Note 10. Benefit Plans

Pension Plans

Prior to the July 2, 2015 closing of the coffee business transactions, certain active employees who transitioned to JDE participated in our Non-U.S. pension plans. Following the transactions, benefits began to be provided directly by JDE to participants continuing with JDE. JDE assumed certain pension plan obligations and received the related plan assets. Through December 31, 2015, we reduced our net benefit plan liabilities by $131 million and the related deferred tax assets by $24 million. Refer to Note 2, Divestitures and Acquisitions – Coffee Business Transactions, for more information. For participants that elected not to transfer into the JDE plans, we retained the plan obligations and related plan assets.

Obligations and Funded Status:

The projected benefit obligations, plan assets and funded status of our pension plans were:


	U.S. Plans						Non-U.S. Plans
	2015			2014			2015			2014
				(in millions)

Benefit obligation at January 1	$	1,606		$	1,266		$	10,854		$	9,920
Service cost		64			57			188			184
Interest cost		67			67			307			388
Benefits paid		(35	)		(20	)		(435	)		(446	)
Settlements paid		(88	)		(52	)		1			–
Actuarial (gains) / losses		(49	)		266			(262	)		1,604
Deconsolidation of coffee business		–			–			(261	)		–
Currency		–			–			(766	)		(949	)
Other		1			22			(79	)		153

Benefit obligation at December 31		1,566			1,606			9,547			10,854


Fair value of plan assets at January 1		1,216			1,118			8,362			8,122
Actual return on plan assets		(71	)		159			192			971
Contributions		225			11			318			353
Benefits paid		(35	)		(20	)		(435	)		(446	)
Settlements paid		(88	)		(52	)		–			–
Deconsolidation of coffee business		–			–			(130	)		–
Currency		–			–			(579	)		(681	)
Other		–			–			(7	)		43

Fair value of plan assets at December 31		1,247			1,216			7,721			8,362

Net pension liability at December 31	$	(319	)	$	(390	)	$	(1,826	)	$	(2,492	)

The accumulated benefit obligation, which represents benefits earned to the measurement date, was $1,463 million at December 31, 2015 and $1,474 million at December 31, 2014 for the U.S. pension plans. The accumulated benefit obligation for the non-U.S. pension plans was $9,267 million at December 31, 2015 and $10,462 million at December 31, 2014.

For salaried and non-union hourly employees hired after January 1, 2009, we discontinued benefits under our U.S. pension plans and replaced them with an enhanced Company contribution to our employee defined contribution plan. Effective December 31, 2019, benefit accruals will cease under the U.S. non-union pension plan. For non-union employees participating in that plan on December 31, 2019, we will calculate the pension benefit obligation based on pay and service as of that date and no longer accrue new benefits.

The combined U.S. and non-U.S. pension plans resulted in a net pension liability of $2,145 million at December 31, 2015 and $2,882 million at December 31, 2014. We recognized these amounts in our consolidated balance sheets as follows:


	As of December 31,
	2015			2014
	(in millions)

Prepaid pension assets	$	69		$	53
Other accrued liabilities		(31	)		(23	)
Accrued pension costs		(2,183	)		(2,912	)

	$	(2,145	)	$	(2,882	)

Certain of our U.S. and non-U.S. plans are underfunded and have accumulated benefit obligations in excess of plan assets. For these plans, the projected benefit obligations, accumulated benefit obligations and the fair value of plan assets were:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2015		2014		2015		2014
	(in millions)

Projected benefit obligation	$	1,566	$	1,606	$	8,139	$	10,108
Accumulated benefit obligation		1,463		1,474		7,920		9,763
Fair value of plan assets		1,247		1,216		6,252		7,576

We used the following weighted-average assumptions to determine our benefit obligations under the pension plans:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2015		2014		2015		2014

Discount rate		4.50%		4.20%		3.11%		2.99%
Expected rate of return on plan assets		6.75%		7.25%		5.87%		5.96%
Rate of compensation increase		4.00%		4.00%		3.18%		3.26%

Year-end discount rates for our U.S., Canadian, Eurozone and U.K. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Year-end discount rates for our remaining non-U.S. plans were developed from local bond indices that match local benefit obligations as closely as possible. Changes in our discount rates were primarily the result of changes in bond yields year-over-year. We determine our expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.

At the end of 2015, we changed the approach used to measure service and interest costs for pension benefits. For 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, we have elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.

Components of Net Periodic Pension Cost:

Net periodic pension cost consisted of the following:


	U.S. Plans									Non-U.S. Plans
	For the Years Ended December 31,									For the Years Ended December 31,
	2015			2014			2013			2015			2014			2013
	(in millions)									(in millions)

Service cost	$	64		$	57		$	71		$	188		$	184		$	172
Interest cost		67			67			60			307			388			358
Expected return on plan assets		(93	)		(81	)		(67	)		(478	)		(485	)		(435	)
Amortization:
Net loss from experience differences		43			29			55			141			106			136
Prior service cost ⁽¹⁾		2			2			2			15			–			1
Settlement losses and other expenses ⁽²⁾		19			28			1			2			14			3

Net periodic pension cost	$	102		$	102		$	122		$	175		$	207		$	235

(1)

For the year ended December 31, 2015, amortization of prior service cost includes $17 million of pension curtailment losses related to employees who transitioned to JDE upon the contribution of our global coffee business. Refer to Note 2, Divestitures and Acquisitions – Coffee Business Transactions, for more information.

(2)

Settlement losses include $9 million for year ended December 31, 2015 and $12 million for the year ended December 31, 2014 of pension settlement losses for employees who elected lump-sum payments in connection with our 2014-2018 Restructuring Program. Retired employees who elected lump-sum payments resulted in net settlement losses in 2015 of $10 million for our U.S. plans and $2 million for our non-U.S. plans. Employees who elected lump-sum payments in connection with our 2012-2014 Restructuring Program and cost saving initiatives and retired employees who elected lump-sum payments resulted in net settlement losses for our U.S. plans of $28 million in 2014 and $1 million in 2013. Non-U.S. plant closures and early retirement benefits resulted in curtailment and settlement losses of $2 million in 2013. In addition, we incurred special termination benefit costs of $2 million in 2014 and $1 million in 2013 in the non-U.S. plans related to the 2012-2014 Restructuring Program. See Note 6, Restructuring Programs, for more information. We recorded an additional $90 million of pension settlement losses related to the coffee business transactions within the gain on the coffee business transactions. Refer to Note 2, Divestitures and Acquisitions – Coffee Business Transactions, for more information.

For the U.S. plans, we determine the expected return on plan assets component of net periodic benefit cost using a calculated market return value that recognizes the cost over a four year period. For our non-U.S. plans, we utilize a similar approach with varying cost recognition periods for some plans, and with others, we determine the expected return on plan assets based on asset fair values as of the measurement date.

As of December 31, 2015, for the combined U.S. and non-U.S. pension plans, we expected to amortize from accumulated other comprehensive earnings / (losses) into net periodic pension cost during 2016:

•

an estimated $166 million of net loss from experience differences; and

•

$1 million of estimated prior service credit.

We used the following weighted-average assumptions to determine our net periodic pension cost:


	U.S. Plans						Non-U.S. Plans
	For the Years Ended December 31,						For the Years Ended December 31,
	2015		2014		2013		2015		2014		2013

Discount rate		4.20%		5.10%		4.20%		2.99%		4.03%		3.81%
Expected rate of return on plan assets		7.25%		7.75%		7.75%		5.96%		6.17%		6.08%
Rate of compensation increase		4.00%		4.00%		4.00%		3.26%		3.63%		3.47%

Plan Assets:

The fair value of pension plan assets was determined using the following fair value measurements:


	As of December 31, 2015
			Quoted Prices		Significant
Asset Category	Total Fair Value		in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)

U.S. equity securities	$	2	$	2	$	–	$	–
Non-U.S. equity securities		413		413		–		–
Pooled funds - equity securities		2,411		569		1,842		–

Total equity securities		2,826		984		1,842		–

Government bonds		1,788		53		1,735		–
Pooled funds - fixed-income securities		1,182		311		759		112
Corporate bonds and other fixed-income securities		1,691		325		701		665

Total fixed-income securities		4,661		689		3,195		777

Real estate		477		115		7		355
Hedge funds		499		–		–		499
Private equity		204		–		–		204
Cash		140		137		3		–
Other		95		55		36		4

Total	$	8,902	$	1,980	$	5,083	$	1,839


	As of December 31, 2014
			Quoted Prices		Significant
Asset Category	Total Fair Value		in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)

U.S. equity securities	$	124	$	124	$	–	$	–
Non-U.S. equity securities		698		698		–		–
Pooled funds - equity securities		2,192		538		1,654		–

Total equity securities		3,014		1,360		1,654		–

Government bonds		2,283		234		2,049		–
Pooled funds - fixed-income securities		1,151		311		743		97
Corporate bonds and other fixed-income securities		1,174		314		111		749

Total fixed-income securities		4,608		859		2,903		846

Real estate		406		110		4		292
Hedge funds		829		–		–		829
Private equity		237		–		–		237
Cash		253		246		7		–
Other		157		124		30		3

Total	$	9,504	$	2,699	$	4,598	$	2,207

We excluded plan assets of $66 million at December 31, 2015 and $74 million at December 31, 2014 from the above tables related to certain insurance contracts as they are reported at contract value, in accordance with authoritative guidance.

Fair value measurements:

•

Level 1 – includes primarily U.S and non-U.S. equity securities and government bonds valued using quoted prices in active markets.

•

Level 2 – includes primarily pooled funds, including assets in real estate pooled funds, valued using net asset values of participation units held in common collective trusts, as reported by the managers of the trusts and as supported by the unit prices of actual purchase and sale transactions. Level 2 plan assets also include corporate bonds and other fixed-income securities, valued using independent observable market inputs, such as matrix pricing, yield curves and indices.

•

Level 3 – includes investments valued using unobservable inputs that reflect the plans’ assumptions that market participants would use in pricing the assets, based on the best information available.

•

Fair value estimates for pooled funds are calculated by the investment advisor when reliable quotations or pricing services are not readily available for certain underlying securities. The estimated value is based on either cost, or last sale price for most of the securities valued in this fashion.

•

Fair value estimates for private equity investments are calculated by the general partners using the market approach to estimate the fair value of private investments. The market approach utilizes prices and other relevant information generated by market transactions, type of security, degree of liquidity, restrictions on the disposition, latest round of financing data, company financial statements, relevant valuation multiples and discounted cash flow analyses.

•

Fair value estimates for real estate investments are calculated by the investment managers using the present value of future cash flows expected to be received from the investments, based on valuation methodologies such as appraisals, local market conditions, and current and projected operating performance.

•

Fair value estimates for investments in hedge fund-of-funds are calculated by the investment managers using the net asset value per share of the investment as reported by the money managers of the underlying funds.

•

Fair value estimates for certain fixed-income securities such as insurance contracts are calculated based on the future stream of benefit payments discounted using prevailing interest rates based on the valuation date.

Changes in our Level 3 plan assets, which are recorded in other comprehensive earnings / (losses), included:


Asset Category	January 1, 2015 Balance		Net Realized and Unrealized Gains/ (Losses)			Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3			Currency Impact			December 31, 2015 Balance
	(in millions)
Pooled funds- fixed-income securities	$	97	$	(1	)	$	25		$	(3	)	$	(6	)	$	112
Corporate bond and other fixed-income securities		749		4			(50	)		–			(38	)		665
Real estate		292		19			61			–			(17	)		355
Hedge funds		829		13			(312	)		–			(31	)		499
Private equity		240		17			(36	)		(1	)		(12	)		208

Total Level 3 investments	$	2,207	$	52		$	(312	)	$	(4	)	$	(104	)	$	1,839


Asset Category	January 1, 2014 Balance		Net Realized and Unrealized Gains/ (Losses)			Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3			Currency Impact			December 31, 2014 Balance
	(in millions)
Pooled funds- fixed-income securities	$	15	$	(15	)	$	15		$	87		$	(5	)	$	97
Corporate bond and other fixed-income securities		780		80			(64	)		–			(47	)		749
Real estate		267		37			(2	)		10			(20	)		292
Hedge funds		820		40			20			–			(51	)		829
Private equity		227		45			(19	)		2			(15	)		240

Total Level 3 investments	$	2,109	$	187		$	(50	)	$	99		$	(138	)	$	2,207

The decreases in Level 3 pension plan investments during 2015 were primarily due to net settlements in hedge funds and the effects of currency. The increases in Level 3 pension plan investments during 2014 were primarily due to unrealized net gains across most of the Level 3 asset categories and net transfers into pooled funds-fixed income securities offset by the effects of currency.

The percentage of fair value of pension plan assets was:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
Asset Category	2015		2014		2015		2014

Equity securities		32%		45%		32%		30%
Fixed-income securities		65%		52%		50%		48%
Real estate		3%		3%		6%		4%
Hedge funds		–		–		7%		10%
Private equity		–		–		3%		3%
Cash		–		–		1%		3%
Other		–		–		1%		2%

Total		100%		100%		100%		100%

For our U.S. plans, our investment strategy is to reduce the risk of underfunded plans in part through appropriate asset allocation within our plan assets. We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments. Due to the nature and timing of our expected pension liabilities, in the first quarter of 2015, we strategically reduced the risk level of the investment portfolio by lowering our target allocation for equity securities (including investments in real estate) to 35% and increasing the fixed-income allocation target to 65%. The strategy involves using indexed U.S. equity and international equity securities and actively managed U.S. investment grade fixed-income securities (which constitute 95% or more of fixed-income securities) with smaller allocations to high yield fixed-income securities.

For our non-U.S. plans, the investment strategy is subject to local regulations and the asset / liability profiles of the plans in each individual country. In aggregate, the asset allocation targets of our non-U.S. plans are broadly characterized as a mix of approximately 37% equity securities (including investments in real estate), approximately 50% fixed-income securities and approximately 13% other alternative securities. Our investment strategy for our largest non-U.S. plan, which comprises 51% of our non-U.S. pension assets, is designed to balance risk and return by diversifying across a wide range of return-seeking and liability matching assets, invested in a range of both active and passive mandates. We target an allocation of approximately 15% in equity securities, 19% credit, 12% private markets, 17% other diversifying assets, and 37% liability matching assets. The strategy uses indexed global developed equities, actively managed global investment grade and alternative credit, global private equity and real estate, other diversifying assets including hedge funds, and other liability matching assets including a buy-in annuity policy.

Employer Contributions:

In 2015, we contributed $225 million to our U.S. pension plans and $302 million to our non-U.S. pension plans. In addition, employees contributed $16 million to our non-U.S. plans. We make contributions to our U.S. and non-U.S. pension plans primarily to the extent that they are tax deductible and do not generate an excise tax liability.

In 2016, we estimate that our pension contributions will be $170 million to our U.S. plans and $279 million to our non-U.S. plans based on current tax laws. Of the total 2016 pension contributions, $150 million is expected to be voluntary. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates, or other factors.

Future Benefit Payments:

The estimated future benefit payments from our pension plans at December 31, 2015 were (in millions):


Year ending:	2016		2017		2018		2019		2020		2021-2025

U.S. Plans	$	91	$	84	$	95	$	105	$	109	$	562
Non-U.S. Plans	$	401	$	403	$	410	$	423	$	435	$	2,352

Multiemployer Pension Plans:

We made contributions to multiemployer pension plans of $31 million in 2015, $32 million in 2014 and $32 million in 2013. These plans provide pension benefits to retirees under certain collective bargaining agreements. The following is the only individually significant multiemployer plan we participate in as of December 31, 2015:

Expiration Date

Pension

FIP / RP

of Collective-

EIN / Pension

Protection Act

Status Pending /

Surcharge

Bargaining

Pension Fund

Plan Number

Zone Status

Implemented

Imposed

Agreements

Bakery, Confectionery, Tobacco Workers and Grain Miller International Pension Fund

526118572

Red

Implemented

Yes

2/29/2016

Our contributions exceeded 5% of total contributions to the Bakery, Confectionery, Tobacco Workers and Grain Millers International Pension Fund (the “Fund”) for fiscal years 2015, 2014 and 2013. Our contributions to the Fund were $27 million in 2015, $25 million in 2014 and $26 million in 2013. Our contribution to the Fund is based on our contribution rates under our collective bargaining agreements, the number of our eligible employees and Fund surcharges. Our collective bargaining agreements with the Fund, under which we are obligated to make contributions to the Fund, expire during 2016. These current collective bargaining agreements obligate us to contribute approximately $30 million to the Pension Fund on an annual basis, including 2016. The Fund’s actuarial valuation has been completed and the zone status was changed to “Red” in 2012. As a result of this certification, we are being charged a 10% surcharge on our contribution rates. Our expected future contributions include the surcharge. The Fund adopted a rehabilitation plan on November 7, 2012 that requires contribution increases and reduction to benefit provisions.

Our contributions to other multiemployer pension plans that were not individually significant were $4 million in 2015, $7 million in 2014 and $6 million in 2013.

Other Costs:

We sponsor and contribute to employee defined contribution plans. These plans cover eligible salaried, non-union and union employees. Our contributions and costs are determined by the matching of employee contributions, as defined by the plans. Amounts charged to expense in continuing operations for defined contribution plans totaled $45 million in 2015, $46 million in 2014 and $66 million in 2013.

Postretirement Benefit Plans

Obligations:

Our postretirement health care plans are not funded. The changes in and the amount of the accrued benefit obligation were:


	As of December 31,
	2015			2014
	(in millions)

Accrued benefit obligation at January 1	$	538		$	422
Service cost		15			13
Interest cost		22			22
Benefits paid		(10	)		(9	)
Currency		(22	)		(11	)
Assumption changes		(30	)		75
Actuarial (gains) / losses		(2	)		14
Other		–			12

Accrued benefit obligation at December 31	$	511		$	538

The current portion of our accrued postretirement benefit obligation of $11 million at December 31, 2015 and 2014 was included in other accrued liabilities.

We used the following weighted-average assumptions to determine our postretirement benefit obligations:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2015		2014		2015		2014

Discount rate		4.60%		4.20%		4.77%		4.52%
Health care cost trend rate assumed for next year		6.50%		6.50%		5.37%		5.18%
Ultimate trend rate		5.00%		5.00%		5.55%		5.53%
Year that the rate reaches the ultimate trend rate		2020		2018		2018		2018

Year-end discount rates for our U.S., Canadian and U.K. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Year-end discount rates for our remaining non-U.S. plans were developed from local bond indices that match local benefit obligations as closely as possible. Changes in our discount rates were primarily the result of changes in bond yields year-over-year. Our expected health care cost trend rate is based on historical costs.

At the end 2015, we changed the approach used to measure service and interest costs for other postretirement benefits. For 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, we elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.

Assumed health care cost trend rates have a significant impact on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:


	As of December 31, 2015
	One-Percentage-Point
	Increase		Decrease
	(in millions)

Effect on postretirement benefit obligation	$	88	$	(69	)
Effect on annual service and interest cost		7		(6	)

Components of Net Periodic Postretirement Health Care Costs:

Net periodic postretirement health care costs consisted of the following:


	For the Years Ended December 31,
	2015			2014			2013
				(in millions)

Service cost	$	15		$	13		$	15
Interest cost		22			22			20
Amortization:
Net loss from experience differences		13			5			12
Prior service credit		(7	)		(10	)		(12	)

Net periodic postretirement health care costs	$	43		$	30		$	35

As of December 31, 2015, we expected to amortize from accumulated other comprehensive earnings / (losses) into pre-tax net periodic postretirement health care costs during 2016:

•

an estimated $9 million of net loss from experience differences, and

•

an estimated $7 million of prior service credit.

We used the following weighted-average assumptions to determine our net periodic postretirement health care cost:


	U.S. Plans			Non-U.S. Plans
	For the Years Ended December 31,			For the Years Ended December 31,
	2015	2014	2013	2015	2014	2013

Discount rate	4.20%	5.10%	4.20%	4.52%	5.17%	4.39%
Health care cost trend rate	6.50%	7.00%	7.50%	5.18%	5.11%	6.47%

Future Benefit Payments:

Our estimated future benefit payments for our postretirement health care plans at December 31, 2015 were (in millions):


Year ending:	2016	2017	2018	2019	2020	2021-2025

U.S. Plans	$8	$9	$10	$12	$13	$85
Non-U.S. Plans	$5	$5	$5	$6	$6	$33

Other Costs:

We made contributions to multiemployer medical plans totaling $20 million in 2015, $18 million in 2014 and $18 million in 2013. These plans provide medical benefits to active employees and retirees under certain collective bargaining agreements.

Postemployment Benefit Plans

Obligations:

Our postemployment plans are primarily not funded. The changes in and the amount of the accrued benefit obligation at December 31, 2015 and 2014 were:


	2015			2014
	(in millions)

Accrued benefit obligation at January 1	$	94		$	103
Service cost		7			9
Interest cost		5			6
Benefits paid		(7	)		(17	)
Assumption changes		(3	)		2
Actuarial losses		(1	)		(9	)

Accrued benefit obligation at December 31	$	95		$	94

The accrued benefit obligation was determined using a weighted-average discount rate of 6.2% in 2015 and 5.6% in 2014, an assumed weighted-average ultimate annual turnover rate of 0.3% in 2015 and 2014, assumed compensation cost increases of 4.0% in 2015 and 2014 and assumed benefits as defined in the respective plans.

Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.

Components of Net Periodic Postemployment Costs:

Net periodic postemployment costs consisted of the following:


	For the Years Ended December 31,
	2015		2014		2013
			(in millions)

Service cost	$	7	$	9	$	8
Interest cost		5		6		5
Amortization of net gains		–		–		(1	)
Other		–		–		(1	)

Net periodic postemployment costs	$	12	$	15	$	11

As of December 31, 2015, the estimated net gain for the postemployment benefit plans that we expected to amortize from accumulated other comprehensive earnings / (losses) into net periodic postemployment costs during 2016 was insignificant.