income as an offset against the gains and losses related to the change in the corresponding GM postretirement cost sharing asset. These items are presented net in the change in benefit obligation and net periodic benefit cost components disclosed above. Remaining actuarial gains and losses are deferred and amortized over the expected future service periods of the active participants.

The estimated net actuarial loss and prior service credit for the defined benefit pension plans that is expected to be amortized from AOCI into net periodic benefit cost in 2014 are $5.5 million and $0.1 million, respectively. The estimated net actuarial loss and prior service credit for the other defined benefit postretirement plans that is expected to be amortized from AOCI into net periodic benefit cost in 2014 are $0.5 million and $2.7 million, respectively.

For measurement purposes, a weighted average annual increase in the per-capita cost of covered health care benefits of 7.5% was assumed for 2014. The rate was assumed to decrease gradually to 5.0% by 2019 and to remain at that level thereafter. Health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1.0% increase in the assumed health care cost trend rate would have increased total service and interest cost in 2013 and the postretirement obligation, net of GM cost sharing, at December 31, 2013 by $1.6 million and $33.6 million, respectively. A 1.0% decrease in the assumed health care cost trend rate would have decreased total service and interest cost in 2013 and the postretirement obligation, net of GM cost sharing, at December 31, 2013 by $1.4 million and $28.1 million, respectively.

The expected future pension and other postretirement benefits to be paid, net of GM cost sharing, for each of the next five years and in the aggregate for the succeeding five years thereafter are as follows: $55.9 million in 2014; $57.3 million in 2015; $57.8 million in 2016; $59.0 million in 2017; $59.4 million in 2018 and $309.2 million for 2019 through 2023. These amounts were estimated using the same assumptions that were used to measure our 2013 year-end pension and OPEB obligations and include an estimate of future employee service.

Contributions In 2012, AAM and the Pension Benefit Guaranty Corporation entered into an agreement regarding any liability that may have arisen under the Employee Retirement Income Security Act of 1974 in connection with the closures of DMC and CKMF. As part of this agreement, in 2012, we contributed $114.7 million in excess of our statutory minimum to our U.S. hourly pension plan.

Due to our significant pension contributions made in 2012, we do not expect to make any cash payments in 2014 to satisfy our regulatory funding requirements. We expect our cash outlay, net of GM cost sharing, for OPEB to be approximately $17 million in 2014.

Labor relations In 2012, we recorded a gain of $21.8 million in cost of goods sold for the curtailment of certain other postretirement benefits (OPEB). This resulted primarily from the reduction in expected future OPEB related to the DMC and CKMF hourly associates who have terminated employment from AAM as a result of our plant closures. These curtailment gains resulted in an increase in our accumulated other comprehensive loss of $21.8 million pre-tax.

Also in 2012, we notified hourly associates of the termination of a benefit plan, which provided legal services to certain eligible hourly associates represented by the International UAW. As a result of terminating this plan, we recorded a settlement gain of $5.2 million in cost of goods sold in 2012. Recognition of this settlement gain reduced postretirement benefits and other long-term liabilities by $4.7 million and also reduced our accumulated other comprehensive loss by $0.5 million pre-tax.

Amendments to pension and OPEB plans and contractual termination benefits In the third quarter of 2013, we remeasured our AAM Supplemental Executive Retirement Plan (SERP) due to the passing of our Co-Founder and former Executive Chairman of the Board of Directors. As a result of this remeasurement, we recorded $4.7 million in selling, general and administrative expense related to the acceleration of prior service cost. This SERP remeasurement also resulted in a decrease in postretirement benefits and other long-term liabilities of $16.4 million and a decrease in our accumulated other comprehensive loss of $13.7 million on our Consolidated Balance Sheet.

Effective August 1, 2012, we amended our AAM Supplemental Executive Retirement Plan to include an actuarial increase provision for participants that work past the age of 65, among other things. As a result of these plan amendments, we increased our pension liability by $6.1 million in 2012. This adjustment was recorded to AOCI and has been fully amortized in 2013, due to the passing of our co-Founder and former Executive Chairman of the Board of Directors.

As a result of our election to apply the provisions of Moving Ahead for Progress in the 21st Century Act (MAP-21), in addition to certain actions we took in 2012, we agreed to provide pension and postretirement benefits to certain eligible UAW associates whose employment had been terminated in connection with the DMC and CKMF plant closures. In 2012, we recorded $28.7 million in cost of goods sold, for these pension and postretirement benefits. These incremental pension and postretirement benefits were also agreed to in connection with the lawsuit filed by the International UAW against AAM. See Note 10 - Commitments and Contingencies for more detail on this lawsuit.

Pension plan assets The weighted-average asset allocations of our pension plan assets at December 31, 2013 and 2012 appear in the following table. The asset allocation for our plans is developed in consideration of the demographics of the plan participants and expected payment stream of the benefit obligation.



	U.S.					U.K.
					Target					Target
	2013		2012		Allocation	2013		2012		Allocation
Equity securities	42.5	%	38.3	%	30% - 65%	30.7	%	34.8	%	25% - 35%
Fixed income securities	48.5		52.3		35% - 55%	59.0		55.1		55% - 65%
Hedge funds	8.8		8.5		0% - 15%	10.2		—		5% - 15%
Cash	0.2		0.9		0% - 5%	0.1		10.1		0% - 10%
Total	100.0	%	100.0	%		100.0	%	100.0	%

The primary objective of our pension plan assets is to provide a source of retirement income for participants and beneficiaries. Our primary financial objectives for the pension plan assets have been established in conjunction with a comprehensive review of our current and projected financial requirements. These objectives include having the ability to pay all future benefits and expenses when due, maintaining flexibility and minimizing volatility. These objectives are based on a long-term investment horizon.

Postretirement Benefit Plan Assets Investments in our defined benefit plans are stated at fair value. Level 1 assets are valued using quoted market prices that represent the asset value of the shares held by the trusts. The level 2 assets are investments in pooled funds, which are valued using a model to reflect the valuation of their underlying assets that are publicly traded with observable values. The fair value of our level 3 postretirement benefit plan assets are measured by compiling the portfolio holdings and independently valuing the securities in those portfolios. The fair values of our pension plan assets are as follows:



December 31, 2013
Asset Categories	Level 1		Level 2		Level 3		Total
	(in millions)
Cash & Cash Equivalents	$	1.5	$	—	$	—	$	1.5
Equity
U.S. Large Cap	128.0		—		—		128.0
U.S. Small/Mid Cap	49.4		—		—		49.4
World Equity	109.3		—		—		109.3
Fixed Income Securities
Government & Agencies	70.5		63.0		—		133.5
Corporate Bonds - Investment Grade	167.1		—		—		167.1
Corporate Bonds - Non-investment Grade	25.8		—		—		25.8
Emerging Market Debt	17.4		—		—		17.4
Other	16.9		—		—		16.9
Hedge Funds
Property Funds	—		—		7.1		7.1
Multi Strategy Hedge Fund	—		—		57.4		57.4
Total Plan Assets	$	585.9	$	63.0	$	64.5	$	713.4

December 31, 2012
Asset Categories	Level 1		Level 2		Level 3		Total
	(in millions)
Cash & Cash Equivalents	$	18.5	$	—	$	—	$	18.5
Equity
U.S. Large Cap	104.0		—		—		104.0
U.S. Small/Mid Cap	46.9		—		—		46.9
World Equity	111.2		—		—		111.2
Fixed Income Securities
Government & Agencies	100.4		—		—		100.4
Corporate Bonds - Investment Grade	204.9		—		—		204.9
Corporate Bonds - Non-investment Grade	26.4		—		—		26.4
Emerging Market Debt	20.5		—		—		20.5
Other	15.0		—		—		15.0
Hedge Funds
Multi Strategy Hedge Fund	—		—		47.6		47.6
Total Plan Assets	$	647.8	$	—	$	47.6	$	695.4

The changes in the fair value of our level 3 assets in the Property Funds and Multi Strategy Hedge Fund are as follows:



	December 31,
	2013		2012
	(in millions)
Beginning balance	$	47.6	$	46.5
Actual return on plan assets:
Relating to assets still held at the reporting date	3.5		1.1
Purchases, sales and settlements, net	13.4		—
Ending balance	$	64.5	$	47.6

DEFINED CONTRIBUTION PLANS Most of our salaried U.S. associates are eligible to participate in voluntary savings plans. Our maximum match is 50% of eligible salaried associates' contribution up to 10% of their eligible salary. Matching contributions amounted to $3.9 million in 2013, $3.3 million in 2012 and $3.2 million in 2011. U.S. salaried associates are eligible to receive an additional annual retirement contribution (ARC) benefit between 3% to 5% of eligible salary, depending on years of service. We made ARC contributions of $4.6 million, $4.4 million and $3.6 million in 2013, 2012 and 2011, respectively.

As part of the 2008 labor agreements, certain UAW represented associates at our original U.S. locations became eligible for a Company match on associate contributions made to the voluntary savings plans, which began in 2009. Our maximum match will be 25% of hourly associates' contribution up to the first 6% of their contributions. Matching contributions amounted to $0.1 million in both 2013 and 2012, and $0.2 million in 2011. Certain UAW represented associates are also eligible to receive an ARC benefit of 5% of eligible wages, which also began in 2009. We made ARC contributions of $1.9 million in 2013, $1.6 million in 2012 and $1.9 million in 2011 related to these associates.

DEFERRED COMPENSATION PLAN Certain U.S. associates are eligible to participate in a non-qualified deferred compensation plan. Payments of $6.1 million, $0.8 million and $1.1 million have been made in 2013, 2012 and 2011, respectively, to eligible associates that have elected distributions. Included in these payments, in 2013, was a distribution of $5.6 million to the beneficiary of the plan upon the passing of our Co-Founder and former Executive Chairman of the Board of Directors. This payment resulted in a $5.6 million reduction in postretirement benefits and other long-term liabilities on our Consolidated Balance Sheet and was partially offset by proceeds of $5.0 million, which AAM received as the beneficiary of a key man life insurance policy.

At December 31, 2013 and 2012, our deferred compensation liability was $6.2 million and $11.3 million, respectively. Due to the changes in the value of this deferred compensation plan we increased our liability by $0.8 million, $1.3 million and $0.3 million in 2013, 2012 and 2011, respectively.