22. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans
The Company has contributory and non-contributory defined-benefit pension plans, which include both qualified and supplemental plans. The Company also provides certain health care and life insurance benefits for certain retired employees. Retiree health care benefits are funded by contributions from the retiree, and in certain circumstances, contributions from the Company. The Company’s retiree life insurance plan is non-contributory.
While reported benefit obligations exceed the fair value of pension and other postretirement plan assets at December 31, 2013, the Company monitors the funded status of its funded pension plans to ensure that plan funds are sufficient to continue paying benefits. During 2013, the Company made contributions of $123 million to its funded pension plans, $37 million to its unfunded pension plans, and $14 million to its unfunded other postretirement benefit plans. Contributions to funded plans increase plan assets while contributions to unfunded plans are used to fund current benefit payments. The Company expects to contribute $103 million to its funded pension plans, $19 million to its unfunded pension plans, and $15 million to its unfunded other postretirement benefit plans in 2014.
22. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)
The following sets forth changes in the benefit obligations and fair value of plan assets for the Company’s pension and other postretirement benefit plans for the years ended December 31, 2013 and 2012, as well as the funded status of the plans and amounts recognized in the financial statements at December 31, 2013 and 2012:
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
millions | 2013 | | 2012 | | 2013 | | 2012 |
Change in benefit obligation | | | | | | | |
Benefit obligation at beginning of year | $ | 2,297 |
| | $ | 2,024 |
| | $ | 359 |
| | $ | 354 |
|
Service cost | 85 |
| | 76 |
| | 9 |
| | 9 |
|
Interest cost | 78 |
| | 85 |
| | 14 |
| | 16 |
|
Actuarial (gain) loss | (156 | ) | | 224 |
| | (74 | ) | | (1 | ) |
Participant contributions | — |
| | 1 |
| | 4 |
| | 3 |
|
Benefit payments | (149 | ) | | (117 | ) | | (18 | ) | | (22 | ) |
Foreign-currency exchange-rate changes | 3 |
| | 4 |
| | — |
| | — |
|
Benefit obligation at end of year (1) | $ | 2,158 |
| | $ | 2,297 |
| | $ | 294 |
| | $ | 359 |
|
|
| | | | | | | | | | | | | | | |
Change in plan assets | | | | | | | |
Fair value of plan assets at beginning of year | $ | 1,462 |
| | $ | 1,308 |
| | $ | — |
| | $ | — |
|
Actual return on plan assets | 278 |
| | 159 |
| | — |
| | — |
|
Employer contributions | 160 |
| | 107 |
| | 14 |
| | 19 |
|
Participant contributions | — |
| | 1 |
| | 4 |
| | 3 |
|
Benefit payments | (149 | ) | | (117 | ) | | (18 | ) | | (22 | ) |
Foreign-currency exchange-rate changes | 3 |
| | 4 |
| | — |
| | — |
|
Fair value of plan assets at end of year | $ | 1,754 |
| | $ | 1,462 |
| | $ | — |
| | $ | — |
|
| | | | | | | |
Funded status of the plans at end of year | $ | (404 | ) | | $ | (835 | ) | | $ | (294 | ) | | $ | (359 | ) |
|
| | | | | | | | | | | | | | | |
Total recognized amounts in the balance sheet consist of | | | | | | | |
Other assets | $ | 37 |
| | $ | 30 |
| | $ | — |
| | $ | — |
|
Accrued expenses | (19 | ) | | (44 | ) | | (15 | ) | | (16 | ) |
Other long-term liabilities—other | (422 | ) | | (821 | ) | | (279 | ) | | (343 | ) |
Total | $ | (404 | ) | | $ | (835 | ) | | $ | (294 | ) | | $ | (359 | ) |
|
| | | | | | | | | | | | | | | |
Total recognized amounts in accumulated other comprehensive income consist of | | | | | | | |
Prior service cost (credit) | $ | (1 | ) | | $ | (2 | ) | | $ | 2 |
| | $ | 3 |
|
Net actuarial (gain) loss | 441 |
| | 916 |
| | (78 | ) | | (4 | ) |
Total | $ | 440 |
| | $ | 914 |
| | $ | (76 | ) | | $ | (1 | ) |
__________________________________________________________________
| |
(1) | The accumulated benefit obligation for all defined-benefit pension plans was $1.8 billion at December 31, 2013, and $2.1 billion at December 31, 2012. |
22. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)
The following summarizes the Company’s defined-benefit pension plans with accumulated benefit obligations in excess of plan assets for the years ended December 31:
|
| | | | | | | |
millions | 2013 | | 2012 |
Projected benefit obligation | $ | 2,047 |
| | $ | 2,198 |
|
Accumulated benefit obligation | 1,742 |
| | 2,054 |
|
Fair value of plan assets | 1,606 |
| | 1,333 |
|
The following summarizes the Company’s pension and other postretirement benefit cost and amounts recognized in other comprehensive income (before tax benefit) for the years ended December 31:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
millions | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Components of net periodic benefit cost | | | | | | | | | | | |
Service cost | $ | 85 |
| | $ | 76 |
| | $ | 78 |
| | $ | 9 |
| | $ | 9 |
| | $ | 9 |
|
Interest cost | 78 |
| | 85 |
| | 85 |
| | 14 |
| | 16 |
| | 16 |
|
Expected return on plan assets | (91 | ) | | (91 | ) | | (85 | ) | | — |
| | — |
| | — |
|
Amortization of net actuarial loss (gain) | 118 |
| | 93 |
| | 85 |
| | — |
| | — |
| | — |
|
Amortization of net prior service cost (credit) | — |
| | — |
| | 2 |
| | 1 |
| | 2 |
| | — |
|
Settlement loss | 14 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net periodic benefit cost | $ | 204 |
| | $ | 163 |
| | $ | 165 |
| | $ | 24 |
| | $ | 27 |
| | $ | 25 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in other comprehensive income (expense) | | | | | | | | | | | |
Net actuarial gain (loss) | $ | 342 |
| | $ | (156 | ) | | $ | (183 | ) | | $ | 74 |
| | $ | 1 |
| | $ | (30 | ) |
Amortization of net actuarial (gain) loss | 118 |
| | 93 |
| | 85 |
| | — |
| | — |
| | — |
|
Net prior service (cost) credit | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
|
Amortization of net prior service cost (credit) | — |
| | — |
| | 2 |
| | 1 |
| | 2 |
| | — |
|
Settlement loss | 14 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total amounts recognized in other comprehensive income (expense) | $ | 474 |
| | $ | (63 | ) | | $ | (84 | ) | | $ | 75 |
| | $ | 3 |
| | $ | (30 | ) |
In 2014, an estimated $26 million of net actuarial loss for the pension and other postretirement plans will be amortized from accumulated other comprehensive income into net periodic benefit cost.
The following summarizes the weighted-average assumptions used by the Company in determining the pension and other postretirement benefit obligations at December 31:
|
| | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2013 | | 2012 |
Discount rate | 4.75 | % | | 3.50 | % | | 5.25 | % | | 4.00 | % |
Rates of increase in compensation levels | 5.00 | % | | 4.50 | % | | 5.25 | % | | 4.50 | % |
22. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)
Accumulated and projected benefit obligations are measured as the present value of future cash payments. The Company discounts those cash payments using a discount rate that reflects the weighted average of market-observed yields for select high-quality (AA-rated) fixed-income securities with cash flows that correspond to the expected amounts and timing of benefit payments. The discount-rate assumption used by the Company represents an estimate of the interest rate at which the pension and other postretirement benefit obligations could effectively be settled on the measurement date. Assumed rates of compensation increases for active participants vary by age group, with the resulting weighted-average assumed rate (weighted by the plan-level benefit obligation) provided in the preceding table.
The following summarizes the weighted-average assumptions used by the Company in determining the net periodic pension and other postretirement benefit cost:
|
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Discount rate | 3.50 | % | | 4.50 | % | | 4.75 | % | | 4.00 | % | | 4.75 | % | | 5.25 | % |
Long-term rate of return on plan assets | 7.00 | % | | 7.00 | % | | 7.00 | % | | N/A |
| | N/A |
| | N/A |
|
Rates of increase in compensation levels | 4.50 | % | | 4.50 | % | | 5.00 | % | | 4.50 | % | | 4.50 | % | | 5.00 | % |
At December 31, 2013, an 8.00% annual rate of increase in the per-capita cost of covered health care benefits for 2014 was assumed for purposes of measuring other postretirement benefit obligations. At December 31, 2012, an 8.00% annual rate of increase in the per-capita cost of covered health care benefits for 2013 was assumed for purposes of measuring other postretirement benefit obligations. This rate is expected to gradually decrease to 5.00% in 2019 and beyond. The assumed health care cost trend rate can have a significant effect on the cost and obligation amounts reported for the health care plan. A 1% change in the assumed health care cost trend rate over the projected period would have the following effects:
|
| | | | | | | |
millions | 1% Increase | | 1% Decrease |
Effect on total of service and interest cost components | $ | 3 |
| | $ | (2 | ) |
Effect on other postretirement benefit obligation | $ | 23 |
| | $ | (20 | ) |
22. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)
Plan Assets
Investment Policies and Strategies The Company has adopted a balanced, diversified investment strategy, with the intent of maximizing returns without exposure to undue risk. Investments are typically made through investment managers across several investment categories (domestic equity securities, international equity securities, fixed-income securities, real estate, hedge funds, and private equity), with selective exposure to Growth/Value investment styles. Performance for each investment is measured relative to the appropriate index benchmark for its category. Target asset-allocation percentages by major category are 45%-55% equity securities, 20%-30% fixed income, and up to 25% in a combination of other investments such as real estate, hedge funds, and private equity. Investment managers have full discretion as to investment decisions regarding funds under their management to the extent permitted within investment guidelines.
Although investment managers may, at their discretion and within investment guidelines, invest in Anadarko securities, there are no direct investments in Anadarko securities included in plan assets. There may be, however, indirect investments in Anadarko securities through the plans’ collective fund investments. The expected long-term rate of return on plan assets assumption was determined using the year-end 2013 pension investment balances by asset class and expected long-term asset allocation. The expected return for each asset class reflects capital-market projections formulated using a forward-looking building-block approach, while also taking into account historical return trends and current market conditions. Equity returns generally reflect long-term expectations of real earnings growth, dividend yield, and inflation. Returns on fixed-income securities are generally developed based on expected inflation, real bond yield, and risk spread (as appropriate), adjusted for the expected effect that changing yields have on the rate of return. Other asset-class returns are derived from their relationship to the equity and fixed-income markets.
22. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)
The fair value of the Company’s pension plan assets by asset class and input level within the fair-value hierarchy were as follows:
|
| | | | | | | | | | | | | | | |
millions | | | | | | | |
December 31, 2013 | Level 1 | | Level 2 | | Level 3 | | Total |
Investments | | | | | | | |
Cash and cash equivalents | $ | 17 |
| | $ | 80 |
| | $ | — |
| | $ | 97 |
|
Fixed income | | | | | | | |
Mortgage-backed securities | — |
| | 54 |
| | — |
| | 54 |
|
U.S. government securities | — |
| | 52 |
| | — |
| | 52 |
|
Other fixed-income securities (1) | 42 |
| | 197 |
| | — |
| | 239 |
|
Equity securities | | | | | | | |
Domestic | 445 |
| | 116 |
| | — |
| | 561 |
|
International | 148 |
| | 303 |
| | — |
| | 451 |
|
Other | | | | | | | |
Real estate | — |
| | 47 |
| | 86 |
| | 133 |
|
Private equity | — |
| | — |
| | 72 |
| | 72 |
|
Hedge funds and other alternative strategies | 31 |
| | — |
| | 79 |
| | 110 |
|
Total investments (2) | $ | 683 |
| | $ | 849 |
| | $ | 237 |
| | $ | 1,769 |
|
Liabilities | | | | | | | |
Hedge funds and other alternative strategies | $ | (17 | ) | | $ | — |
| | $ | — |
| | $ | (17 | ) |
Total liabilities | $ | (17 | ) | | $ | — |
| | $ | — |
| | $ | (17 | ) |
| | | | | | | |
December 31, 2012 | | | | | | | |
Investments | | | | | | | |
Cash and cash equivalents | $ | 23 |
| | $ | 36 |
| | $ | — |
| | $ | 59 |
|
Fixed income | | | | | | | |
Mortgage-backed securities | — |
| | 63 |
| | — |
| | 63 |
|
U.S. government securities | — |
| | 54 |
| | — |
| | 54 |
|
Other fixed-income securities (1) | 40 |
| | 196 |
| | — |
| | 236 |
|
Equity securities | | | | | | | |
Domestic | 313 |
| | 109 |
| | — |
| | 422 |
|
International | 112 |
| | 238 |
| | — |
| | 350 |
|
Other | | | | | | | |
Real estate | — |
| | 46 |
| | 78 |
| | 124 |
|
Private equity | — |
| | — |
| | 64 |
| | 64 |
|
Hedge funds and other alternative strategies | 20 |
| | — |
| | 77 |
| | 97 |
|
Total investments (2) | $ | 508 |
| | $ | 742 |
| | $ | 219 |
| | $ | 1,469 |
|
Liabilities | | | | | | | |
Hedge funds and other alternative strategies | $ | (11 | ) | | $ | — |
| | $ | — |
| | $ | (11 | ) |
Total liabilities | $ | (11 | ) | | $ | — |
| | $ | — |
| | $ | (11 | ) |
__________________________________________________________________
| |
(1) | Amounts include investments in diversified fixed-income collective investment funds with exposure to mortgage-backed securities, government-issued securities, corporate debt, and other fixed-income securities. |
| |
(2) | Amount excludes net receivables of $2 million for 2013 and $4 million for 2012, primarily related to Level 1 investments. |
22. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)
Investments in securities traded in active markets are measured based on quoted prices, which represent Level 1 inputs. Investments based on Level 2 inputs include direct investments in corporate debt and other fixed-income securities, as well as shares of open-end mutual funds or similar investment vehicles that do not have a readily determinable fair value, but are valued at the net asset value per share (NAV). For such funds, the NAV is the value at which investors transact with the fund, and is determined by the fund based on the estimated fair values of the underlying fund assets. Fair value of investments included as Level 3 inputs generally also reflect investments valued at fund NAVs, but, unlike investments characteristic of Level 2 fair-value measurements, such plan assets have significant liquidity restrictions or other features that are not reflected in NAV.
The following summarizes changes in the fair value of investments based on Level 3 inputs:
|
| | | | | | | | | | | | | | | |
millions | Hedge Funds and Other Alternative Strategies | | Private Equity | | Real Estate | | Total |
Balance at January 1, 2012 | $ | 64 |
| | $ | 55 |
| | $ | 72 |
| | $ | 191 |
|
Acquisitions (dispositions), net | 9 |
| | 4 |
| | 2 |
| | 15 |
|
Actual return on plan assets | | | | | | | |
Relating to assets sold during the reporting period | (2 | ) | | 2 |
| | — |
| | — |
|
Relating to assets still held at the reporting date | 6 |
| | 3 |
| | 4 |
| | 13 |
|
Balance at December 31, 2012 | $ | 77 |
| | $ | 64 |
| | $ | 78 |
| | $ | 219 |
|
Acquisitions (dispositions), net | (6 | ) | | — |
| | 2 |
| | (4 | ) |
Actual return on plan assets | | | | | | | |
Relating to assets sold during the reporting period | 1 |
| | 4 |
| | — |
| | 5 |
|
Relating to assets still held at the reporting date | 7 |
| | 4 |
| | 6 |
| | 17 |
|
Balance at December 31, 2013 | $ | 79 |
| | $ | 72 |
| | $ | 86 |
| | $ | 237 |
|
Risks and Uncertainties The plan assets include various investment securities that are exposed to various risks, such as interest-rate, credit, and market risks. Due to the level of risk associated with certain investment securities, it is possible that changes in the values of investment securities could significantly impact the plan assets.
The plan assets may include securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations, and commercial mortgage-backed securities, including securities backed by subprime mortgage loans. The value, liquidity, and related income of those securities are sensitive to changes in economic conditions, including real estate value, delinquencies, or defaults, or both, and may be adversely affected by shifts in the market’s perception of the issuers and changes in interest rates.
22. Pension Plans, Other Postretirement Benefits, and Defined-Contribution Plans (Continued)
Expected Benefit Payments
The following summarizes estimated benefit payments for the next ten years, including benefit increases due to continuing employee service:
|
| | | | | | | |
millions | Pension Benefit Payments | | Other Benefit Payments |
2014 | $ | 139 |
| | $ | 15 |
|
2015 | 148 |
| | 16 |
|
2016 | 163 |
| | 16 |
|
2017 | 185 |
| | 17 |
|
2018 | 181 |
| | 18 |
|
2019-2023 | 1,065 |
| | 98 |
|
Defined-Contribution Plans The Company maintains several defined-contribution benefit plans, the most significant of which is the Anadarko Employee Savings Plan (ESP). All regular employees of the Company on its U.S. payroll are eligible to participate in the ESP by making elective contributions that are matched by the Company, subject to certain limitations. The Company recognized expense of $78 million for 2013, $55 million for 2012, and $41 million for 2011, related to these plans.
