COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
We sponsor various retirement and pension plans, including defined benefit and defined contribution plans which cover our employees worldwide.
U.S. Pension Benefits
In the U.S. we maintain the following single-employer defined benefit pension plans: UPS Retirement Plan, UPS Pension Plan, UPS IBT Pension Plan and the UPS Excess Coordinating Benefit Plan, a non-qualified plan.
The UPS Retirement Plan is noncontributory and includes substantially all eligible employees of participating domestic subsidiaries who are not members of a collective bargaining unit, as well as certain employees covered by a collective bargaining agreement. This plan generally provides for retirement benefits based on average compensation levels earned by employees prior to retirement. Benefits payable under this plan are subject to maximum compensation limits and the annual benefit limits for a tax qualified defined benefit plan as prescribed by the Internal Revenue Service (“IRS”).
The UPS Excess Coordinating Benefit Plan is a non-qualified plan that provides benefits to certain participants in the UPS Retirement Plan for amounts that exceed the benefit limits described above.
The UPS Pension Plan is noncontributory and includes certain eligible employees of participating domestic subsidiaries and members of collective bargaining units that elect to participate in the plan. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement.
The UPS IBT Pension Plan is noncontributory and includes employees that were previously members of the Central States, Southeast and Southwest Areas Pension Fund (“Central States Pension Fund”), a multiemployer pension plan, in addition to other eligible employees who are covered under certain collective bargaining agreements. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement.
U.S. Postretirement Medical Benefits
We also sponsor postretirement medical plans in the U.S. that provide health care benefits to our retirees who meet certain eligibility requirements and who are not otherwise covered by multiemployer plans. Generally, this includes employees with at least 10 years of service who have reached age 55 and employees who are eligible for postretirement medical benefits from a Company-sponsored plan pursuant to collective bargaining agreements. We have the right to modify or terminate certain of these plans. These benefits have been provided to certain retirees on a noncontributory basis; however, in many cases, retirees are required to contribute all or a portion of the total cost of the coverage.
International Pension Benefits
We also sponsor various defined benefit plans covering certain of our international employees. The majority of our international obligations are for defined benefit plans in Canada and the United Kingdom. In addition, many of our international employees are covered by government-sponsored retirement and pension plans. We are not directly responsible for providing benefits to participants of government-sponsored plans.
Defined Contribution Plans
We also sponsor several defined contribution plans for all employees not covered under collective bargaining agreements, and for certain employees covered under collective bargaining agreements. The Company matches, in shares of UPS common stock or cash, a portion of the participating employees’ contributions. Matching contributions charged to expense were $90, $83 and $80 million for 2013, 2012 and 2011, respectively.
Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged to expense were $80, $80 and $76 million for 2013, 2012 and 2011, respectively.
Net Periodic Benefit Cost
Information about net periodic benefit cost for the company-sponsored pension and postretirement benefit plans is as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits | | U.S. Postretirement Medical Benefits | | International Pension Benefits |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Net Periodic Cost: | | | | | | | | | | | | | | | | | |
Service cost | $ | 1,349 |
| | $ | 998 |
| | $ | 870 |
| | $ | 103 |
| | $ | 89 |
| | $ | 89 |
| | $ | 47 |
| | $ | 41 |
| | $ | 34 |
|
Interest cost | 1,449 |
| | 1,410 |
| | 1,309 |
| | 185 |
| | 208 |
| | 207 |
| | 44 |
| | 41 |
| | 39 |
|
Expected return on assets | (2,147 | ) | | (1,970 | ) | | (1,835 | ) | | (33 | ) | | (18 | ) | | (16 | ) | | (55 | ) | | (47 | ) | | (43 | ) |
Amortization of: | | | | | | | | | | | | | | | | | |
Transition obligation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Prior service cost | 172 |
| | 173 |
| | 171 |
| | 4 |
| | 5 |
| | 7 |
| | 2 |
| | 2 |
| | 1 |
|
Actuarial (gain) loss | — |
| | 4,388 |
| | 736 |
| | — |
| | 374 |
| | — |
| | — |
| | 69 |
| | 91 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5 | ) | | (10 | ) | | — |
|
Net periodic benefit cost | $ | 823 |
| | $ | 4,999 |
| | $ | 1,251 |
| | $ | 259 |
| | $ | 658 |
| | $ | 287 |
| | $ | 33 |
| | $ | 96 |
| | $ | 122 |
|
Actuarial Assumptions
The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits | | U.S. Postretirement Medical Benefits | | International Pension Benefits |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Discount rate | 4.42 | % | | 5.64 | % | | 5.98 | % | | 4.21 | % | | 5.47 | % | | 5.77 | % | | 4.00 | % | | 4.63 | % | | 5.36 | % |
Rate of compensation increase | 4.16 | % | | 4.50 | % | | 4.50 | % | | N/A |
| | N/A |
| | N/A |
| | 3.03 | % | | 3.58 | % | | 3.57 | % |
Expected return on assets | 8.75 | % | | 8.75 | % | | 8.75 | % | | 8.75 | % | | 8.75 | % | | 8.75 | % | | 6.90 | % | | 7.20 | % | | 7.31 | % |
The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our plans.
|
| | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits | | U.S. Postretirement Medical Benefits | | International Pension Benefits |
| 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
Discount rate | 5.32 | % | | 4.42 | % | | 5.14 | % | | 4.21 | % | | 4.40 | % | | 4.00 | % |
Rate of compensation increase | 4.29 | % | | 4.16 | % | | N/A |
| | N/A |
| | 3.30 | % | | 3.03 | % |
A discount rate is used to determine the present value of our future benefit obligations. To determine our discount rate for our U.S. pension and postretirement benefit plans, we use a bond matching approach to select specific bonds that would satisfy our projected benefit payments. We believe the bond matching approach reflects the process we would employ to settle our pension and postretirement benefit obligations. For our international plans, the discount rate is determined by matching the expected cash flows of a sample plan of similar duration to a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date. These assumptions are updated each measurement date, which is typically annually.
As of December 31, 2013, the impact of each basis point change in the discount rate on the projected benefit obligation of the pension and postretirement medical benefit plans are as follows (in millions):
|
| | | | | | | |
| Increase (Decrease) in the Projected Benefit Obligation |
| Pension Benefits | | Postretirement Medical Benefits |
One basis point increase in discount rate | $ | (46 | ) | | $ | (4 | ) |
One basis point decrease in discount rate | $ | 49 |
| | $ | 4 |
|
An assumption for expected return on plan assets is used to determine a component of net periodic benefit cost for the fiscal year. This assumption for our U.S. plans was developed using a long-term projection of returns for each asset class, and taking into consideration our target asset allocation. The expected return for each asset class is a function of passive, long-term capital market assumptions and excess returns generated from active management. The capital market assumptions used are provided by independent investment advisors, while excess return assumptions are supported by historical performance, fund mandates and investment expectations. In addition, we compare the expected return on asset assumption with the average historical rate of return these plans have been able to generate.
For plans outside the U.S., consideration is given to local market expectations of long-term returns. Strategic asset allocations are determined by plan, based on the nature of liabilities and considering the demographic composition of the plan participants.
Health care cost trends are used to project future postretirement benefits payable from our plans. For year-end 2013 U.S. plan obligations, future postretirement medical benefit costs were forecasted assuming an initial annual increase of 7.0%, decreasing to 5.0% by the year 2018 and with consistent annual increases at those ultimate levels thereafter.
Assumed health care cost trends can have a significant effect on the amounts reported for our postretirement medical plans. A one-percent change in assumed health care cost trend rates would have had the following effects on 2013 results (in millions):
|
| | | | | | | |
| 1% Increase | | 1% Decrease |
Effect on total of service cost and interest cost | $ | 3 |
| | $ | (3 | ) |
Effect on postretirement benefit obligation | $ | 50 |
| | $ | (64 | ) |
Funded Status
The following table discloses the funded status of our plans and the amounts recognized in our balance sheet as of December 31 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits | | U.S. Postretirement Medical Benefits | | International Pension Benefits |
| 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
Funded Status: | | | | | | | | | | | |
Fair value of plan assets | $ | 26,224 |
| | $ | 24,941 |
| | $ | 355 |
| | $ | 460 |
| | $ | 931 |
| | $ | 801 |
|
Benefit obligation | (29,508 | ) | | (31,868 | ) | | (4,046 | ) | | (4,412 | ) | | (1,076 | ) | | (1,089 | ) |
Funded status recognized at December 31 | $ | (3,284 | ) | | $ | (6,927 | ) | | $ | (3,691 | ) | | $ | (3,952 | ) | | $ | (145 | ) | | $ | (288 | ) |
Funded Status Amounts Recognized in our Balance Sheet: | | | | | | | | | | | |
Other non-current assets | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 47 |
| | $ | 26 |
|
Other current liabilities | (16 | ) | | (14 | ) | | (97 | ) | | (108 | ) | | (3 | ) | | (3 | ) |
Pension and postretirement benefit obligations | (3,268 | ) | | (6,913 | ) | | (3,594 | ) | | (3,844 | ) | | (189 | ) | | (311 | ) |
Net liability at December 31 | $ | (3,284 | ) | | $ | (6,927 | ) | | $ | (3,691 | ) | | $ | (3,952 | ) | | $ | (145 | ) | | $ | (288 | ) |
Amounts Recognized in AOCI: | | | | | | | | | | | |
Unrecognized net prior service cost | $ | (1,286 | ) | | $ | (1,318 | ) | | $ | (79 | ) | | $ | (79 | ) | | $ | (9 | ) | | $ | (13 | ) |
Unrecognized net actuarial gain (loss) | 1,233 |
| | (3,187 | ) | | (29 | ) | | (441 | ) | | (7 | ) | | (86 | ) |
Gross unrecognized cost at December 31 | (53 | ) | | (4,505 | ) | | (108 | ) | | (520 | ) | | (16 | ) | | (99 | ) |
Deferred tax asset at December 31 | 20 |
| | 1,694 |
| | 41 |
| | 196 |
| | 2 |
| | 26 |
|
Net unrecognized cost at December 31 | $ | (33 | ) | | $ | (2,811 | ) | | $ | (67 | ) | | $ | (324 | ) | | $ | (14 | ) | | $ | (73 | ) |
The accumulated benefit obligation for our pension plans as of the measurement dates in 2013 and 2012 was $28.586 and $30.350 billion, respectively.
Benefit payments under the pension plans include $16 million paid from employer assets in both 2013 and 2012. Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $108 and $110 million paid from employer assets in 2013 and 2012, respectively. Such benefit payments from employer assets are also categorized as employer contributions.
At December 31, 2013 and 2012, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets for pension plans with benefit obligations in excess of plan assets were as follows (in millions):
|
| | | | | | | | | | | | | | | |
| Projected Benefit Obligation Exceeds the Fair Value of Plan Assets | | Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets |
2013 | | 2012 | | 2013 | | 2012 |
U.S. Pension Benefits | | | | | | | |
Projected benefit obligation | $ | 29,508 |
| | $ | 31,868 |
| | $ | 29,508 |
| | $ | 31,868 |
|
Accumulated benefit obligation | 27,623 |
| | 29,382 |
| | 27,623 |
| | 29,382 |
|
Fair value of plan assets | 26,224 |
| | 24,941 |
| | 26,224 |
| | 24,941 |
|
International Pension Benefits | | | | | | | |
Projected benefit obligation | $ | 764 |
| | $ | 1,028 |
| | $ | 361 |
| | $ | 678 |
|
Accumulated benefit obligation | 658 |
| | 917 |
| | 301 |
| | 606 |
|
Fair value of plan assets | 580 |
| | 723 |
| | 184 |
| | 388 |
|
The accumulated postretirement benefit obligation exceeds plan assets for all of our U.S. postretirement medical benefit plans.
Benefit Obligations and Fair Value of Plan Assets
The following table provides a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets as of the respective measurement dates in each year (in millions).
|
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits | | U.S. Postretirement Medical Benefits | | International Pension Benefits |
| 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
Benefit Obligations: | | | | | | | | | | | |
Projected benefit obligation at beginning of year | $ | 31,868 |
| | $ | 24,386 |
| | $ | 4,412 |
| | $ | 3,836 |
| | $ | 1,089 |
| | $ | 841 |
|
Service cost | 1,349 |
| | 998 |
| | 103 |
| | 89 |
| | 47 |
| | 41 |
|
Interest cost | 1,449 |
| | 1,410 |
| | 185 |
| | 208 |
| | 44 |
| | 41 |
|
Gross benefits paid | (813 | ) | | (774 | ) | | (258 | ) | | (233 | ) | | (21 | ) | | (20 | ) |
Plan participants’ contributions | — |
| | — |
| | 17 |
| | 16 |
| | 4 |
| | 4 |
|
Plan amendments | 140 |
| | (2 | ) | | 4 |
| | 1 |
| | — |
| | — |
|
Actuarial (gain)/loss | (4,485 | ) | | 5,850 |
| | (417 | ) | | 495 |
| | (55 | ) | | 112 |
|
Foreign currency exchange rate changes | — |
| | — |
| | — |
| | — |
| | (26 | ) | | 24 |
|
Curtailments and settlements | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (5 | ) |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | 51 |
|
Projected benefit obligation at end of year | $ | 29,508 |
| | $ | 31,868 |
| | $ | 4,046 |
| | $ | 4,412 |
| | $ | 1,076 |
| | $ | 1,089 |
|
| | | | | | | | | | | |
| U.S. Pension Benefits | | U.S. Postretirement Medical Benefits | | International Pension Benefits |
| 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
Fair Value of Plan Assets: | | | | | | | | | | | |
Fair value of plan assets at beginning of year | $ | 24,941 |
| | $ | 22,663 |
| | $ | 460 |
| | $ | 174 |
| | $ | 801 |
| | $ | 613 |
|
Actual return on plan assets | 2,082 |
| | 2,684 |
| | 28 |
| | 19 |
| | 81 |
| | 56 |
|
Employer contributions | 14 |
| | 368 |
| | 108 |
| | 475 |
| | 90 |
| | 74 |
|
Plan participants’ contributions | — |
| | — |
| | 17 |
| | 16 |
| | 1 |
| | 1 |
|
Gross benefits paid | (813 | ) | | (774 | ) | | (258 | ) | | (233 | ) | | (21 | ) | | (20 | ) |
Foreign currency exchange rate changes | — |
| | — |
| | — |
| | — |
| | (20 | ) | | 20 |
|
Curtailments and settlements | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (4 | ) |
Other | — |
| | — |
| | — |
| | 9 |
| | — |
| | 61 |
|
Fair value of plan assets at end of year | $ | 26,224 |
| | $ | 24,941 |
| | $ | 355 |
| | $ | 460 |
| | $ | 931 |
| | $ | 801 |
|
Pension and Postretirement Plan Assets
The applicable benefit plan committees establish investment guidelines and strategies, and regularly monitor the performance of the funds and portfolio managers. Our investment guidelines address the following items: governance, general investment beliefs and principles, investment objectives, specific investment goals, process for determining/maintaining the asset allocation policy, long-term asset allocation, rebalancing, investment restrictions/prohibited transactions, portfolio manager structure and diversification (which addresses limits on the amount of investments held by any one manager to minimize risk), portfolio manager selection criteria, plan evaluation, portfolio manager performance review and evaluation and risk management (including various measures used to evaluate risk tolerance).
Our investment strategy with respect to pension assets is to invest the assets in accordance with applicable laws and regulations. The long-term primary objectives for our pension assets are to: (1) provide for a reasonable amount of long-term growth of capital, with prudent exposure to risk; and protect the assets from erosion of purchasing power; (2) provide investment results that meet or exceed the plans’ expected long-term rate of return; and (3) match the duration of the liabilities and assets of the plans to reduce the potential risk of large employer contributions being necessary in the future. The plans strive to meet these objectives by employing portfolio managers to actively manage assets within the guidelines and strategies set forth by the benefit plan committees. These managers are evaluated by comparing their performance to applicable benchmarks.
Fair Value Measurements
Pension assets utilizing Level 1 inputs include fair values of equity investments, corporate debt instruments, and U.S. government securities that were determined by closing prices for those securities traded on national stock exchanges, while securities traded in the over-the-counter market and listed securities for which no sale was reported on the valuation date are valued at the mean between the last reported bid and asked prices.
Level 2 assets include certain bonds that are valued based on yields currently available on comparable securities of other issues with similar credit ratings, mortgage-backed securities that are valued based on cash flow and yield models using acceptable modeling and pricing conventions, and certain investments that are pooled with other investments held by the trustee in a commingled employee benefit trust fund. The investments in the commingled funds are valued by taking the percentage owned by the respective plan in the underlying net asset value of the trust fund, which was determined in accordance with the paragraph above.
Certain investments’ estimated fair value is based on unobservable inputs that are not corroborated by observable market data and are thus classified as Level 3. These investments include commingled funds comprised of corporate and government bonds, hedge funds, real estate investments and private equity funds. The fair values may, due to the inherent uncertainty of valuation for those alternative investments, differ significantly from the values that would have been used had a ready market for the alternative investments existed, and the differences could be material. These investments are described further below:
| |
• | Commingled Stock Funds: We maintain plan assets invested in commingled stock funds, which hold U.S. and international public market securities. These commingled funds are valued using net asset values, adjusted, as appropriate, for investment fund specific inputs determined to be significant to the valuation. Our plans maintain the right to liquidate positions in these commingled stock funds at any time, subject only to a brief notification period. No unfunded commitments existed with respect to these commingled stock funds at December 31, 2013. |
| |
• | Hedge Funds: We maintain plan assets invested in hedge funds that pursue multiple strategies to diversify risk and reduce volatility. Investments in hedge funds are valued using reported net asset values as of December 31. These assets are primarily invested in a portfolio of diversified, direct investments and funds of hedge funds. Most of these funds allow redemptions either quarterly or semi-annually after a two to three month notice period, while other funds allow for redemption after only a brief notification period with no restriction on redemption frequency. No unfunded commitments existed with respect to these hedge funds as of December 31, 2013. |
| |
• | Real Estate and Private Equity Funds: We maintain plan assets invested in limited partnership interests in various private equity and real estate funds. These private equity and real estate investment funds are valued using fair values per the most recent partnership audited financial reports, adjusted as appropriate for any lag between the date of the financial reports and December 31. The real estate investments consist of U.S. and non-U.S. real estate investments and are broadly diversified. Limited provision exists for the redemption of these interests by the general partners that invest in these funds until the end of the term of the partnerships, typically ranging between 12 and 18 years from the date of inception. An active secondary market exists for similar partnership interests, although no particular value (discount or premium) can be guaranteed. At December 31, 2013, unfunded commitments to such limited partnerships totaling approximately $858 million are expected to be contributed over the remaining investment period, typically ranging between three and six years. |
The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2013 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations.
|
| | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total Assets | | Percentage of Plan Assets - 2013 | | Target Allocation 2013 |
Asset Category (U.S. Plans): | | | | | | | | | | | |
Cash and cash equivalents | $ | 112 |
| | $ | 514 |
| | $ | — |
| | $ | 626 |
| | 2.3 | % | | 0-5 |
Equity Securities: | | | | | | | | | | | |
U.S. Large Cap | 2,264 |
| | 1,948 |
| | — |
| | 4,212 |
| | | | |
U.S. Small Cap | 457 |
| | 50 |
| | — |
| | 507 |
| | | | |
Emerging Markets | 1,247 |
| | 120 |
| | — |
| | 1,367 |
| | | | |
Global Equity | 2,154 |
| | — |
| | — |
| | 2,154 |
| | | | |
International Equity | 1,397 |
| | 825 |
| | — |
| | 2,222 |
| | | | |
Total Equity Securities | 7,519 |
| | 2,943 |
| | — |
| | 10,462 |
| | 39.4 |
| | 25-55 |
Fixed Income Securities: | | | | | | | | | | | |
U.S. Government Securities | 3,746 |
| | 615 |
| | — |
| | 4,361 |
| | | | |
Corporate Bonds | 7 |
| | 2,550 |
| | 223 |
| | 2,780 |
| | | | |
Global Bonds | — |
| | 681 |
| | — |
| | 681 |
| | | | |
Municipal Bonds | — |
| | 55 |
| | — |
| | 55 |
| | | | |
Total Fixed Income Securities | 3,753 |
| | 3,901 |
| | 223 |
| | 7,877 |
| | 29.6 |
| | 15-35 |
Other Investments: | | | | | | | | | | | |
Hedge Funds | — |
| | — |
| | 3,738 |
| | 3,738 |
| | 14.1 |
| | 8-15 |
Private Equity | — |
| | — |
| | 1,397 |
| | 1,397 |
| | 5.3 |
| | 3-10 |
Real Estate | 285 |
| | 21 |
| | 1,091 |
| | 1,397 |
| | 5.3 |
| | 3-10 |
Structured Products(1) | — |
| | 326 |
| | — |
| | 326 |
| | 1.2 |
| | 0-5 |
Other(2) | — |
| | — |
| | 756 |
| | 756 |
| | 2.8 |
| | 1-10 |
Total U.S. Plan Assets | $ | 11,669 |
| | $ | 7,705 |
| | $ | 7,205 |
| | $ | 26,579 |
| | 100.0 | % | | |
Asset Category (International Plans): | | | | | | | | | | | |
Cash and cash equivalents | $ | 11 |
| | $ | 17 |
| | $ | — |
| | 28 |
| | 3.0 |
| | 0-5 |
Equity Securities: | | | | | | | | | | | |
Local Markets Equity | 122 |
| | 97 |
| | — |
| | 219 |
| | | | |
U.S. Equity | 17 |
| | — |
| | — |
| | 17 |
| | | | |
Emerging Markets | 19 |
| | — |
| | — |
| | 19 |
| | | | |
International / Global Equity | 88 |
| | 79 |
| | — |
| | 167 |
| | | | |
Total Equity Securities | 246 |
| | 176 |
| | — |
| | 422 |
| | 45.3 |
| | 50-65 |
Fixed Income Securities: | | | | | | | | | | | |
Local Government Bonds | 68 |
| | — |
| | — |
| | 68 |
| | | | |
Corporate Bonds | 86 |
| | 85 |
| | — |
| | 171 |
| | | | |
Total Fixed Income Securities | 154 |
| | 85 |
| | — |
| | 239 |
| | 25.7 |
| | 15-35 |
Other Investments: | | | | | | | | | | | |
Real Estate | — |
| | 63 |
| | — |
| | 63 |
| | 6.8 |
| | 0-17 |
Structured Products(1) | — |
| | — |
| | 55 |
| | 55 |
| | 5.9 |
| | 0-10 |
Other | — |
| | 124 |
| | — |
| | 124 |
| | 13.3 |
| | 0-20 |
Total International Plan Assets | $ | 411 |
| | $ | 465 |
| | $ | 55 |
| | $ | 931 |
| | 100.0 | % | | |
Total Plan Assets | $ | 12,080 |
| | $ | 8,170 |
| | $ | 7,260 |
| | $ | 27,510 |
| | | | |
(1) Represents mortgage and asset-backed securities.
(2) Represents global balanced-risk commingled funds, consisting primarily of equity, bonds, and some currencies and commodities.
The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2012 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations. This table has been revised from our 2012 Form 10-K filing to include international plan assets in conformity with the 2013 presentation of international plan assets.
|
| | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total Assets | | Percentage of Plan Assets - 2012 | | Target Allocation 2012 |
Asset Category (U.S. Plans): | | | | | | | | | | | |
Cash and cash equivalents | $ | 103 |
| | $ | 139 |
| | $ | — |
| | $ | 242 |
| | 0.9 | % | | 0-5 |
Equity Securities: | | | | | | | | | | | |
U.S. Large Cap | 2,548 |
| | 2,162 |
| | — |
| | 4,710 |
| | | | |
U.S. Small Cap | 450 |
| | 31 |
| | — |
| | 481 |
| | | | |
Emerging Markets | 1,160 |
| | 123 |
| | — |
| | 1,283 |
| | | | |
Global Equity | 2,242 |
| | — |
| | — |
| | 2,242 |
| | | | |
International Equity | 442 |
| | 694 |
| | — |
| | 1,136 |
| | | | |
Total Equity Securities | 6,842 |
| | 3,010 |
| | — |
| | 9,852 |
| | 38.8 |
| | 35-55 |
Fixed Income Securities: | | | | | | | | | | | |
U.S. Government Securities | 4,008 |
| | 443 |
| | — |
| | 4,451 |
| | | | |
Corporate Bonds | 9 |
| | 3,113 |
| | 138 |
| | 3,260 |
| | | | |
Global Bonds | — |
| | 457 |
| | — |
| | 457 |
| | | | |
Municipal Bonds | — |
| | 83 |
| | — |
| | 83 |
| | | | |
Total Fixed Income Securities | 4,017 |
| | 4,096 |
| | 138 |
| | 8,251 |
| | 32.5 |
| | 25-35 |
Other Investments: | | | | | | | | | | | |
Hedge Funds | — |
| | — |
| | 2,829 |
| | 2,829 |
| | 11.1 |
| | 5-15 |
Private Equity | — |
| | — |
| | 1,416 |
| | 1,416 |
| | 5.6 |
| | 1-10 |
Real Estate | 177 |
| | 23 |
| | 1,039 |
| | 1,239 |
| | 4.9 |
| | 1-10 |
Structured Products(1) | — |
| | 210 |
| | — |
| | 210 |
| | 0.8 |
| | 0-5 |
Other(2) | — |
| | — |
| | 1,362 |
| | 1,362 |
| | 5.4 |
| | 1-10 |
Total U.S. Plan Assets | $ | 11,139 |
| | $ | 7,478 |
| | $ | 6,784 |
| | $ | 25,401 |
| | 100.0 | % | | |
Asset Category (International Plans): | | | | | | | | | | | |
Cash and cash equivalents | $ | 5 |
| | $ | 17 |
| | $ | — |
| | 22 |
| | 2.8 |
| | 0-5 |
Equity Securities: | | | | | | | | | | | |
Local Markets Equity | 118 |
| | 79 |
| | — |
| | 197 |
| | | | |
U.S. Equity | 14 |
| | — |
| | — |
| | 14 |
| | | | |
International / Global Equity | 71 |
| | 59 |
| | — |
| | 130 |
| | | | |
Total Equity Securities | 203 |
| | 138 |
| | — |
| | 341 |
| | 42.6 |
| | 50-65 |
Fixed Income Securities: | | | | | | | | | | | |
Local Government Bonds | 64 |
| | — |
| | — |
| | 64 |
| | | | |
Corporate Bonds | 85 |
| | 70 |
| | — |
| | 155 |
| | | | |
Total Fixed Income Securities | 149 |
| | 70 |
| | — |
| | 219 |
| | 27.3 |
| | 15-35 |
Other Investments: | | | | | | | | | | | |
Real Estate | — |
| | 46 |
| | — |
| | 46 |
| | 5.7 |
| | 0-17 |
Structured Products(1) | — |
| | — |
| | 49 |
| | 49 |
| | 6.1 |
| | 0-10 |
Other | — |
| | 124 |
| | — |
| | 124 |
| | 15.5 |
| | 0-20 |
Total International Plan Assets | $ | 357 |
| | $ | 395 |
| | $ | 49 |
| | $ | 801 |
| | 100.0 | % | | |
Total Plan Assets | $ | 11,496 |
| | $ | 7,873 |
| | $ | 6,833 |
| | $ | 26,202 |
| | | | |
(1) Represents mortgage and asset-backed securities.
(2) Represents global balanced-risk commingled funds, consisting primarily of equity, bonds, and some currencies and commodities.
The following table presents the changes in the Level 3 instruments measured on a recurring basis for the years ended December 31, 2013 and 2012 (in millions). The information presented for 2012 has been revised to include international plan assets in conformity with the 2013 presentation of international plan assets.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Corporate Bonds | | Hedge Funds | | Real Estate | | Private Equity | | Other | | Total |
Balance on January 1, 2012 | $ | 80 |
| | $ | 2,132 |
| | $ | 948 |
| | $ | 1,354 |
| | $ | 644 |
| | $ | 5,158 |
|
Actual Return on Assets: | | | | | | | | | | | |
Assets Held at End of Year | 1 |
| | 59 |
| | 85 |
| | 163 |
| | 159 |
| | 467 |
|
Assets Sold During the Year | (3 | ) | | 5 |
| | 4 |
| | — |
| | — |
| | 6 |
|
Purchases | 71 |
| | 1,300 |
| | 144 |
| | 184 |
| | 608 |
| | 2,307 |
|
Sales | (11 | ) | | (667 | ) | | (142 | ) | | (285 | ) | | — |
| | (1,105 | ) |
Settlements | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Transfers Into (Out of) Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance on December 31, 2012 | $ | 138 |
| | $ | 2,829 |
| | $ | 1,039 |
| | $ | 1,416 |
| | $ | 1,411 |
| | $ | 6,833 |
|
Actual Return on Assets: | | | | | | | | | | | |
Assets Held at End of Year | (1 | ) | | 229 |
| | 81 |
| | 71 |
| | (93 | ) | | 287 |
|
Assets Sold During the Year | — |
| | 5 |
| | 54 |
| | 153 |
| | 54 |
| | 266 |
|
Purchases | 165 |
| | 1,676 |
| | 145 |
| | 143 |
| | 1 |
| | 2,130 |
|
Sales | (79 | ) | | (1,001 | ) | | (228 | ) | | (386 | ) | | (562 | ) | | (2,256 | ) |
Settlements | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Transfers Into (Out of) Level 3 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance on December 31, 2013 | $ | 223 |
| | $ | 3,738 |
| | $ | 1,091 |
| | $ | 1,397 |
| | $ | 811 |
| | $ | 7,260 |
|
There were no UPS class A or B shares of common stock directly held in plan assets as of December 31, 2013 or December 31, 2012.
Accumulated Other Comprehensive Income
The estimated amounts of prior service cost in AOCI expected to be amortized and recognized as a component of net periodic benefit cost in 2014 are as follows (in millions):
|
| | | | | | | | | | | |
| U.S. Pension Benefits | | U.S. Postretirement Medical Benefits | | International Pension Benefits |
Prior service cost / (benefit) | $ | 169 |
| | $ | 4 |
| | $ | 1 |
|
Expected Cash Flows
Information about expected cash flows for the pension and postretirement benefit plans is as follows (in millions):
|
| | | | | | | | | | | |
| U.S. Pension Benefits | | U.S. Postretirement Medical Benefits | | International Pension Benefits |
Employer Contributions: | | | | | |
2014 (expected) to plan trusts | $ | — |
| | $ | — |
| | $ | 77 |
|
2014 (expected) to plan participants | 16 |
| | 100 |
| | 3 |
|
Expected Benefit Payments: | | | | | |
2014 | $ | 885 |
| | $ | 239 |
| | $ | 24 |
|
2015 | 981 |
| | 253 |
| | 26 |
|
2016 | 1,081 |
| | 270 |
| | 27 |
|
2017 | 1,188 |
| | 286 |
| | 30 |
|
2018 | 1,306 |
| | 300 |
| | 32 |
|
2019 - 2023 | 8,502 |
| | 1,610 |
| | 199 |
|
Our funding policy for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations, or to directly fund payments to plan participants, as applicable. International plans will be funded in accordance with local regulations. Additional discretionary contributions may be made when deemed appropriate to meet the long-term obligations of the plans. Expected benefit payments for pensions will be primarily paid from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets.
