Pension Plans and Other Postretirement Benefits

The Company has defined benefit pension plans and defined contribution plans covering substantially all employees. Benefits under the defined benefit pension plans are generally based on years of service and/or final average pay. The Company funds the U.S. pension plans in accordance with the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code (“Code”).

The Company also sponsors several postretirement plans covering certain salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. In most plans, Company contributions towards premiums are capped based on the cost as of a certain date, thereby creating a defined contribution. For the non-collectively bargained plans, the Company maintains the right to amend or terminate the plans at its discretion.

The components of pension and other postretirement benefit expense for the Company’s defined benefit plans included the following:



	Pension Benefits									Other Postretirement Benefits
(in millions)	2013			2012			2011			2013			2012			2011
Service cost—benefits earned during the year	$	39.0		$	35.0		$	30.0		$	3.2		$	3.1		$	3.2
Interest cost on benefits earned in prior years	122.8			132.4			135.1			22.4			26.1			27.5
Expected return on plan assets	(176.0		)	(181.4		)	(192.1		)	(0.5		)	(0.8		)	(1.0		)
Amortization of prior service cost (credit)	3.0			6.4			11.3			(18.2		)	(18.2		)	(18.3		)
Amortization of net actuarial loss	111.8			105.2			71.3			17.2			14.6			9.9
Termination benefits	4.8			—			0.8			1.3			—			0.2
Total retirement benefit expense	$	105.4		$	97.6		$	56.4		$	25.4		$	24.8		$	21.5

Other postretirement benefit costs for a defined contribution plan were $4.6 million for the fiscal year ended December 31, 2013. Special termination benefits recorded in 2013 relate largely to the closure of the Flat-Rolled Product segment's Wallingford, CT finishing facility, and these costs were reported in restructuring costs for segment reporting (see Notes 14 and 15). Special termination benefits were recorded in 2011 in conjunction with the idling of the Flat-Rolled Products segment’s New Castle, IN finishing facility.

Actuarial assumptions used to develop the components of defined benefit pension expense and other postretirement benefit expense were as follows:



	Pension Benefits						Other Postretirement Benefits
	2013		2012		2011		2013		2012		2011
Discount rate (a) (b)	4.25 - 4.95%		5.00	%	5.45 - 5.8%		4.25	%	5.00	%	5.45 - 5.8%
Rate of increase in future compensation levels	3.0 - 3.50%		3.0 - 4.50%		2.5 - 4.5%		—		—		—
Expected long-term rate of return on assets	8.25	%	8.50	%	8.50	%	8.3	%	8.3	%	8.3	%


(a)	Pension expense for 2013 was initially measured at a 4.25% discount rate. The U.S. qualified pension plan was remeasured using a 4.95% discount rate as of October 31, 2013, following the sale of the tungsten materials business.


(b)	Pension and other postretirement benefit expense for 2011 was initially measured at a 5.8% discount rate. The Ladish pension and other postretirement benefit plans acquired on May 9, 2011 were valued using a 5.45% discount rate. Certain other postretirement benefit plan obligations were remeasured as of August 1, 2011 using a 5.5% discount rate as a result of benefit changes.

Actuarial assumptions used for the valuation of defined benefit pension and other postretirement benefit obligations at the end of the respective periods were as follows:



	Pension Benefits				Other Postretirement Benefits
	2013		2012		2013		2012
Discount rate	5.15	%	4.25	%	5.15	%	4.25	%
Rate of increase in future compensation levels	3.0 - 3.5%		3.0 - 3.5%		—		—

A reconciliation of the funded status for the Company’s defined benefit pension and other postretirement benefit plans at December 31, 2013 and 2012 was as follows:



	Pension Benefits						Other Postretirement Benefits
(in millions)	2013			2012			2013			2012
Change in benefit obligations:
Benefit obligation at beginning of year	$	2,952.0		$	2,750.3		$	574.3		$	568.6
Service cost	39.0			35.0			3.2			3.1
Interest cost	122.8			132.4			22.4			26.1
Benefits paid	(195.6		)	(194.6		)	(52.9		)	(52.6		)
Subsidy paid	—			—			1.2			1.6
Participant contributions	0.1			0.6			—			—
Effect of currency rates	0.8			3.5			—			—
Net actuarial (gains) losses – discount rate change	(280.4		)	242.4			(36.9		)	35.7
– other	54.7			(17.6		)	(5.9		)	(8.2		)
Special termination benefits	4.8			—			1.3			—
Benefit obligation at end of year	$	2,698.2		$	2,952.0		$	506.7		$	574.3



Change in plan assets:
Fair value of plan assets at beginning of year	$	2,220.0		$	2,232.7		$	6.3		$	8.8
Actual returns on plan assets and plan expenses	293.8			164.7			(0.9		)	(1.6		)
Employer contributions	10.7			14.0			—			—
Participant contributions	0.1			0.6			—			—
Effect of currency rates	0.8			2.6			—			—
Benefits paid	(195.6		)	(194.6		)	(1.4		)	(0.9		)
Fair value of plan assets at end of year	$	2,329.8		$	2,220.0		$	4.0		$	6.3



Amounts recognized in the balance sheet:
Noncurrent assets	$	5.1		$	—		$	—		$	—
Current liabilities	(5.3		)	(10.9		)	(60.3		)	(72.8		)
Noncurrent liabilities	(368.2		)	(721.1		)	(442.4		)	(495.2		)
Total amount recognized	$	(368.4	)	$	(732.0	)	$	(502.7	)	$	(568.0	)

Changes to accumulated other comprehensive loss related to pension and other postretirement benefit plans in 2013 and 2012 were as follows:



	Pension Benefits						Other Postretirement Benefits
(in millions)	2013			2012			2013			2012
Beginning of year accumulated other comprehensive loss	$	(1,474.7	)	$	(1,343.3	)	$	(191.9	)	$	(158.6	)
Amortization of net actuarial loss	111.8			105.2			17.2			14.6
Amortization of prior service cost (credit)	3.0			6.4			(18.2		)	(18.2		)
Remeasurements	343.5			(243.0		)	41.4			(29.7		)
End of year accumulated other comprehensive loss	$	(1,016.4	)	$	(1,474.7	)	$	(151.5	)	$	(191.9	)
Net change in accumulated other comprehensive loss	$	458.3		$	(131.4	)	$	40.4		$	(33.3	)

Amounts included in accumulated other comprehensive loss at December 31, 2013 and 2012 were as follows:



	Pension Benefits						Other Postretirement Benefits
(in millions)	2013			2012			2013			2012
Prior service (cost) credit	$	(7.7	)	$	(10.7	)	$	(8.7	)	$	9.5
Net actuarial loss	(1,008.7		)	(1,464.0		)	(142.8		)	(201.4		)
Accumulated other comprehensive loss	(1,016.4		)	(1,474.7		)	(151.5		)	(191.9		)
Deferred tax effect	390.7			562.7			58.3			73.9
Accumulated other comprehensive loss, net of tax	$	(625.7	)	$	(912.0	)	$	(93.2	)	$	(118.0	)

Retirement benefit expense for 2014 is estimated to be approximately $96 million, comprised of $55 million for defined benefit pension expense, $38 million of expense for defined benefit other postretirement benefits, and $3 million of expense for defined contribution other postretirement benefits. Amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost in 2014 are:



(in millions)	Pension Benefits		Other Postretirement Benefits			Total
Amortization of prior service cost (credit)	$	2.3	$	(3.0	)	$	(0.7	)
Amortization of net actuarial loss	73.9		14.1			88.0
Amortization of accumulated other comprehensive loss	$	76.2	$	11.1		$	87.3

The accumulated benefit obligation for all defined benefit pension plans was $2,621.8 million and $2,865.4 million at December 31, 2013 and 2012, respectively. Additional information for pension plans with accumulated benefit obligations in excess of plan assets:



	Pension Benefits
(in millions)	2013		2012
Projected benefit obligation	$	2,619.6	$	2,952.0
Accumulated benefit obligation	2,545.4		2,865.4
Fair value of plan assets	2,246.1		2,220.0

Based upon current regulations and actuarial studies, the Company does not expect to be required to make cash contributions to its U.S. qualified defined benefit pension plan (U.S. Plan) for 2014. However, the Company may elect, depending upon the investment performance of the pension plan assets and other factors, to make voluntary cash contributions to this pension plan in the future. For 2014, the Company expects to fund benefits of approximately $10 million for its U.S. nonqualified benefit pension plans and its U.K. defined benefit plan.

The following table summarizes expected benefit payments from the Company’s various pension and other postretirement benefit defined benefit plans through 2023, and also includes estimated Medicare Part D subsidies projected to be received during this period based on currently available information.



(in millions)	Pension Benefits		Other Postretirement Benefits		Medicare Part D Subsidy
2014	$	190.5	$	65.5	$	1.3
2015	190.3		52.9		1.3
2016	190.8		49.5		1.3
2017	191.0		47.1		1.3
2018	191.6		44.7		1.2
2019 - 2023	958.8		184.4		5.4

The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health care plans was 8.3% in 2014 and is assumed to gradually decrease to 5.0% in the year 2028 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect 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:



(in millions)	One Percentage Point Increase		One Percentage Point Decrease
Effect on total of service and interest cost components for the year ended December 31, 2013	$	0.6	$	(0.5	)
Effect on other postretirement benefit obligation at December 31, 2013	$	10.2	$	(9.0	)

The plan assets for the U.S. Plan represent approximately 96% of total pension plan assets at December 31, 2013. The U.S. Plan invests in a diversified portfolio consisting of an array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include U.S. domestic equities, developed market equities, emerging market equities, private equity, global high quality and high yield fixed income, floating rate debt and real estate. The Company continually monitors the investment results of these asset classes and its fund managers, and explores other potential asset classes for possible future investment.

U.S. Plan assets at December 31, 2013 and 2012 included 3.0 million shares of ATI common stock with a fair value of $105.3 million and $89.7 million, respectively. Dividends of $2.1 million were received by the U.S. Plan in both 2013 and 2012 on the ATI common stock held by this plan.

The fair values of the Company’s pension plan assets at December 31, 2013 by asset category and by the level of inputs used to determine fair value, were as follows:



(in millions)			Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
Asset category	Total		(Level 1)		(Level 2)		(Level 3)
Equity securities:
ATI common stock	$	105.3	$	105.3	$	—	$	—
Other U.S. equities (a)	746.0		257.2		488.8		—
International equities (b)	311.0		—		311.0		—
Global debt securities and cash: (c)
Fixed income and cash equivalents	508.0		—		507.2		0.8
Floating rate	294.5		—		—		294.5
Private equity	94.5		—		—		94.5
Hedge funds	139.7		—		—		139.7
Real estate and other	130.8		—		5.0		125.8
Total assets	$	2,329.8	$	362.5	$	1,312.0	$	655.3


(a)	Includes investments in comingled funds that invest in U.S. equity securities, comprised of approximately 90% large-cap U.S. companies and 10% small-cap U.S. companies.


(b)	Includes investments in comingled funds that invest in non-U.S. equity securities, comprised of approximately 80% developed countries and 20% emerging market economies.

(c)

Global debt securities include both fixed interest rate and floating interest rate instruments. These are comprised of actively managed investments which include U.S. government and U.S. government agency securities, foreign government securities, corporate bonds, mortgage-backed securities and other debt securities, and include both investment grade and non-investment grade debt, public and private debt, and secured and unsecured debt investments. To mitigate risk, investment managers have limitations regarding the amount of investment in particular securities and the credit quality of such investments.

Transfers from Level 1 to Level 2 of the fair value hierarchy were approximately $203 million in 2013 based on the Company's reassessment of fair value input measures and observable market data used to value certain investments, due to a changing mix of securities and the increased use of derivative financial instruments.

The fair values of the Company’s pension plan assets at December 31, 2012 by asset category and by the level of inputs used to determine fair value, were as follows:



(in millions)			Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
Asset category	Total		(Level 1)		(Level 2)		(Level 3)
Equity securities:
ATI common stock	$	89.7	$	89.7	$	—	$	—
Other U.S. equities (a)	601.1		198.2		402.9		—
International equities (b)	264.2		27.0		237.2		—
Fixed income and cash equivalents (c)	911.3		224.5		685.4		1.4
Private equity	85.5		—		—		85.5
Hedge funds	148.9		—		—		148.9
Real estate and other	119.3		4.8		10.1		104.4
Total assets	$	2,220.0	$	544.2	$	1,335.6	$	340.2


(a)	Includes investments in comingled funds that invest in U.S. equity securities, comprised of approximately 90% large-cap U.S. companies and 10% small-cap U.S. companies.


(b)	Includes investments in comingled funds that invest in non-U.S. equity securities, comprised of approximately 80% developed countries and 20% emerging market economies.


(c)	Fixed income investments are comprised of actively managed investments which include U.S. government and U.S. government agency securities, corporate bonds, mortgage-backed securities and other fixed income securities. To mitigate risk, investment managers have limitations regarding the amount of investment in particular securities and the credit quality of such investments.

Changes in the fair value of Level 3 pension plan assets for the year ended December 31, 2013 were as follows:



(in millions)	January 1, 2013 Balance		Net Realized and Unrealized Gains (Losses)		Net Purchases, Issuances and Settlements			Net Transfers Into (Out Of) Level 3		December 31, 2013 Balance
Global debt securities and cash:
Fixed income and cash equivalents	$	1.4	$	0.1	$	(0.7	)	$	—	$	0.8
Floating rate debt	—		5.4		289.1			—		294.5
Private equity	85.5		3.9		5.1			—		94.5
Hedge funds	148.9		13.8		(23.0		)	—		139.7
Real estate and other	104.4		16.4		5.0			—		125.8
Total	$	340.2	$	39.6	$	275.5		$	—	$	655.3

Changes in the fair value of Level 3 pension plan assets for the year ended December 31, 2012 were as follows:



(in millions)	January 1, 2012 Balance		Net Realized and Unrealized Gains (Losses)		Net Purchases, Issuances and Settlements			Net Transfers Into (Out Of) Level 3		December 31, 2012 Balance
Fixed income and cash equivalents	$	1.9	$	0.2	$	(0.7	)	$	—	$	1.4
Private equity	82.4		0.6		2.5			—		85.5
Hedge funds	121.9		7.1		19.9			—		148.9
Real estate and other	87.6		8.8		8.0			—		104.4
Total	$	293.8	$	16.7	$	29.7		$	—	$	340.2

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Investments in U.S. and International equities, and Fixed Income are predominantly held in common/collective trust funds and registered investment companies. These investments are public investment vehicles valued using the net asset value (NAV) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. In certain cases NAV is a quoted price in a market that is not active, and valuation is based on quoted prices for similar assets and liabilities in active markets, and these investments are classified within level 2 of the valuation hierarchy. Investments that are not actively traded, such as non-publicly traded real estate funds, are classified within level 3 of the valuation hierarchy, as the NAV is based on significant unobservable information.

Hedge fund investments are made either (1) as a limited partner in a portfolio of underlying hedge funds managed by a general partner or (2) through commingled institutional funds (CIFs) that in-turn invest in various portfolios of hedge funds whereby the allocation of the Plan’s investments to each CIF is managed by a third party Investment Manager. All hedge fund investments are classified within level 3 of the valuation hierarchy, as the valuations are substantially based on unobservable information.

Private equity investments include both Direct Funds and Fund-of-Funds. All private equity investments are classified as Level 3 in the valuation hierarchy, as the valuations are substantially based upon unobservable information. Direct Funds are investments in Limited Partnership (LP) interests. Fund-of-Funds are investments in private equity funds that invest in other private equity funds or LPs.

Real estate investments are made in either (1) as a limited partner in a portfolio of properties managed by a general partner or (2) through a commingled institutional fund (CIF) that invests in a portfolio of real estate funds.

For certain investments classified as Level 3 which have formal financial valuations reported on a one-quarter lag, fair value is determined utilizing net asset values adjusted for subsequent cash flows, estimated financial performance and other significant events.

For 2014, the expected long-term rate of returns on defined benefit pension assets will be 8.25%. In developing the expected long-term rate of return assumptions, the Company evaluated input from its third party pension plan asset managers and actuaries, including reviews of their asset class return expectations and long-term inflation assumptions. The expected long-term rate of return is based on expected asset allocations within ranges for each investment category, and includes consideration of both historical and projected annual compound returns, weighted on a 65%/35% basis, respectively. The Company’s actual returns on pension assets for the last five years have been 14.3% for 2013, 8.0% for 2012, 0.3% for 2011, 12.2% for 2010, and 16.4% for 2009.

The target asset allocations for pension plans for 2014, by major investment category, are:



Asset category		Target asset allocation range
Equity securities:
U. S. equities		18% - 40%
International equities		7% - 17%
Global debt securities and cash		35% - 48%
Private equity*		0% - 10%
Hedge funds*		0% - 10%
Real estate and other*		0% - 10%

* Have a combined target allocation of 18% and a 20% limit.

At December 31, 2013, other postretirement benefit plan assets of $4 million are primarily invested in private equity investments, which are classified as Level 3 in the valuation hierarchy, as the valuations are substantially based upon unobservable information. For 2014, the expected long-term rate of returns on these other postretirement benefit assets will be 8.3%.

Pension costs for defined contribution plans were $24.3 million in 2013, $23.8 million in 2012, and $21.6 million in 2011. Company contributions to these defined contribution plans are funded with cash.

Labor agreements with United Steelworkers represented employees require the Company to make contributions to VEBA trusts based upon the attainment of a certain level of profitability. The Company expects to make approximately $24 million of contributions, tied to profitability levels, to these VEBA trusts in 2014.

The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that cover certain of its union-represented employees. The risks of participating in such plans are different from the risks of single-employer plans, in the following respects:


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


b.	If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

If the Company ceases to have an obligation to contribute to the multiemployer plan in which it had been a contributing employer, it may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company’s participation in the plan prior to the cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the plan is referred to as a withdrawal liability.

The Company’s participation in multiemployer plans for the years ended December 31, 2013, 2012 and 2011 is reported in the following table. Participation with regard to multiemployer plans involving ATI Ladish LLC is included from the May 9, 2011 Ladish Co., Inc. acquisition date.



		Pension Protection Act Zone Status (1)		FIP / RP Status Pending / Implemented (2)	in millions							Expiration Dates of Collective Bargaining Agreements
	EIN / Pension Plan Number	Pension Protection Act Zone Status (1)			Company Contributions						Surcharge Imposed (3)
Pension Fund	EIN / Pension Plan Number	2013	2012		2013		2012		2011		Surcharge Imposed (3)
Steelworkers Western Independent Shops Pension Plan	90-0169564 / 001	Red	Red	Yes	$	1.0	$	1.3	$	1.2	No	6/30/2015
Boilermakers-Blacksmiths National Pension Trust	48-6168020 / 001	Yellow	Yellow	Yes	2.2		2.4		1.2		No	10/30/2018
IAM National Pension Fund	51-6031295 / 002	Green	Green	N/A	1.8		1.9		1.1		No	Various between 2018-2019 (4)
Total contributions					$	5.0	$	5.6	$	3.5

(1)

The most recent Pension Protection Act Zone Status available for ATI’s fiscal years 2013 and 2012 is for plan years ending in calendar years 2012 and 2011, respectively. The zone status is based on information provided to ATI and other participating employers by each plan and is certified by the plan’s actuary. A plan in the “red” zone had been determined to be in “critical status”, based on criteria established by the Code, and is generally less than 65% funded. A plan in the “yellow” zone has been determined to be in “endangered status”, based on criteria established under the Code, and is generally less than 80% funded. A plan in the “green” zone has been determined to be neither in “critical status” nor in “endangered status”, and is generally at least 80% funded.


(2)	The “FIP / RP status Pending / Implemented” column indicates whether a Funding Improvement Plan, as required under the Code by plans in the “yellow” zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the “red” zone, is pending or has been implemented as of the end of the plan year that ended in 2013.


(3)	The “Surcharge Imposed” column indicates whether ATI’s contribution rate for 2013 included an amount in addition to the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status”, in accordance with the requirements of the Code.


(4)	The Company is party to five separate bargaining agreements that require contributions to this plan. Expiration dates of these collective bargaining agreements range between February 25, 2018 and July 14, 2019.

The Company’s contributions to the Steelworkers Western Independent Shops Pension Plan exceeds 5% of this plan’s total contributions for the most recent fiscal year.