RETIREMENT PLANS

As described in more detail below, Eastman offers various postretirement benefits to its employees.

Defined Contribution Plans

The Company sponsors a defined contribution employee stock ownership plan (the "ESOP"), which is a component of the Eastman Investment Plan and Employee Stock Ownership Plan ("EIP/ESOP"), a plan under Section 401(a) of the Internal Revenue Code. Eastman made a contribution in February 2016 to the EIP/ESOP for substantially all U.S. employees equal to 5 percent of their eligible compensation for the 2015 plan year. Employees may allocate contributions to other investment funds within the EIP from the ESOP at any time without restrictions. Allocated shares in the ESOP totaled 2,199,000; 2,197,740; and 2,289,618 shares as of December 31, 2015, 2014, and 2013, respectively. Dividends on shares held by the EIP/ESOP are charged to retained earnings. All shares held by the EIP/ESOP are treated as outstanding in computing earnings per share.

In 2006, the Company amended its EIP/ESOP to provide a Company match of 50 percent of the first 7 percent of an employee's compensation contributed to the plan for employees who are hired on or after January 1, 2007. Employees who are hired on or after January 1, 2007, are also eligible for the contribution to the ESOP as described above.

Charges for domestic contributions to the EIP/ESOP were $62 million, $56 million, and $43 million for 2015, 2014, and 2013, respectively.

Defined Benefit Pension Plans and Other Postretirement Benefit Plans

Pension Plans

Eastman maintains defined benefit pension plans that provide eligible employees with retirement benefits.

Effective January 1, 2000, the Company's Eastman Retirement Assistance Plan, a U.S. defined benefit pension plan, was amended. Employees' accrued pension benefits earned prior to January 1, 2000 are calculated based on previous plan provisions using the employee's age, years of service, and final average compensation as defined in the plans. The amended plan uses a pension equity formula to calculate an employee's retirement benefits from January 1, 2000 forward. Benefits payable will be the combined pre-2000 and post-1999 benefits. Employees hired on or after January 1, 2007 are not eligible to participate in Eastman's U.S. defined benefit pension plans.

In December 2014, as part of its acquisition of Taminco, the Company assumed Taminco's non-U.S. defined benefit pension plans in Belgium and Finland. For more information on this acquisition, see Note 2, "Acquisitions".

Benefits are paid to employees from trust funds. Contributions to the trust funds are made as permitted by laws and regulations. The pension trust funds do not directly own any of the Company's common stock.

Pension coverage for employees of Eastman's non-U.S. operations is provided, to the extent deemed appropriate, through separate plans. The Company systematically provides for obligations under such plans by depositing funds with trustees, under insurance policies, or by book reserves.

Other Postretirement Benefit Plans

Under its other postretirement benefit plans, Eastman provides a subsidy for life insurance, health care, and dental benefits to eligible retirees hired prior to January 1, 2007, and a subsidy for health care and dental benefits to retirees' eligible survivors. In general, Eastman provides those benefits to retirees eligible under the Company's U.S. plans. Similar benefits are also made available to retirees of Holston Defense Corporation, a wholly-owned subsidiary of the Company that, prior to January 1, 1999, operated a government-owned ammunition plant.

Employees in the U.S. hired on or after January 1, 2007 do not have access to postretirement health care benefits. A few of the Company's non-U.S. operations have supplemental health benefit plans for certain retirees, the cost of which is not significant to the Company.

In December 2014, as part of its acquisition of Taminco, the Company assumed Taminco's U.S. postretirement benefit plan. For more information on this acquisition, see Note 2, "Acquisitions".

Below is a summary balance sheet of the change in plan assets during 2015 and 2014, the funded status of the plans, amounts recognized in the Consolidated Statements of Financial Position, and a summary of amounts recognized in accumulated other comprehensive income.

Summary of Changes



	Pension Plans												Postretirement Benefit Plans
	2015						2014						2015			2014
(Dollars in millions)	U.S.			Non-U.S.			U.S.			Non-U.S.
Change in projected benefit obligation:
Benefit obligation, beginning of year	$	2,356		$	867		$	2,236		$	736		$	1,014		$	962
Service cost	39			15			40			14			8			8
Interest cost	87			26			100			31			39			45
Actuarial (gain) loss	(31		)	(50		)	174			149			(13		)	49
Curtailment gain	—			(4		)	—			—			(2		)	—
Settlement	—			—			—			(18		)	—			—
Acquisitions	—			(10		)	—			48			—			4
Plan amendments and other	—			—			—			—			(140		)	1
Plan participants' contributions	—			2			—			2			15			18
Effect of currency exchange	—			(61		)	—			(73		)	(2		)	—
Federal subsidy on benefits paid	—			—			—			—			1			1
Benefits paid	(189		)	(22		)	(194		)	(22		)	(67		)	(74		)
Benefit obligation, end of year	$	2,262		$	763		$	2,356		$	867		$	853		$	1,014
Change in plan assets:
Fair value of plan assets, beginning of year	$	1,968		$	699		$	1,887		$	658		$	176		$	179
Actual return on plan assets	(23		)	7			151			92			(1		)	16
Effect of currency exchange	—			(48		)	—			(60		)	—			—
Company contributions	131			21			124			22			34			38
Reserve for third party contributions	—			—			—			—			(1		)	(3		)
Plan participants' contributions	—			2			—			2			15			18
Benefits paid	(189		)	(22		)	(194		)	(22		)	(67		)	(74		)
Federal subsidy on benefits paid	—			—			—			—			1			1
Settlements	—			—			—			(18		)	—			—
Other	—			—			—			—			—			1
Acquisitions	—			(9		)	—			25			—			—
Fair value of plan assets, end of year	$	1,887		$	650		$	1,968		$	699		$	157		$	176
Funded status at end of year	$	(375	)	$	(113	)	$	(388	)	$	(168	)	$	(696	)	$	(838	)
Amounts recognized in the Consolidated Statements of Financial Position consist of:
Other noncurrent assets	$	—		$	7		$	4		$	4		$	19		$	13
Current liabilities	(3		)	—			(2		)	(1		)	(43		)	(41		)
Post-employment obligations	(372		)	(120		)	(390		)	(171		)	(672		)	(810		)
Net amount recognized, end of year	$	(375	)	$	(113	)	$	(388	)	$	(168	)	$	(696	)	$	(838	)
Accumulated benefit obligation	$	2,146		$	721		$	2,254		$	781
Amounts recognized in accumulated other comprehensive income consist of:
Prior service (credit) cost	$	(10	)	$	2		$	(14	)	$	(1	)	$	(200	)	$	(84	)

The change in projected benefit obligation and change in net assets in 2014 reflect the impact of the defined benefit pension plans and the other postretirement benefit plan assumed in the Taminco acquisition, described in Note 2, "Acquisitions".

Information for pension plans with projected benefit obligations in excess of plan assets:



(Dollars in millions)	2015				2014
	U.S.		Non-U.S.		U.S.		Non-U.S.
Projected benefit obligation	$	2,262	$	622	$	1,973	$	745
Fair value of plan assets	1,887		501		1,581		573

Information for pension plans with accumulated benefit obligation in excess of plan assets:



(Dollars in millions)	2015				2014
	U.S.		Non-U.S.		U.S.		Non-U.S.
Projected benefit obligation	$	2,262	$	622	$	1,973	$	711
Accumulated benefit obligation	2,146		584		1,870		640
Fair value of plan assets	1,887		501		1,581		541

Components of net periodic benefit (credit) cost were as follows:

Summary of Benefit Costs and Other Amounts Recognized in Other Comprehensive Income



	Pension Plans																		Postretirement Benefit Plans
	2015						2014						2013						2015			2014			2013
(Dollars in millions)	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Components of net periodic benefit (credit) cost:
Service cost	$	39		$	15		$	40		$	14		$	43		$	14		$	8		$	8		$	11
Interest cost	87			26			100			31			89			27			39			45			44
Expected return on assets	(148		)	(37		)	(143		)	(38		)	(129		)	(35		)	(6		)	(7		)	(7		)
Curtailment gain ⁽¹⁾	—			(7		)	—			—			—			(1		)	(2		)	—			—
Amortization of:
Prior service cost (credit)	(4		)	1			(4		)	—			(4		)	—			(24		)	(24		)	(22		)
Mark-to-market pension and other postretirement benefits (gain) loss	140			(20		)	166			95			(294		)	18			(5		)	43			(107		)
Net periodic benefit (credit) cost	$	114		$	(22	)	$	159		$	102		$	(295	)	$	23		$	10		$	65		$	(81	)
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Curtailment gain	$	—		$	(3	)	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Current year prior service credit	—			—			—			—			—			—			140			—			47
Amortization of:
Prior service cost (credit)	(4		)	1			(4		)	—			(4		)	—			(24		)	(24		)	(22		)
Total	$	(4	)	$	(2	)	$	(4	)	$	—		$	(4	)	$	—		$	116		$	(24	)	$	25


⁽¹⁾	Gain of $7 million in 2015 in the Fibers segment related to the remeasurement of the Workington, UK pension plan, triggered by the closure of the Workington, UK acetate tow manufacturing facility.

In fourth quarter 2015, the Company changed benefits provided to retirees by the Eastman other postretirement benefit plan which triggered a remeasurement of the plan's obligation. The remeasurement resulted in a reduction in the accumulated postretirement benefit obligation of approximately $140 million which will be amortized as a prior service credit from accumulated other comprehensive income over approximately 8 years. The remeasurement was included in the 2015 year end remeasurement process.

In third quarter 2013, the Company changed benefits provided to future retirees by the Eastman other postretirement benefit plan which triggered an interim remeasurement of the plan's obligation. The remeasurement resulted in a reduction in the accumulated postretirement benefit obligation of approximately $47 million which will be amortized as a prior service credit from accumulated other comprehensive income over 8 years. The remeasurement of the plan also resulted in a mark-to-market actuarial gain of $86 million in third quarter 2013. The actuarial gain was primarily due to a higher assumed discount rate of 4.72 percent in third quarter 2013 compared to 4.01 percent at December 31, 2012. The higher assumed discount rate is reflective of changes in global market conditions and interest rates on high-grade corporate bonds.

The estimated prior service credit for the U.S. pension and other postretirement benefit plans that will be amortized from accumulated other comprehensive income into net periodic cost in 2016 is $4 million and $41 million, respectively.

The assumptions used to develop the projected benefit obligation for the Company's significant U.S. and non-U.S. defined benefit pension plans and U.S. postretirement benefit plans are provided in the following tables.



	Pension Plans												Postretirement Benefit Plans
Weighted-average assumptions used to determine benefit obligations for years ended December 31:	2015				2014				2013				2015		2014		2013
	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	4.13	%	3.26	%	3.80	%	3.10	%	4.59	%	4.18	%	4.17	%	3.91	%	4.75	%
Rate of compensation increase	3.50	%	3.00	%	3.50	%	3.24	%	3.50	%	3.49	%	3.50	%	3.50	%	3.50	%
Health care cost trend
Initial													7.50	%	7.50	%	8.00	%
Decreasing to ultimate trend of													5.00	%	5.00	%	5.00	%
in year													2021		2020		2020
Weighted-average assumptions used to determine net periodic cost for years ended December 31:	2015				2014				2013				2015		2014		2013
	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	3.80	%	3.10	%	4.59	%	4.18	%	3.72	%	4.16	%	3.91	%	4.75	%	3.91	%
Expected return on assets	7.78	%	5.50	%	7.83	%	5.78	%	7.98	%	5.90	%	3.75	%	3.75	%	3.75	%
Rate of compensation increase	3.50	%	3.24	%	3.50	%	3.49	%	3.50	%	3.49	%	3.50	%	3.50	%	3.50	%
Health care cost trend
Initial													7.50	%	8.00	%	8.00	%
Decreasing to ultimate trend of													5.00	%	5.00	%	5.00	%
in year													2020		2020		2019

A seven and one-half percent rate of increase in per capita cost of covered health care benefits is assumed for 2016. The rate is assumed to decrease gradually to five percent in 2021 and remain at that level thereafter. A one percent increase or decrease in health care cost trend would have had no material impact on the 2015 service and interest costs or the 2015 benefit obligation, because the Company's contributions for benefits are fixed.

The Company performed a five year experience study on assumptions for the U.S. plans in 2014 which included a review of the mortality tables. As a result of the study, the Company continues to use the RP-2000 table with scale AA static improvement scale and no collar adjustment as it most closely aligns with the Company's experience.

The fair value of plan assets for the U.S. pension plans at December 31, 2015 and 2014 was $1.9 billion and $2.0 billion, respectively, while the fair value of plan assets at December 31, 2015 and 2014 for non-U.S. pension plans was $650 million and $699 million, respectively. At December 31, 2015 and 2014, the expected weighted-average long-term rate of return on U.S. pension plan assets was 7.60% percent and 7.78% percent, respectively. The expected weighted-average long-term rate of return on non-U.S. pension plans assets was 5.11% percent and 5.50% percent at December 31, 2015 and 2014, respectively.

The following charts reflect the fair value of the defined benefit pension plans assets as of December 31, 2015 and 2014.



(Dollars in millions)					Fair Value Measurements at December 31, 2015
Description	December 31, 2015				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Pension Assets:	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Cash & Cash Equivalents ⁽¹⁾	$	66	$	9	$	66	$	9	$	—	$	—	$	—	$	—
Debt ⁽²⁾:
Fixed Income (U.S.)	665		14		—		—		665		14		—		—
Fixed Income (Non-U.S.)	—		250		—		—		—		250		—		—
Fixed Income (Global)	—		26		—		—		—		26		—		—
U.S. Treasury Securities	36		—		—		—		36		—		—		—
Public Equity Funds ⁽³⁾:
United States	476		36		—		—		476		36		—		—
Non-U.S.	358		49		—		—		358		49		—		—
Global	—		147		—		—		—		147		—		—
Other ⁽⁴⁾:
Private Equity, Real Estate Funds, and Other Alternative Investments	286		72		—		—		—		30		286		42
Multi-Asset Common Collective Trusts	—		47		—		—		—		47		—		—
Total	$	1,887	$	650	$	66	$	9	$	1,535	$	599	$	286	$	42


⁽¹⁾	Cash & Cash Equivalents: The carrying amounts of cash and cash equivalents are valued at $1 per unit, which approximates fair value. Amounts are generally invested in actively managed common trust funds or interest bearing accounts.


⁽²⁾	Debt: The underlying fixed income investments in this category are generally held in common trust funds, which are either actively or passively managed investment vehicles, that are valued at the net asset value per unit/share multiplied by the number of units/shares held as of the measurement date.


⁽³⁾	Public Equity Funds: The underlying equity investments in this category are generally held in common trust funds, which are either actively or passively managed investment vehicles, that are valued at the net asset value per unit/share multiplied by the number of units/shares held as of the measurement date.


⁽⁴⁾	Other: The underlying investments in this category are held in private investment funds. These investments are valued based on the net asset value provided by the management of each private investment fund, adjusted as appropriate, for any lag between the date of the financial reports and the measurement date.



(Dollars in millions)					Fair Value Measurements at December 31, 2014
Description	December 31, 2014				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Pension Assets:	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Cash & Cash Equivalents ⁽¹⁾	$	77	$	19	$	77	$	19	$	—	$	—	$	—	$	—
Debt ⁽²⁾:
Fixed Income (U.S.)	662		11		—		—		662		11		—		—
Fixed Income (Non-U.S.)	—		278		—		—		—		278		—		—
Fixed Income (Global)	—		28		—		—		—		28		—		—
U.S. Treasury Securities	37		—		—		—		37		—		—		—
Public Equity Funds ⁽³⁾:
United States	509		31		—		—		509		31		—		—
Non-U.S.	348		48		—		—		348		48		—		—
Global	—		154		—		—		—		154		—		—
Other ⁽⁴⁾:
Private Equity, Real Estate Funds, and Other Alternative Investments	335		82		—		—		—		27		335		55
Multi-Asset Common Collective Trusts	—		48		—		—		—		48		—		—
Total	$	1,968	$	699	$	77	$	19	$	1,556	$	625	$	335	$	55


⁽¹⁾	Cash & Cash Equivalents: The carrying amounts of cash and cash equivalents are valued at $1 per unit, which approximates fair value. Amounts are generally invested in actively managed common trust funds or interest bearing accounts.


⁽²⁾	Debt: The underlying fixed income investments in this category are generally held in common trust funds, which are either actively or passively managed investment vehicles, that are valued at the net asset value per unit/share multiplied by the number of units/shares held as of the measurement date.


⁽³⁾	Public Equity Funds: The underlying equity investments in this category are generally held in common trust funds, which are either actively or passively managed investment vehicles, that are valued at the net asset value per unit/share multiplied by the number of units/shares held as of the measurement date.


⁽⁴⁾	Other: The underlying investments in this category are held in private investment funds. These investments are valued based on the net asset value provided by the management of each private investment fund, adjusted as appropriate, for any lag between the date of the financial reports and the measurement date.

The following charts reflect the fair value of the postretirement benefit plan assets as of December 31, 2015 and 2014. The postretirement benefit plan is for the voluntary employees' beneficiary association ("VEBA") trust the Company assumed as part of the Solutia acquisition.



(Dollars in millions)			Fair Value Measurements at December 31, 2015
Description	December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Postretirement Benefit Plan Assets:
Cash & Cash Equivalents ⁽¹⁾	$	—	$	—	$	—	$	—
Debt ⁽²⁾:
Fixed Income (U.S.)	86		—		86		—
Fixed Income (Non-U.S.)	34		—		34		—
U.S. Treasury Securities	—		—		—		—
Total	$	120	$	—	$	120	$	—



(Dollars in millions)			Fair Value Measurements at December 31, 2014
Description	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Postretirement Benefit Plan Assets:
Cash & Cash Equivalents ⁽¹⁾	$	6	$	6	$	—	$	—
Debt ⁽²⁾:
Fixed Income (U.S.)	124		—		124		—
Fixed Income (Non-U.S.)	2		—		2		—
U.S. Treasury Securities	1		—		1		—
Total	$	133	$	6	$	127	$	—


⁽¹⁾	Cash & Cash Equivalents: The carrying amounts of cash and cash equivalents are valued at $1 per unit, which approximates fair value. Amounts are generally invested in actively managed common trust funds or interest bearing accounts.


⁽²⁾	Debt: The underlying fixed income investments in this category are generally held in common trust funds, which are either actively or passively managed investment vehicles, that are valued at the net asset value per unit/share multiplied by the number of units/shares held as of the measurement date.

The Company valued assets with unobservable inputs (Level 3), specifically its alternative investments, investments in private equity and investments in real estate and other funds under the practical expedient method. The practical expedient method allows reporting entities to use the most recently reported net asset value ("NAV") of qualifying investment companies provided it is not probable that the investment will be sold by the reporting entity at an amount different from the most recently reported NAV.



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	U.S. Pension Plans												Non-U.S. Pension Plans
(Dollars in millions)	Private Equity			Real Estate			Other Alternative Investments⁽¹⁾			Total			Real Estate				Other Alternative Investments⁽¹⁾			Total
Balance at December 31, 2013	$	177		$	101		$	84		$	362		$	2			$	25		$	27
Distributions	(40		)	(29		)	(17		)	(86		)	—				—			—
Unrealized gains	18			9			4			31			—			—	4			4
Purchases, contributions, and other	21			2			5			28			(2		)		26			24
Balance at December 31, 2014	176			83			76			335			—				55			55
Distributions	(56		)	(28		)	(15		)	(99		)	—				—			—
Unrealized gains	23			10			(16		)	17			—			—	(5		)	(5		)
Purchases, contributions, and other	24			1			8			33			—				(8		)	(8		)
Balance at December 31, 2015	$	167		$	66		$	53		$	286		$	—			$	42		$	42


⁽¹⁾	U.S. primarily consists of natural resource and energy related limited partnership investments. Non-U.S. primarily consists of annuity contracts.

The following chart reflects the target allocation for the Company's U.S. and non-U.S. pension and postretirement benefit plans assets for 2015 and the asset allocation at December 31, 2015 and 2014, by asset category. The postretirement benefit plan is for the VEBA trust the Company assumed as part of the Solutia acquisition.



	U.S. Pension Plans			Non-U.S. Pension Plans			Postretirement Benefit Plan
	Target Allocation	Plan Assets at December 31, 2015	Plan Assets at December 31, 2014	Target Allocation	Plan Assets at December 31, 2015	Plan Assets at December 31, 2014	Target Allocation	Plan Assets at December 31, 2015	Plan Assets at December 31, 2014
Asset category
Equity securities	48%	44%	44%	31%	36%	34%	—%	—%	—%
Debt securities	33%	41%	39%	50%	46%	48%	100%	100%	100%
Real estate	5%	4%	4%	2%	2%	2%	—%	—%	—%
Other investments ⁽¹⁾	14%	11%	13%	17%	16%	16%	—%	—%	—%
Total	100%	100%	100%	100%	100%	100%	100%	100%	100%


⁽¹⁾	U.S. primarily consists of private equity and natural resource and energy related limited partnership investments. Non-U.S. primarily consists of annuity contracts and alternative investments.

The Company's investment strategy for its defined benefit pension plans is to maximize the long-term rate of return on plan assets within an acceptable level of risk in order to meet or exceed the plan's actuarially assumed long-term rate of return and to minimize the cost of providing pension benefits. A periodic asset/liability study is conducted in order to assist in the determination and, if necessary, modification of the appropriate long-term investment policy for the plan. The investment policy establishes a target allocation range for each asset class and the fund is managed within those ranges. The plans use a number of investment approaches including investments in equity, real estate, and fixed income funds in which the underlying securities are marketable in order to achieve this target allocation. The plans also invest in private equity and other funds. Diversification is created through investment across various asset classes, geographies, fund managers, and individual securities. This investment process is designed to provide for a well-diversified portfolio with no significant concentration of risk. The investment process is monitored by an investment committee comprised of various senior executives from within Eastman.

In December 2014, as part of its acquisition of Taminco, the Company assumed Taminco's non-U.S. defined benefit pension plans in Belgium and Finland. The pension plans' assets consist of guaranteed investment contracts with an insurance company. The Company also assumed Taminco's U.S. postretirement benefit plan which has no plan assets.

In July 2012, as part of its acquisition of Solutia, the Company assumed Solutia's defined benefit pension and other postretirement benefit plans. The Solutia defined benefit pension plans adhere to the Company's defined benefit plan investment strategy. The Solutia defined benefit pension plans also utilize a dynamic de-risking strategy to shift from growth assets to liability matching assets as the plan's funded status improves. The investment strategy with respect to Solutia's other postretirement benefits plan is to invest in an intermediate-term, well diversified, high quality investment instruments, with a primary objective of capital preservation.

The expected rate of return for all plans was determined primarily by modeling the expected long-term rates of return for the categories of investments held by the plans and the targeted allocation percentage against various potential economic scenarios.

The Company funded its U.S. defined benefit pension plans in the amount of $125 million in 2015 and $120 million in 2014. For 2016, there are no minimum required cash contributions for the U.S. defined benefit pension plans under the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended.

The estimated future benefit payments, reflecting expected future service, as appropriate, are as follows:



	Pension Plans				Postretirement Benefit Plans
(Dollars in millions)	U.S.		Non-U.S.
2016	$	227	$	22	$	60
2017	200		22		60
2018	199		23		59
2019	197		25		60
2020	195		26		60
2021-2025	879		147		296