PENSIONS AND OTHER POSTRETIREMENT BENEFITS

At September 27, 2014, we had nine defined benefit pension plans consisting of six funded qualified plans and three unfunded non-qualified plans. In regards to our qualified plans, five are frozen and noncontributory. The benefits provided under these plans are based on a formula using years of service and either a specified benefit rate or compensation level. The non-qualified defined benefit plans are for certain contracted officers and use a formula based on years of service and final average salary. We also have other postretirement benefit plans for which substantially all of our employees may receive benefits if they satisfy applicable eligibility criteria. The postretirement healthcare plans are contributory with participants’ contributions adjusted when deemed necessary.

We have defined contribution retirement programs for various groups of employees. We recognized expenses of $53 million, $50 million and $47 million in fiscal 2014, 2013 and 2012, respectively.

We use a fiscal year end measurement date for our defined benefit plans and other postretirement plans. We recognize the effect of actuarial gains and losses into earnings immediately for other postretirement plans rather than amortizing the effect over future periods.

Other postretirement benefits include postretirement medical costs and life insurance.

Benefit Obligations and Funded Status

The following table provides a reconciliation of the changes in the plans’ benefit obligations, assets and funded status at September 27, 2014, and September 28, 2013:



													in millions
	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2014			2013			2014			2013			2014			2013
Change in benefit obligation
Benefit obligation at beginning of year	$	86		$	101		$	85		$	81		$	71		$	64
Service cost	1			—			7			5			2			2
Interest cost	10			4			5			3			3			2
Plan participants’ contributions	—			—			—			—			1			1
Actuarial (gain)/loss	(37		)	(9		)	15			(2		)	(8		)	7
Benefits paid	(11		)	(10		)	(3		)	(2		)	(6		)	(5		)
Business acquisition	1,800			—			73			—			100			—
Benefit obligation at end of year	1,849			86			182			85			163			71
Change in plan assets
Fair value of plan assets at beginning of year	85			86			—			—			—			—
Actual return on plan assets	(36		)	3			—			—			—			—
Employer contributions	6			6			3			2			5			4
Plan participants’ contributions	—			—			—			—			1			1
Benefits paid	(11		)	(10		)	(3		)	(2		)	(6		)	(5		)
Business acquisition	1,603			—			3			—			—			—
Fair value of plan assets at end of year	1,647			85			3			—			—			—
Funded status	$	(202	)	$	(1	)	$	(179	)	$	(85	)	$	(163	)	$	(71	)

Amounts recognized in the Consolidated Balance Sheets consist of:



													in millions
	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2014			2013			2014			2013			2014			2013
Other current liabilities	$	—		$	—		$	(5	)	$	—		$	(7	)	$	—
Other liabilities	(202		)	(1		)	(174		)	(85		)	(156		)	(71		)
Accumulated other comprehensive (income)/loss:
Actuarial loss	39			30			36			23			—			—
Prior service cost/(credit)	—			—			—			—			(2		)	(3		)
Net amount recognized	$	(163	)	$	29		$	(143	)	$	(62	)	$	(165	)	$	(74	)

At September 27, 2014, seven pension plans had an accumulated benefit obligation in excess of plan assets. At September 28, 2013, three pension plans had an accumulated benefit obligation in excess of plan assets. Plans with accumulated benefit obligations in excess of plan assets are as follows:



					in millions
	Pension Benefits
	Qualified				Non-Qualified
	2014		2013		2014		2013
Projected benefit obligation	$	1,829	$	27	$	182	$	85
Accumulated benefit obligation	1,829		27		172		72
Fair value of plan assets	1,627		26		3		—

The accumulated benefit obligation for all qualified pension plans was $1,849 million and $86 million at September 27, 2014, and September 28, 2013, respectively.

Net Periodic Benefit Cost

Components of net periodic benefit cost for pension and postretirement benefit plans recognized in the Consolidated Statements of Income are as follows:



																			in millions
	Pension Benefits															Other Postretirement
	Qualified									Non-Qualified						Benefits
	2014			2013			2012			2014		2013		2012		2014			2013			2012
Service cost	$	1		$	—		$	—		$	7	$	5	$	5	$	2		$	2		$	1
Interest cost	10			4			4			5		3		3		3			2			2
Expected return on plan assets	(13		)	(5		)	(6		)	—		—		—		—			—			—
Amortization of prior service cost	—			—			—			—		1		1		—			(1		)	(1		)
Recognized actuarial (gain) loss, net	2			4			3			2		3		1		(8		)	7			24
Net periodic benefit cost	$	—		$	3		$	1		$	14	$	12	$	10	$	(3	)	$	10		$	26

As of September 27, 2014, the amounts expected to be reclassified into earnings within the next 12 months related to net periodic benefit cost for the qualified and non-qualified pensions are $2 million and $4 million, respectively.

Assumptions

Weighted average assumptions are as follows:



	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2014		2013		2012		2014		2013		2012		2014		2013		2012
Discount rate to determine net periodic benefit cost	4.37	%	4.02	%	4.53	%	5.01	%	4.23	%	4.75	%	4.41	%	3.66	%	4.09	%
Discount rate to determine benefit obligations	4.32	%	4.77	%	4.02	%	4.36	%	5.09	%	4.23	%	3.97	%	4.48	%	3.66	%
Rate of compensation increase	0.01	%	N/A		N/A		2.11	%	3.50	%	3.50	%	N/A		N/A		N/A
Expected return on plan assets	6.37	%	5.44	%	6.37	%	N/A		N/A		N/A		N/A		N/A		N/A

To determine the expected return on plan assets assumption, we first examined historical rates of return for the various asset classes within the plans. We then determined a long-term projected rate-of-return based on expected returns.

Our discount rate assumptions used to account for pension and other postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. These were determined using a cash flow matching technique whereby the rates of a yield curve, developed from high-quality debt securities, were applied to the benefit obligations to determine the appropriate discount rate. As of September 27, 2014, all pension and other postretirement benefit plans used the RP-2014 mortality tables. At September 28, 2013, the pension plans used the 2013 IRS mortality tables while the other postretirement benefit plans used either the RP-2000 or the 2013 IRS mortality tables to align with applicable participant data.

We have six other postretirement benefit plans which are healthcare and life insurance related. Two of these plans, which benefit obligations totaled $22 million at September 27, 2014, were not impacted by healthcare cost trend rates as they consist of fixed annual payments. The remaining plans, which benefit obligations were $141 million at September 27, 2014, covering retirees who do not yet qualify for Medicare utilized an assumed healthcare cost trend rate of 7.3% and those covering retirees who do qualify for Medicare utilized an assumed healthcare cost trend of 6.5%. The healthcare cost trend rate will be grading down to an ultimate rate of 5.0% in 2021/2022. A one-percentage-point change in assumed health-care cost trend rates would have the following effects:



			in millions
	One Percentage Point Increase		One Percentage Point Decrease
Effect on postretirement benefit obligation	$	17	$	13
Effect on total service and interest components	2		1

Plan Assets

The following table sets forth the actual and target asset allocation for pension plan assets:



	2014		2013		Target Asset Allocation
Cash	4.9	%	1.6	%	0.3	%
Fixed Income Securities	80.5		79.1		84.9
U.S. Stock Funds	6.0		4.3		5.4
International Stock Funds	6.2		7.3		6.3
Real Estate	2.0		3.8		2.0
Other	0.4		3.9		1.1
Total	100.0	%	100.0	%	100.0	%

Additionally, one of our foreign subsidiary pension plans had $15 million and $14 million in plan assets held in an insurance trust at September 27, 2014, and September 28, 2013, respectively.

The plan trustees have established a set of investment objectives related to the assets of the domestic pension plans and regularly monitor the performance of the funds and portfolio managers. Objectives for the pension assets are (i) to provide growth of capital and income, (ii) to achieve a target weighted average annual rate of return competitive with funds with similar investment objectives and (iii) to diversify to reduce risk. The target asset allocations are based upon the funded status of the plans. As pension obligations become better funded, we will lower risk by increasing the allocation to fixed income.

As noted in the previous table, on an aggregate fair value basis, the plan assets are currently at approximately 81% fixed income securities and 12% equity securities. Fixed income securities can include, but are not limited to, direct bond investments, and pooled or indirect bond investments. Other investments may include, but are not limited to, international and domestic equities, real estate, commodities and private equity. Derivative instruments may also be used in concert with either fixed income or equity investments to achieve desired exposure or to hedge certain risks. Derivative instruments can include, but are not limited to, futures, options, swaps or swaptions. We believe there are no significant concentrations of risk within our plan assets as of September 27, 2014.

The following tables show the categories of pension plan assets and the level under which fair values were determined in the fair value hierarchy, which is described in Note 13: Fair Value Measurements.



	in millions
September 27, 2014	Level 1		Level 2 (a)		Level 3 (b)		Total
Cash and cash equivalents	$	79	$	—	$	—	$	79
Fixed Income Securities:
Bond and fixed income funds	—		377		—		377
Corporate bonds	—		680		—		680
Government and municipal bonds	—		253		—		253
Mortgage backed securities	—		—		7		7
Total fixed income securities	—		1,310		7		1,317
Equity Securities:
U.S. securities funds	—		84		—		84
Non-U.S. securities funds	—		101		—		101
Commodity funds	—		14		—		14
Global real estate funds	—		33		—		33
Total equity securities	—		232		—		232
Other	—		7		—		7
Insurance Contract at Contract Value	—		—		15		15
Total plan assets	$	79	$	1,549	$	22	$	1,650



	in millions
September 28, 2013	Level 1		Level 2 (a)		Level 3 (b)		Total
Cash and cash equivalents	$	1	$	—	$	—	$	1
Fixed Income Securities:
Bond and fixed income funds	—		56		—		56
Corporate bonds	—		—		—		—
Government and municipal bonds	—		—		—		—
Mortgage backed securities	—		—		—		—
Total fixed income securities	—		56		—		56
Equity Securities:
U.S. securities funds	—		3		—		3
Non-U.S. securities funds	—		5		—		5
Commodity funds	—		—		—		—
Global real estate funds	—		3		—		3
Total equity securities	—		11		—		11
Other	—		—		3		3
Insurance Contract at Contract Value	—		—		14		14
Total plan assets	$	1	$	67	$	17	$	85

(a)

We classify our investments in U.S. government, U.S. agency, fixed income funds, bond funds, corporate bonds, and other debt securities as Level 2 as fair value is generally estimated using discounted cash flow models that are primarily industry-standard models that consider various assumptions, including time value and yield curve as well as other readily available relevant economic measures. Funds are valued using the net asset value (NAV) provided by the trustee, which is a practical expedient to estimating fair value. The NAV is based on the fair value of the underlying investments within the funds and is determined daily.

(b)

We classify certain mortgage-backed, asset-backed and insurance contracts as Level 3 as there is limited activity or less observable inputs into valuation models, including current interest rates and estimated prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle. The insurance contracts are valued using the plan’s own assumptions about the assumptions market participants would use in pricing the assets based on the best information available, such as investment manager pricing. Significant changes to assumptions or unobservable inputs in the valuation of our Level 3 instruments would not have a significant impact to our consolidated financial statements.

A reconciliation of the change in the fair value measurement of the defined benefit plans’ consolidated assets using significant unobservable inputs (Level 3) is as follows:



								in millions
	Mortgage backed securities		Other			Insurance contract		Total
Balance at September 28, 2013	$	—	$	3		$	14	17
Actual return on plan assets:
Assets still held at reporting date	—		—			—		—
Assets sold during the period	—		—			—		—
Purchases, sales and settlements, net	—		—			1		1
Transfers in and/or out of Level 3	7		(3		)	—		4
Balance at September 27, 2014	$	7	$	—		$	15	$	22

Contributions

Our policy is to fund at least the minimum contribution required to meet applicable federal employee benefit and local tax laws. In our sole discretion, we may from time to time fund additional amounts. Expected contributions to pension plans for fiscal 2015 are approximately $14 million. For fiscal 2014, 2013 and 2012, we funded $9 million, $8 million and $8 million plans, respectively, to pension plans.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid:



					in millions
	Pension Benefits				Other Postretirement
	Qualified		Non-Qualified		Benefits
2015	$	108	$	8	$	12
2016	82		9		12
2017	85		9		12
2018	89		9		12
2019	92		10		12
2020-2024	506		54		64

The above benefit payments for other postretirement benefit plans are not expected to be offset by Medicare Part D subsidies in 2015 or thereafter.

Multi-Employer Plans

Additionally, we participate in a multi-employer plan that provides defined benefits to certain employees covered by collective bargaining agreements. Such plans are usually administered by a board of trustees composed of the management of the participating companies and labor representatives.

The risks of participating in multiemployer plans are different from single-employer plans. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the remaining participating employers. If we stop participating in a plan, we may be required to pay that plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Contributions to the pension funds were not in excess of 5% of the total plan contributions for plan year 2014. There are no contractually required minimum contributions to the plans as of September 27, 2014.

The net pension cost of the plan is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Contributions to the plan were less than $1 million in fiscal 2014. Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our employees. The future cost of the plan is dependent on a number of factors including the funded status of the plan and the ability of the other participating companies to meet ongoing funding obligations.

Our participation in this multiemployer plan for fiscal 2014 is outlined below. The EIN/Pension Plan Number column provides the Employer Identification Number (EIN) and the three digit plan number. Unless otherwise noted, the most recent Pension Protection Act ("PPA") zone status available in 2014 and 2013 is for the plan's year beginning January 1, 2014 and 2013, respectively. The zone status is based on information that we have received from the plan and is certified by the plan's actuaries. Among other factors, plans in the red zone are generally less than 65 percent funded. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (FIP) or rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreements to which the plan is subject. There have been no significant changes that affect the comparability of contributions from year to year.

In addition to regular contributions, we could be obligated to pay additional contributions (known as complete or partial withdrawal liabilities) if it has unfunded vested benefits.

PPA Zone Status

FIP/RP Status

Contributions (in millions)

Surcharge Imposed

Pension Fund Plan Name

EIN/Pension Plan Number

2014

2013

Pending/ Implemented

2014

Expiration Date of Collective Bargaining Agreement

Bakery and Confectionary Union & Industry International Pension Fund

52-6118572/001

Red

Nov 2012

10%

Oct 2015