CHEVRON CORP | 2013 | FY |

CHEVRON CORP | 2013 | FY |

us-gaap:PensionAndOtherPostretirementBenefitsDisclosureTextBlock

Employee Benefit Plans

The company has defined benefit pension plans for many employees. The company typically prefunds defined benefit plans as required by local regulations or in certain situations where prefunding provides economic advantages. In the United States, all qualified plans are subject to the Employee Retirement Income Security Act (ERISA) minimum funding standard. The company does not typically fund U.S. nonqualified pension plans that are not subject to funding requirements under laws and regulations because contributions to these pension plans may be less economic and investment returns may be less attractive than the company’s other investment alternatives.

The company also sponsors other postretirement (OPEB) plans that provide medical and dental benefits, as well as life insurance for some active and qualifying retired employees. The plans are unfunded, and the company and retirees share the costs. Medical coverage for Medicare-eligible retirees in the company’s main U.S. medical plan is secondary to Medicare (including Part D) and the increase to the company contribution for retiree medical coverage is limited to no more than 4 percent each year. Certain life insurance benefits are paid by the company.

The company recognizes the overfunded or underfunded status of each of its defined benefit pension and OPEB plans as an asset or liability on the Consolidated Balance Sheet.

The funded status of the company’s pension and other postretirement benefit plans for 2013 and 2012 follows:



	Pension Benefits
	2013						2012						Other Benefits
	U.S.			Int’l.			U.S.			Int’l.			2013			2012
Change in Benefit Obligation
Benefit obligation at January 1	$	13,654		$	6,287		$	12,165		$	5,519		$	3,787		$	3,765
Service cost	495			197			452			181			66			61
Interest cost	471			314			435			320			149			153
Plan participants’ contributions	—			8			—			7			154			151
Plan amendments	(78		)	18			94			37			—			11
Actuarial (gain) loss	(1,398		)	(206		)	1,322			417			(636		)	44
Foreign currency exchange rate changes	—			(187		)	—			114			(23		)	1
Benefits paid	(1,064		)	(336		)	(763		)	(308		)	(359		)	(350		)
Divestitures	—			—			(51		)	—			—			(49		)
Benefit obligation at December 31	12,080			6,095			13,654			6,287			3,138			3,787
Change in Plan Assets
Fair value of plan assets at January 1	9,909			4,125			8,720			3,577			—			—
Actual return on plan assets	1,546			375			1,149			375			—			—
Foreign currency exchange rate changes	—			(21		)	—			90			—			—
Employer contributions	819			392			844			384			205			199
Plan participants’ contributions	—			8			—			7			154			151
Benefits paid	(1,064		)	(336		)	(763		)	(308		)	(359		)	(350		)
Divestitures	—			—			(41		)	—			—			—
Fair value of plan assets at December 31	11,210			4,543			9,909			4,125			—			—
Funded Status at December 31	$	(870	)	$	(1,552	)	$	(3,745	)	$	(2,162	)	$	(3,138	)	$	(3,787	)

Amounts recognized on the Consolidated Balance Sheet for the company’s pension and other postretirement benefit plans at December 31, 2013 and 2012, include:



	Pension Benefits
	2013						2012						Other Benefits
	U.S.			Int’l.			U.S.			Int’l.			2013			2012
Deferred charges and other assets	$	394		$	128		$	7		$	55		$	—		$	—
Accrued liabilities	(76		)	(81		)	(61		)	(76		)	(215		)	(225		)
Noncurrent employee benefit plans	(1,188		)	(1,599		)	(3,691		)	(2,141		)	(2,923		)	(3,562		)
Net amount recognized at December 31	$	(870	)	$	(1,552	)	$	(3,745	)	$	(2,162	)	$	(3,138	)	$	(3,787	)

Amounts recognized on a before-tax basis in “Accumulated other comprehensive loss” for the company’s pension and OPEB plans were $5,464 and $9,742 at the end of 2013 and 2012, respectively. These amounts consisted of:



	Pension Benefits
	2013					2012				Other Benefits
	U.S.			Int’l.		U.S.		Int’l.		2013		2012
Net actuarial loss	$	3,185		$	1,808	$	6,087	$	2,439	$	256	$	968
Prior service (credit) costs	(22		)	167		58		170		70		20
Total recognized at December 31	$	3,163		$	1,975	$	6,145	$	2,609	$	326	$	988

The accumulated benefit obligations for all U.S. and international pension plans were $10,876 and $5,108, respectively, at December 31, 2013, and $12,108 and $5,167, respectively, at December 31, 2012.

Information for U.S. and international pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2013 and 2012, was:



	Pension Benefits
	2013				2012
	U.S.		Int’l.		U.S.		Int’l.
Projected benefit obligations	$	1,267	$	1,692	$	13,647	$	4,812
Accumulated benefit obligations	1,155		1,240		12,101		4,063
Fair value of plan assets	4		203		9,895		2,756

The components of net periodic benefit cost and amounts recognized in the Consolidated Statement of Comprehensive Income for 2013, 2012 and 2011 are shown in the table below:



	Pension Benefits
	2013						2012						2011						Other Benefits
	U.S.			Int’l.			U.S.			Int’l.			U.S.			Int’l.			2013			2012			2011
Net Periodic Benefit Cost
Service cost	$	495		$	197		$	452		$	181		$	374		$	174		$	66		$	61		$	58
Interest cost	471			314			435			320			463			325			149			153			180
Expected return on plan assets	(701		)	(274		)	(634		)	(269		)	(613		)	(283		)	—			—			—
Amortization of prior service costs (credits)	2			21			(7		)	18			(8		)	19			(50		)	(72		)	(72		)
Recognized actuarial losses	485			143			470			136			310			101			53			56			64
Settlement losses	173			12			220			5			298			—			—			(26		)	—
Curtailment losses (gains)	—			—			—			—			—			35			—			—			(10		)
Total net periodic benefit cost	925			413			936			391			824			371			218			172			220
Changes Recognized in Comprehensive Income
Net actuarial (gain) loss during period	(2,244		)	(476		)	805			330			2,671			448			(659		)	45			131
Amortization of actuarial loss	(658		)	(155		)	(700		)	(141		)	(608		)	(101		)	(53		)	(79		)	(64		)
Prior service (credits) costs during period	(78		)	18			94			37			—			27			—			11			—
Amortization of prior service (costs) credits	(2		)	(21		)	7			(18		)	8			(54		)	50			72			72
Total changes recognized in other comprehensive income	(2,982		)	(634		)	206			208			2,071			320			(662		)	49			139
Recognized in Net Periodic Benefit Cost and Other Comprehensive Income	$	(2,057	)	$	(221	)	$	1,142		$	599		$	2,895		$	691		$	(444	)	$	221		$	359

Net actuarial losses recorded in “Accumulated other comprehensive loss” at December 31, 2013, for the company’s U.S. pension, international pension and OPEB plans are being amortized on a straight-line basis over approximately 10, 12 and 10 years, respectively. These amortization periods represent the estimated average remaining service of employees expected to receive benefits under the plans. These losses are amortized to the extent they exceed 10 percent of the higher of the projected benefit obligation or market-related value of plan assets. The amount subject to amortization is determined on a plan-by-plan basis. During 2014, the company estimates actuarial losses of $209, $102 and $7 will be amortized from “Accumulated other comprehensive loss” for U.S. pension, international pension and OPEB plans, respectively. In addition, the company estimates an additional $132 will be recognized from “Accumulated other comprehensive loss” during 2014 related to lump-sum settlement costs from U.S. pension plans.

The weighted average amortization period for recognizing prior service costs (credits) recorded in “Accumulated other comprehensive loss” at December 31, 2013, was approximately 10 and 12 years for U.S. and international pension plans, respectively, and 10 years for other postretirement benefit plans. During 2014, the company estimates prior service (credits) costs of $(9), $21 and $14 will be amortized from “Accumulated other comprehensive loss” for U.S. pension, international pension and OPEB plans, respectively.

Assumptions The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs for years ended December 31:



	Pension Benefits
	2013				2012				2011						Other Benefits
	U.S.		Int’l.		U.S.		Int’l.		U.S.		Int’l.		2013		2012		2011
Assumptions used to determine benefit obligations:
Discount rate	4.3	%	5.8	%	3.6	%	5.2	%	3.8	%	5.9	%	4.9	%	4.1	%	4.2	%
Rate of compensation increase	4.5	%	5.5	%	4.5	%	5.5	%	4.5	%	5.7	%	N/A		N/A		N/A
Assumptions used to determine net periodic benefit cost:
Discount rate	3.6	%	5.2	%	3.8	%	5.9	%	4.8	%	6.5	%	4.1	%	4.2	%	5.2	%
Expected return on plan assets	7.5	%	6.8	%	7.5	%	7.5	%	7.8	%	7.8	%	N/A		N/A		N/A
Rate of compensation increase	4.5	%	5.5	%	4.5	%	5.7	%	4.5	%	6.7	%	N/A		N/A		N/A

Expected Return on Plan Assets The company’s estimated long-term rates of return on pension assets are driven primarily by actual historical asset-class returns, an assessment of expected future performance, advice from external actuarial firms and the incorporation of specific asset-class risk factors. Asset allocations are periodically updated using pension plan asset/liability studies, and the company’s estimated long-term rates of return are consistent with these studies.

For 2013, the company used an expected long-term rate of return of 7.5 percent for U.S. pension plan assets, which account for 71 percent of the company’s pension plan assets. In 2012 and 2011, the company used a long-term rate of return of 7.5 and 7.8 percent, respectively for this plan.

The market-related value of assets of the major U.S. pension plan used in the determination of pension expense was based on the market values in the three months preceding the year-end measurement date. Management considers the three-month time period long enough to minimize the effects of distortions from day-to-day market volatility and still be contemporaneous to the end of the year. For other plans, market value of assets as of year-end is used in calculating the pension expense.

Discount Rate The discount rate assumptions used to determine the U.S. and international pension and postretirement benefit plan obligations and expense reflect the rate at which benefits could be effectively settled, and is equal to the equivalent single rate resulting from yield curve analysis. This analysis considered the projected benefit payments specific to the company's plans and the yields on high-quality bonds. At December 31, 2013, the company used a 4.3 percent discount rate for the U.S. pension plans and 4.7 percent for the main U.S. OPEB plan. The discount rates at the end of 2012 and 2011 were 3.6 and 3.9 percent and 3.8 and 4.0 percent for the U.S. pension plans and the main U.S. OPEB plans, respectively.

Other Benefit Assumptions For the measurement of accumulated postretirement benefit obligation at December 31, 2013, for the main U.S. postretirement medical plan, the assumed health care cost-trend rates start with 7.3 percent in 2014 and gradually decline to 4.5 percent for 2025 and beyond. For this measurement at December 31, 2012, the assumed health care cost-trend rates started with 7.5 percent in 2013 and gradually declined to 4.5 percent for 2025 and beyond. In both measurements, the annual increase to company contributions was capped at 4 percent.

Assumed health care cost-trend rates can have a significant effect on the amounts reported for retiree health care costs. The impact is mitigated by the 4 percent cap on the company’s medical contributions for the primary U.S. plan. A 1-percentage-point change in the assumed health care cost-trend rates would have the following effects on worldwide plans:



	1 Percent		1 Percent
	Increase		Decrease
Effect on total service and interest cost components	$	13	$	(11	)
Effect on postretirement benefit obligation	$	137	$	(115	)

Plan Assets and Investment Strategy The fair value hierarchy of inputs the company uses to value the pension assets is divided into three levels:

Level 1: Fair values of these assets are measured using unadjusted quoted prices for the assets or the prices of identical assets in active markets that the plans have the ability to access.

Level 2: Fair values of these assets are measured based on quoted prices for similar assets in active markets; quoted prices for identical or similar assets in inactive markets; inputs other than quoted prices that are observable for the asset; and inputs that are derived principally from or corroborated by observable market data through correlation or other means. If

the asset has a contractual term, the Level 2 input is observable for substantially the full term of the asset. The fair values for Level 2 assets are generally obtained from third-party broker quotes, independent pricing services and exchanges.

Level 3: Inputs to the fair value measurement are unobservable for these assets. Valuation may be performed using a financial model with estimated inputs entered into the model.

The fair value measurements of the company’s pension plans for 2013 and 2012 are below:



	U.S.									Int’l.
	Total Fair Value		Level 1			Level 2		Level 3		Total Fair Value		Level 1			Level 2		Level 3
At December 31, 2012
Equities
U.S.¹	$	1,709	$	1,709		$	—	$	—	$	334	$	334		$	—	$	—
International	1,263		1,263			—		—		520		520			—		—
Collective Trusts/Mutual Funds²	2,979		7			2,972		—		1,233		402			831		—
Fixed Income
Government	435		396			39		—		578		40			538		—
Corporate	384		—			384		—		230		25			175		30
Mortgage-Backed Securities	65		—			65		—		2		—			—		2
Other Asset Backed	51		—			51		—		4		—			4		—
Collective Trusts/Mutual Funds²	1,520		—			1,520		—		671		26			645		—
Mixed Funds³	—		—			—		—		115		4			111		—
Real Estate⁴	1,114		—			—		1,114		177		—			—		177
Cash and Cash Equivalents	373		373			—		—		222		204			18		—
Other⁵	16		(44		)	5		55		39		(3		)	40		2
Total at December 31, 2012	$	9,909	$	3,704		$	5,036	$	1,169	$	4,125	$	1,552		$	2,362	$	211
At December 31, 2013
Equities
U.S.¹	$	2,298	$	2,298		$	—	$	—	$	409	$	409		$	—	$	—
International	1,501		1,501			—		—		533		533			—		—
Collective Trusts/Mutual Funds²	2,977		26			2,951		—		1,066		211			855		—
Fixed Income
Government	81		52			29		—		726		46			680		—
Corporate	1,275		—			1,275		—		545		23			499		23
Mortgage-Backed Securities	1		—			1		—		4		—			2		2
Other Asset Backed	—		—			—		—		—		—			—		—
Collective Trusts/Mutual Funds²	1,357		—			1,357		—		647		27			620		—
Mixed Funds³	—		—			—		—		120		5			115		—
Real Estate⁴	1,265		—			—		1,265		294		—			—		294
Cash and Cash Equivalents	385		385			—		—		173		173			—		—
Other⁵	70		(2		)	18		54		26		(2		)	25		3
Total at December 31, 2013	$	11,210	$	4,260		$	5,631	$	1,319	$	4,543	$	1,425		$	2,796	$	322


¹	U.S. equities include investments in the company’s common stock in the amount of $28 at December 31, 2013, and $27 at December 31, 2012.


²	Collective Trusts/Mutual Funds for U.S. plans are entirely index funds; for International plans, they are mostly index funds. For these index funds, the Level 2 designation is partially based on the restriction that advance notification of redemptions, typically two business days, is required.


³	Mixed funds are composed of funds that invest in both equity and fixed-income instruments in order to diversify and lower risk.


⁴	The year-end valuations of the U.S. real estate assets are based on internal appraisals by the real estate managers, which are updates of third-party appraisals that occur at least once a year for each property in the portfolio.


⁵	The “Other” asset class includes net payables for securities purchased but not yet settled (Level 1); dividends and interest- and tax-related receivables (Level 2); insurance contracts and investments in private-equity limited partnerships (Level 3).

The effects of fair value measurements using significant unobservable inputs on changes in Level 3 plan assets are outlined below:



	Fixed Income
				Mortgage-Backed
	Corporate			Securities		Real Estate		Other		Total
Total at December 31, 2011	$	27		$	2	$	998	$	56	$	1,083
Actual Return on Plan Assets:
Assets held at the reporting date	—			—		108		1		109
Assets sold during the period	—			—		2		—		2
Purchases, Sales and Settlements	4			—		182		—		186
Transfers in and/or out of Level 3	—			—		—		—		—
Total at December 31, 2012	$	31		$	2	$	1,290	$	57	$	1,380
Actual Return on Plan Assets:
Assets held at the reporting date	(9		)	—		90		—		81
Assets sold during the period	—			—		3		—		3
Purchases, Sales and Settlements	1			—		176		—		177
Transfers in and/or out of Level 3	—			—		—		—		—
Total at December 31, 2013	$	23		$	2	$	1,559	$	57	$	1,641

The primary investment objectives of the pension plans are to achieve the highest rate of total return within prudent levels of risk and liquidity, to diversify and mitigate potential downside risk associated with the investments, and to provide adequate liquidity for benefit payments and portfolio management.

The company’s U.S. and U.K. pension plans comprise 88 percent of the total pension assets. Both the U.S. and U.K. plans have an Investment Committee that regularly meets during the year to review the asset holdings and their returns. To assess the plans’ investment performance, long-term asset allocation policy benchmarks have been established.

For the primary U.S. pension plan, the company's Benefit Plan Investment Committee has established the following approved asset allocation ranges: Equities 40–70 percent, Fixed Income and Cash 20–60 percent, Real Estate 0–15 percent, and Other 0–5 percent. For the U.K. pension plan, the U.K. Board of Trustees has established the following asset allocation guidelines, which are reviewed regularly: Equities 40-60 percent, Fixed Income and Cash 25–50 percent and Real Estate 5-15 percent. The other significant international pension plans also have established maximum and minimum asset allocation ranges that vary by plan. Actual asset allocation within approved ranges is based on a variety of current economic and market conditions and consideration of specific asset class risk. To mitigate concentration and other risks, assets are invested across multiple asset classes with active investment managers and passive index funds.

The company does not prefund its OPEB obligations.

Cash Contributions and Benefit Payments In 2013, the company contributed $819 and $375 to its U.S. and international pension plans, respectively. In 2014, the company expects contributions to be approximately $350 to its U.S. plan and $350 to its international pension plans. Actual contribution amounts are dependent upon investment returns, changes in pension obligations, regulatory environments and other economic factors. Additional funding may ultimately be required if investment returns are insufficient to offset increases in plan obligations.

The company anticipates paying other postretirement benefits of approximately $215 in 2014, compared with $205 paid in 2013.

The following benefit payments, which include estimated future service, are expected to be paid by the company in the next 10 years:



	Pension Benefits				Other
	U.S.		Int’l.		Benefits
2014	$	1,212	$	284	$	215
2015	$	1,187	$	290	$	218
2016	$	1,170	$	284	$	221
2017	$	1,175	$	363	$	224
2018	$	1,168	$	391	$	227
2019-2023	$	5,399	$	2,307	$	1,148

Employee Savings Investment Plan Eligible employees of Chevron and certain of its subsidiaries participate in the Chevron Employee Savings Investment Plan (ESIP).

Charges to expense for the ESIP represent the company’s contributions to the plan, which are funded either through the purchase of shares of common stock on the open market or through the release of common stock held in the leveraged employee stock ownership plan (LESOP), which is described in the section that follows. Total company matching contributions to employee accounts within the ESIP were $303, $286 and $263 in 2013, 2012 and 2011, respectively. This cost was reduced by the value of shares released from the LESOP totaling $140, $43 and $38 in 2013, 2012 and 2011, respectively. The remaining amounts, totaling $163, $243

and $225 in 2013, 2012 and 2011, respectively, represent open market purchases.

Employee Stock Ownership Plan Within the Chevron ESIP is an employee stock ownership plan (ESOP). In 1989, Chevron established a LESOP as a constituent part of the ESOP. The LESOP provides partial prefunding of the company’s future commitments to the ESIP. The debt associated with the LESOP was retired in 2013 and the remaining unallocated shares were distributed to ESIP participants during the year.

The company reported compensation expense equal to LESOP debt principal repayments less dividends received and used by the LESOP for debt service. Interest accrued on LESOP debt was recorded as interest expense. Dividends paid on LESOP shares were reflected as a reduction of retained earnings. All LESOP shares were considered outstanding for earnings-per-share computations.

Total expenses (credits) for the LESOP were $5, $1 and $(1) in 2013, 2012 and 2011, respectively. The net expense (credit) for the respective years were composed of compensation expenses (credits) of $4 $(2) and $(5) and charges to interest expense for LESOP debt of $1, $3 and $4.

Of the dividends paid on the LESOP shares, $38, $18 and $18 were used in 2013, 2012 and 2011, respectively, to service LESOP debt. The company also contributed $7 and $2 in 2013 and 2012, respectively, to satisfy LESOP debt service. No company contributions were required in 2011, as dividends received by the LESOP were sufficient to satisfy LESOP debt service.

Shares held in the LESOP were released and allocated to the accounts of ESIP participants based on debt service deemed to be paid in the year in proportion to the total of current-year and remaining debt service. LESOP shares as of December 31, 2013 and 2012, were as follows:

Benefit Plan Trusts Prior to its acquisition by Chevron, Texaco established a benefit plan trust for funding obligations under some of its benefit plans. At year-end 2013, the trust contained 14.2 million shares of Chevron treasury stock. The trust will sell the shares or use the dividends from the shares to pay benefits only to the extent that the company does not pay such benefits. The company intends to continue to pay its obligations under the benefit plans. The trustee will vote the shares held in the trust as instructed by the trust’s beneficiaries. The shares held in the trust are not considered outstanding for earnings-per-share purposes until distributed or sold by the trust in payment of benefit obligations.

Prior to its acquisition by Chevron, Unocal established various grantor trusts to fund obligations under some of its benefit plans, including the deferred compensation and supplemental retirement plans. At December 31, 2013 and 2012, trust assets of $40 and $48, respectively, were invested primarily in interest-earning accounts.

Employee Incentive Plans The Chevron Incentive Plan is an annual cash bonus plan for eligible employees that links awards to corporate, business unit and individual performance in the prior year. Charges to expense for cash bonuses were $871, $898 and $1,217 in 2013, 2012 and 2011, respectively. Chevron also has the LTIP for officers and other regular salaried employees of the company and its subsidiaries who hold positions of significant responsibility. Awards under the LTIP consist of stock options and other share-based compensation that are described in Note 20, beginning on page FS-47.

Allocated shares

Unallocated shares

Total LESOP shares