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EMPLOYEE RETIREMENT PLANS | 12 Months Ended
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Dec. 31, 2013
EMPLOYEE RETIREMENT PLANS |
EMPLOYEE RETIREMENT PLANS | 12. EMPLOYEE RETIREMENT PLANS Defined Benefit Plans The Company sponsors and/or contributes to postretirement medical and insurance plans ("OPEB") and pension and other benefit plans covering many of our United States employees, in whole or in part, based on meeting certain eligibility criteria. In addition, the Company and its subsidiaries have various pension plans and other forms of postretirement arrangements outside the United States, namely in Canada and Taiwan. As part of the merger, we assumed certain liabilities related to pensions ("Assumed Pension Plans") and other postretirement benefit plans ("Assumed Postretirement Plans" or OPEB Plans). We had no other OPEB obligations prior to the merger. Pension and OPEB Welfare Plans. Certain employees in the United States who were hired before January 1, 2009 are covered by a defined benefit pension plan. That plan was frozen to future benefit accruals in 2009. The Assumed Pension Plans provide ongoing benefits to certain employees and are closed to new hires. The Assumed Postretirement Plans are unfunded and provide medical and life insurance benefits for certain employees of the Merged Business and their dependents. In connection with the merger, we also acquired an Employee Group Waiver Plan ("EGWP") for certain Medicare-eligible retirees of the Merged Business and their dependents. The EGWP includes a fully-insured Medicare Part D prescription drug plan, however the EGWP was eliminated effective January 1, 2014, as part of the changes described below. The Assumed Postretirement Plans require retiree contributions based on retiree-selected coverage levels for certain retirees and their dependents and provide for sharing of future benefit cost increases between the Company and participants. Recently approved amendments to the Assumed Pension Plans for United States salaried employees has frozen all future benefit accruals for non-union employees effective January 31, 2014. Also, recently approved modifications to the Assumed Postretirement Plans were made with respect to certain participants, to deliver retiree medical benefits through health reimbursement account contributions. For the impacted participants, these retiree medical changes became effective on January 1, 2014 for Medicare eligible retirees and will become effective January 1, 2015 for non-Medicare eligible retirees. In addition, life insurance benefits for our assumed United States non-bargained future retirees were eliminated effective January 1, 2014. These OPEB benefit changes were approved and communicated to participants in October 2013 and the quantitative financial impact to the U.S. Assumed Postretirement Plan was reflected beginning in the fourth quarter of 2013. The impact of the amendments to the U.S. Assumed Pension Plans was recognized in the fourth quarter of 2013. The estimated fair value of pension investment assets related to the Assumed Pension Plans was $506.7 million as of January 28, 2013. As of the same date, our projected benefit obligation with respect to these assets was $576.1 million. The unfunded status of pension obligations assumed by us and calculated on a projected benefit obligation basis as of January 28, 2013, was approximately $69.4 million. The aggregate amount of the unfunded Assumed Postretirement Plans as of January 28, 2013, was approximately $182.9 million. Benefit Obligations. The reconciliation of the beginning and ending balances of the projected benefit obligation for defined benefit plans is as follows:
|  | Pension Benefits |  | OPEB |
--- | --- | --- | --- | --- | ---
|  | As of December 31, |
(In millions) |  | 2013 |  | 2012 |  | 2013 |
Change in Benefit Obligation |  |  |  |  |  |  |  |  |  |
Benefit obligation, beginning of year |  | $ | 168.5 |  | $ | 147.3 |  | $ | - |
Acquisitions |  |  | 576.1 |  |  | - |  |  | 182.9 |
Service Costs |  |  | 6.6 |  |  | - |  |  | 2.0 |
Interest cost |  |  | 28.0 |  |  | 7.2 |  |  | 6.4 |
Actuarial loss (gain) |  |  | (57.0 | ) |  | 19.1 |  |  | (4.2 | )
Foreign currency translation adjustment |  |  | (0.8 | ) |  | - |  |  | (0.1 | )
Plan participants' contributions |  |  | - |  |  | - |  |  | 3.4 |
Gross benefits paid |  |  | (32.5 | ) |  | (5.1 | ) |  | (9.8 | )
Plan amendments |  |  | - |  |  | - |  |  | (82.7 | )
Curtailments |  |  | (15.5 | ) |  | - |  |  | - |
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Benefit obligation, end of year |  | $ | 673.4 |  | $ | 168.5 |  | $ | 97.9 |
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Accumulated benefit obligation, end of year |  | $ | 670.7 |  | $ | 168.5 |  |  | NA |
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The accumulated benefit obligation is defined as the actuarial present value of pension benefits (whether vested or unvested) attributed to employee service rendered before December 31, 2013 and 2012, respectively, and based on employee service and compensation prior to the applicable date. Plan Assets. The summary and reconciliation of the beginning and ending balances of the fair value of the plans' assets were as follows:
|  | Pension Benefits |  | OPEB |
--- | --- | --- | --- | --- | ---
|  | As of December 31, |
(In millions) |  | 2013 |  | 2012 |  | 2013 |
Change in Plan Assets |  |  |  |  |  |  |  |  |  |
Fair value of plan assets, beginning of year |  | $ | 115.8 |  | $ | 107.7 |  | $ | - |
Acquisitions |  |  | 506.7 |  |  | - |  |  | - |
Actual return on plan assets |  |  | 68.2 |  |  | 12.8 |  |  | - |
Foreign currency translation adjustment |  |  | (0.7 | ) |  | - |  |  | - |
Employer contribution |  |  | 1.9 |  |  | 0.4 |  |  | 6.4 |
Plan participants' contributions |  |  | - |  |  | - |  |  | 3.4 |
Gross benefits paid |  |  | (32.5 | ) |  | (5.1 | ) |  | (9.8 | )
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Fair value of plan assets, end of year |  | $ | 659.4 |  | $ | 115.8 |  | $ | - |
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The Plan classifies its investments based on the lowest level of input that is significant to the fair value measurement. The following table sets forth, by level within the fair value hierarchy, a summary of the Plan's investments measured at fair value and the target and current allocation.
Asset Category |  | Target Allocation 2014 |  | Percentage of Plan Assets, December 31, 2013 |  | Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |
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(In millions, except percentages) |  |  |  |  |  |  |  |  |  |  |
Short-term investment fund |  |  | - | % |  | 1 | % | $ | 5.7 |  | $ | - |  | $ | 5.7 |  | $ | - |
Receivables |  |  |  |  |  |  |  |  | 86.7 |  |  | - |  |  | - |  |  | 86.7 |
US Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer discretionary sector |  |  |  |  |  |  |  |  | 6.6 |  |  | 6.6 |  |  | - |  |  | - |
Consumer staples sector |  |  |  |  |  |  |  |  | 9.2 |  |  | 9.2 |  |  | - |  |  | - |
Energy sector |  |  |  |  |  |  |  |  | 1.3 |  |  | 1.3 |  |  | - |  |  | - |
Finance sector |  |  |  |  |  |  |  |  | 3.8 |  |  | 3.8 |  |  | - |  |  | - |
Health care sector |  |  |  |  |  |  |  |  | 8.4 |  |  | 8.4 |  |  | - |  |  | - |
Index funds |  |  |  |  |  |  |  |  | 93.6 |  |  | - |  |  | 93.6 |  |  | - |
Industrials sector |  |  |  |  |  |  |  |  | 2.8 |  |  | 2.8 |  |  | - |  |  | - |
Information technology sector |  |  |  |  |  |  |  |  | 7.3 |  |  | 7.3 |  |  | - |  |  | - |
Capital appreciation mutual fund |  |  |  |  |  |  |  |  | 13.1 |  |  | 13.1 |  |  | - |  |  | - |
Small cap growth mutual fund |  |  |  |  |  |  |  |  | 7.4 |  |  | 7.4 |  |  | - |  |  | - |
Pooled equity fund |  |  |  |  |  |  |  |  | 47.8 |  |  | - |  |  | 47.8 |  |  | - |
Other |  |  |  |  |  |  |  |  | 1.4 |  |  | 1.4 |  |  | - |  |  | - |
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Total US equity securities: |  |  | 43 | % |  | 46 | % |  | 202.7 |  |  | 61.3 |  |  | 141.4 |  |  | - |
International equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Euro Pacific Growth fund |  |  |  |  |  |  |  |  | 29.1 |  |  | 29.1 |  |  | - |  |  | - |
Emerging market index funds |  |  | 5 | % |  | 4 | % |  | 62.8 |  |  | 5.1 |  |  | 57.7 |  |  | - |
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Total International equity securities |  |  | 20 | % |  | 22 | % |  | 91.9 |  |  | 34.2 |  |  | 57.7 |  |  | - |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pimco total return, institutional |  |  |  |  |  |  |  |  | 199.4 |  |  | 199.4 |  |  | - |  |  | - |
Other fixed income securities |  |  |  |  |  |  |  |  | 65.2 |  |  | 2.8 |  |  | 62.4 |  |  | - |
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Total fixed income securities: |  |  | 20 | % |  | 17 | % |  | 264.6 |  |  | 202.2 |  |  | 62.4 |  |  | - |
Long-biased hedge fund |  |  | 10 | % |  | 9 | % |  | 6.7 |  |  | - |  |  | - |  |  | 6.7 |
Real estate partnership |  |  | 2 | % |  | 1 | % |  | 1.1 |  |  | - |  |  | - |  |  | 1.1 |
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Total |  |  |  |  |  |  |  | $ | 659.4 |  | $ | 297.7 |  | $ | 267.2 |  | $ | 94.5 |
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Asset Category |  | Target Allocation 2013 |  | Percentage of Plan Assets, December 31, 2012 |  | Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |
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(In millions, except percentages) |  |  |  |  |  |  |  |  |  |  |
Short-term investment fund |  |  |  |  |  | 2 | % | $ | 2.2 |  | $ | - |  | $ | 2.2 |  | $ | - |
US. Equity Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer discretionary sector |  |  |  |  |  |  |  |  | 1.7 |  |  | 1.7 |  |  | - |  |  | - |
Consumer staples sector |  |  |  |  |  |  |  |  | 4.1 |  |  | 4.1 |  |  | - |  |  | - |
Energy sector |  |  |  |  |  |  |  |  | 1.2 |  |  | 1.2 |  |  | - |  |  | - |
Finance sector |  |  |  |  |  |  |  |  | 0.6 |  |  | 0.6 |  |  | - |  |  | - |
Health care sector |  |  |  |  |  |  |  |  | 3.0 |  |  | 3.0 |  |  | - |  |  | - |
Industrials sector |  |  |  |  |  |  |  |  | 1.1 |  |  | 1.1 |  |  | - |  |  | - |
Information technology sector |  |  |  |  |  |  |  |  | 4.4 |  |  | 4.4 |  |  | - |  |  | - |
Capital appreciation mutual fund |  |  |  |  |  |  |  |  | 6.4 |  |  | 6.4 |  |  | - |  |  | - |
Small cap growth mutual fund |  |  |  |  |  |  |  |  | 5.1 |  |  | 5.1 |  |  | - |  |  | - |
Pooled equity fund |  |  |  |  |  |  |  |  | 19.2 |  |  | - |  |  | 19.2 |  |  | - |
Other |  |  |  |  |  |  |  |  | 0.8 |  |  | 0.8 |  |  | - |  |  | - |
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Total US equity securities: |  |  | 43 | % |  | 41 | % |  | 47.6 |  |  | 28.4 |  |  | 19.2 |  |  | - |
International equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Euro Pacific Growth fund |  |  |  |  |  |  |  |  | 25.0 |  |  | 25.0 |  |  | - |  |  | - |
Consumer staples sector |  |  |  |  |  |  |  |  | 0.4 |  |  | 0.4 |  |  | - |  |  | - |
Emerging markets fund |  |  | 5 | % |  | 5 | % |  | 5.3 |  |  | 5.3 |  |  | - |  |  | - |
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Total International equity securities |  |  | 20 | % |  | 27 | % |  | 30.7 |  |  | 30.7 |  |  | - |  |  | - |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pimco total return institutional |  |  |  |  |  |  |  |  | 22.9 |  |  | 22.9 |  |  | - |  |  | - |
Financial services sector |  |  |  |  |  |  |  |  | 0.2 |  |  | - |  |  | 0.2 |  |  | - |
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Total fixed income securities: |  |  | 20 | % |  | 20 | % |  | 23.1 |  |  | 22.9 |  |  | 0.2 |  |  | - |
Long-biased hedge fund |  |  | 10 | % |  | 9 | % |  | 10.6 |  |  | - |  |  | - |  |  | 10.6 |
Real estate partnership |  |  | 2 | % |  | 1 | % |  | 1.6 |  |  | - |  |  | - |  |  | 1.6 |
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Total |  |  |  |  |  |  |  | $ | 115.8 |  | $ | 82.0 |  | $ | 21.6 |  | $ | 12.2 |
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Funded Status. The following table shows the funded status of the pension benefits, reconciled to the amounts reported on the balance sheets:
|  | Pension Benefits |  | OPEB |
--- | --- | --- | --- | --- | ---
|  | As of December 31, |
(In millions) |  | 2013 |  | 2012 |  | 2013 |
Funded status, end of year: |  |  |  |  |  |  |  |  |  |
Fair value of plan assets |  | $ | 659.4 |  | $ | 115.8 |  | $ | - |
Benefit obligations |  |  | 673.4 |  |  | 168.5 |  |  | 97.9 |
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Unfunded status |  | $ | (14.0 | ) | $ | (52.7 | ) | $ | (97.9 | )
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Amounts recognized in the balance sheets consist of: |  |  |  |  |  |  |  |  |  |
Noncurrent asset |  | $ | 26.9 |  | $ | - |  | $ | - |
Current liability |  |  | (1.3 | ) |  | (0.4 | ) |  | (7.7 | )
Noncurrent liability |  |  | (39.6 | ) |  | (52.3 | ) |  | (90.2 | )
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Amount recognized, end of year |  | $ | (14.0 | ) | $ | (52.7 | ) | $ | (97.9 | )
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Gross amounts recognized in accumulated other comprehensive income (loss) consist of: |  |  |  |  |  |  |  |  |  |
Net actuarial gain (loss) |  | $ | 11.4 |  | $ | (77.5 | ) | $ | 4.2 |
Prior service credit (cost) |  |  | (0.1 | ) |  | (0.1 | ) |  | 80.4 |
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Amount recognized, end of year |  | $ | 11.3 |  | $ | (77.6 | ) | $ | 84.6 |
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Certain of our pension plans have projected benefit obligations in excess of the fair value of plan assets. For these plans, the projected benefit obligations and the fair value of plan assets were as follows:
|  | Pensions As of December 31, |
--- | --- | --- | ---
(In millions) |  | 2013 |  | 2012 |
Projected benefit obligation, end of year |  | $ | 430.5 |  | $ | 168.5 |
Fair value of plan assets, end of year |  |  | 389.6 |  |  | 115.8 |
Certain of our pension plans have accumulated benefit obligations in excess of the fair value of plan assets. For these plans, the accumulated benefit obligations and the fair value of plan assets were as follows:
|  | Pensions As of December 31, |
--- | --- | --- | ---
(In millions) |  | 2013 |  | 2012 |
Accumulated benefit obligaiton, end of year |  | $ | 417.6 |  | $ | 168.5 |
Fair value of plan assets, end of year |  |  | 378.9 |  |  | 115.8 |
Changes in Other Comprehensive Income (Loss). The following table summarizes the changes in plan assets and benefit obligations which were recognized in other comprehensive income (loss):
|  | Pensions |  | OPEB |
--- | --- | --- | --- | --- | ---
|  | As of December 31, |
End of year: |  | 2013 |  | 2012 |  | 2011 |  | 2013 |
Current year actuarial gain (loss) |  |  |  |  |  |  |  |  |  |  |  |  |
Current year actuarial gain (loss) |  | $ | 102.2 |  | $ | (15.0 | ) | $ | (22.1 | ) | $ | 4.2 |
Amortization of actuarial loss (gain) |  |  | (13.3 | ) |  | 1.6 |  |  | 1.5 |  |  | - |
Current year prior service credit |  |  | - |  |  | - |  |  | - |  |  | 82.6 |
Amortization of prior service credit |  |  | - |  |  | - |  |  | - |  |  | (2.3 | )
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Total recognized in other comprehensive income (loss) |  | $ | 88.9 |  | $ | (13.4 | ) | $ | (20.6 | ) | $ | 84.5 |
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Total recognized in net periodic benefit cost and other comprehensive income (loss) |  | $ | 106.2 |  | $ | (13.5 | ) | $ | (20.0 | ) | $ | 78.5 |
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The following table summarizes the estimated amount that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2014:
(In millions) |  | Pensions |  | OPEB |
--- | --- | --- | --- | --- | ---
Actuarial loss (gain) |  | $ | (0.4 | ) | $ | 0.1 |
Prior service cost (credit) |  |  | - |  |  | (9.2 | )
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Total |  | $ | (0.4 | ) | $ | (9.1 | )
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Net Periodic Benefit Income (Expense). Net periodic benefit income (expense) for the years ended December 31, 2013, 2012 and 2011 includes the following:
|  | Pensions |  | OPEB |
--- | --- | --- | --- | --- | ---
|  | Year Ended December 31, |
(In millions) |  | 2013 |  | 2012 |  | 2011 |  | 2013 |
Components of net periodic benefit income(expense): |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | (6.6 | ) | $ | - |  | $ | - |  | $ | (2.0 | )
Interest cost |  |  | (28.0 | ) |  | (7.2 | ) |  | (7.4 | ) |  | (6.4 | )
Expected return on assets |  |  | 38.5 |  |  | 8.7 |  |  | 9.5 |  |  | - |
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |
Prior service credit |  |  | - |  |  | - |  |  | - |  |  | 2.3 |
Amortization of actuarial loss |  |  | (2.1 | ) |  | (1.7 | ) |  | (1.5 | ) |  | - |
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Total amortization |  |  | (2.1 | ) |  | (1.7 | ) |  | (1.5 | ) |  | 2.3 |
Curtailment gain |  |  | 15.5 |  |  | - |  |  | - |  |  | - |
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Total net periodic benefit income (expense) |  | $ | 17.3 |  | $ | (0.2 | ) | $ | 0.6 |  | $ | (6.1 | )
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Assumptions. The following weighted average assumptions were used to determine the benefit obligation for the defined benefit pension and other postretirement welfare plans. The rate of compensation increase was not applicable in 2011 as all future benefits with respect to compensation increases were frozen for the plans that existed at that time.
|  | Pensions |  | OPEB
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|  | 2013 |  | 2012 |  | 2011 |  | 2013
Discount rate |  | 4.16% |  | 5.00% |  | 5.48% |  | 4.39%
Expected return on assets |  | 6.91% |  | 8.25% |  | 8.49% |  | Not Applicable
Rate of compensation increase |  | 3.14% |  | Not Applicable |  | Not Applicable |  | 3.11%
The weighted-average healthcare cost trend rate (inflation) used for 2013 is 6.63 percent declining to 4.50 percent in the year 2024. In selecting the rates for our current and long-term healthcare cost assumptions, we take into consideration a number of factors including our actual healthcare cost increases, the design of our benefit programs, the demographics of our active and retiree populations and external expectations of future medical cost inflation rates. If the assumed healthcare cost trend rates were 1 percent lower or 1 percent higher, the estimated postretirement welfare cost for 2013 would decrease by $0.8 million or increase by $1.1 million. The expected long-term rate of return on plan assets assumption is based on historical and projected rates of return for current and planned asset classes in the plan's investment portfolio. Projected rates of return for each of the plans' projected asset classes were selected after analyzing historical experience and future expectations of the returns and volatility of the various asset classes. Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio was developed and adjusted for historical and expected experience of active portfolio management results compared to the benchmark returns and for the effect of expenses paid from plan assets. Our investment committee establishes investment policies and strategies and regularly monitors the performance of the plans' funds. Our investment strategy with respect to U.S. pension plan assets is to invest the assets in accordance with the "prudent investor" guidelines contained in the Employee Retirement Income Security Act of 1974 and fiduciary standards. Our policy on funding is to contribute an amount within the range of the minimum required and the maximum tax-deductible contribution. Expected Cash Flows We expect to make contributions of $1.9 million to our pension plans during 2014 and $7.8 million during 2014 to our unfunded postretirement welfare plans benefit payments. We do not expect any federal subsidy with regards to our OPEB plans. Expected benefit payments for all pension and postretirement welfare plans are as follows:
(In millions) |  | Pension Benefits |  | OPEB (Gross) |
--- | --- | --- | --- | --- | ---
Expected benefit payments: |  |  |  |  |  |  |
2014 |  | $ | 36.5 |  | $ | 7.8 |
2015 |  |  | 37.4 |  |  | 7.8 |
2016 |  |  | 38.9 |  |  | 7.6 |
2017 |  |  | 40.0 |  |  | 7.5 |
2018 |  |  | 41.4 |  |  | 7.3 |
2019-2023 |  |  | 227.3 |  |  | 33.6 |
Defined Contribution Plans Most pre-merger employees and employees of the Merged Business are covered by defined contribution plans under which we make contributions to individual employee accounts. Our expense related to our defined contribution plans was approximately $15.7 million, $7.3 million and $5.8 million for the years ended December 31, 2013 and 2012 and 2011, respectively. In October 2012, we implemented an additional, discretionary company retirement contribution to our U.S. retirement savings plans.

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- Definition The entire disclosure for pension and other postretirement benefits. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 715 -URI http://asc.fasb.org/topic&trid=2235017 + Details
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