Retirement Benefits
We sponsor various non-contributory employee defined benefit plans through certain subsidiaries.
The WellPoint Cash Balance Pension Plan, or the WellPoint Plan, is a cash balance pension plan covering certain eligible employees of the affiliated companies that participate in the WellPoint Plan. Effective January 1, 2006, benefits were curtailed, with the result that most participants stopped accruing benefits but continue to earn interest on benefits accrued prior to the curtailment. Certain participants subject to collective bargaining and certain other participants who met grandfathering rules continue to accrue benefits. Several pension plans acquired through various corporate mergers and acquisitions have been merged into the WellPoint Plan. Effective January 1, 2011, we split the WellPoint Plan, with no change in benefits for any participant. Current employees who are still receiving credits and/or benefit accruals were placed into a new plan, the WellPoint Cash Balance Pension Plan B. All other participants remain in the WellPoint Plan. Effective January 1, 2012, the WellPoint Plan was renamed the WellPoint Cash Balance Pension Plan A.
The UGS Pension Plan is a defined benefit pension plan with a cash balance component. The UGS Pension Plan covers eligible employees of the affiliated companies that participate in the UGS Pension Plan. Effective January 1, 2004, benefits were curtailed, with the result that most participants stopped accruing benefits but continue to earn interest on benefits previously accrued. Certain employees subject to collective bargaining and certain other employees who met grandfathering rules continue to accrue benefits.
The Employees’ Retirement Plan of Blue Cross of California, or the BCC Plan, is a defined benefit pension plan that covers eligible employees of Blue Cross of California who are covered by a collective bargaining agreement. Effective January 1, 2007, benefits were curtailed under the BCC Plan with the result that no Blue Cross of California employees hired or rehired after December 31, 2006 are eligible to participate in the BCC Plan.
All of the plans’ assets consist primarily of common stocks, fixed maturity securities, investment funds and short-term investments. The funding policies for all plans are to contribute amounts at least sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as amended, or ERISA, including amendment by the Pension Protection Act of 2006, and in accordance with income tax regulations, plus such additional amounts as are necessary to provide assets sufficient to meet the benefits to be paid to plan participants.
We use a December 31 measurement date for determining benefit obligations and fair value of plan assets.
The following tables disclose consolidated “pension benefits,” which include the defined benefit pension plans described above, and consolidated “other benefits,” which include postretirement health and welfare benefits including medical, vision and dental benefits offered to certain employees. Calculations were computed using assumptions at the December 31 measurement dates.
The reconciliation of the benefit obligation is as follows:
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2013 | | 2012 |
Benefit obligation at beginning of year | $ | 1,948.5 |
| | $ | 1,851.3 |
| | $ | 623.0 |
| | $ | 651.3 |
|
Service cost | 14.2 |
| | 16.4 |
| | 6.7 |
| | 6.8 |
|
Interest cost | 67.8 |
| | 76.4 |
| | 22.4 |
| | 27.5 |
|
Actuarial (gain) loss | (129.9 | ) | | 129.6 |
| | 4.8 |
| | (28.4 | ) |
Benefits paid | (135.9 | ) | | (125.2 | ) | | (49.4 | ) | | (34.2 | ) |
Benefit obligation at end of year | $ | 1,764.7 |
| | $ | 1,948.5 |
| | $ | 607.5 |
| | $ | 623.0 |
|
The changes in the fair value of plan assets are as follows:
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2013 | | 2012 |
Fair value of plan assets at beginning of year | $ | 1,817.9 |
| | $ | 1,721.8 |
| | $ | 320.3 |
| | $ | 301.1 |
|
Actual return on plan assets | 223.4 |
| | 186.8 |
| | 37.0 |
| | 21.9 |
|
Employer contributions | 38.6 |
| | 34.5 |
| | 31.3 |
| | 38.4 |
|
Benefits paid | (135.9 | ) | | (125.2 | ) | | (38.8 | ) | | (41.1 | ) |
Fair value of plan assets at end of year | $ | 1,944.0 |
| | $ | 1,817.9 |
| | $ | 349.8 |
| | $ | 320.3 |
|
The net amount included in the consolidated balance sheets is as follows:
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2013 | | 2012 |
Noncurrent assets | $ | 240.8 |
| | $ | 3.0 |
| | $ | — |
| | $ | — |
|
Current liabilities | (3.5 | ) | | (11.5 | ) | | — |
| | — |
|
Noncurrent liabilities | (58.0 | ) | | (122.1 | ) | | (257.7 | ) | | (302.7 | ) |
Net amount at December 31 | $ | 179.3 |
| | $ | (130.6 | ) | | $ | (257.7 | ) | | $ | (302.7 | ) |
The net amounts included in accumulated other comprehensive loss (income) that have not been recognized as components of net periodic benefit costs are as follows:
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2013 | | 2012 |
Net actuarial loss | $ | 427.2 |
| | $ | 686.8 |
| | $ | 169.6 |
| | $ | 191.0 |
|
Prior service credit | (3.0 | ) | | (3.9 | ) | | (102.4 | ) | | (103.0 | ) |
Net amount before tax at December 31 | $ | 424.2 |
| | $ | 682.9 |
| | $ | 67.2 |
| | $ | 88.0 |
|
The estimated net actuarial loss and prior service credit for the defined benefit pension plans that will be reclassified from accumulated other comprehensive loss into net periodic benefit costs over the next year are $18.8 and $0.8, respectively. The estimated net actuarial loss and prior service credit for postretirement benefit plans that will be reclassified from accumulated other comprehensive loss into net periodic benefit costs over the next year are $9.4 and $14.5, respectively.
The accumulated benefit obligation for the defined benefit pension plans was $1,758.2 and $1,941.8 at December 31, 2013 and 2012, respectively.
As of December 31, 2013, certain pension plans had accumulated benefit obligations in excess of plan assets. For those same plans, the projected benefit obligation was also in excess of plan assets. Such plans had a combined projected benefit obligation, accumulated benefit obligation and fair value of plan assets of $60.7, $60.7 and $0.0, respectively.
The weighted-average assumptions used in calculating the benefit obligations for all plans are as follows:
|
| | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2013 | | 2012 |
Discount rate | 4.39 | % | | 3.60 | % | | 4.48 | % | | 3.71 | % |
Rate of compensation increase | 3.00 | % | | 3.50 | % | | 3.00 | % | | 3.50 | % |
Expected rate of return on plan assets | 7.66 | % | | 7.66 | % | | 7.00 | % | | 7.00 | % |
The components of net periodic benefit cost included in the consolidated statements of income are as follows:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Pension Benefits | | | | | |
Service cost | $ | 14.2 |
| | $ | 16.4 |
| | $ | 17.3 |
|
Interest cost | 67.8 |
| | 76.4 |
| | 84.7 |
|
Expected return on assets | (133.1 | ) | | (134.7 | ) | | (128.2 | ) |
Recognized actuarial loss | 28.3 |
| | 30.5 |
| | 26.4 |
|
Amortization of prior service credit | (0.8 | ) | | (0.8 | ) | | (0.8 | ) |
Settlement loss | 11.0 |
| | 13.8 |
| | 21.3 |
|
Net periodic benefit cost | $ | (12.6 | ) | | $ | 1.6 |
| | $ | 20.7 |
|
| | | | | |
Other Benefits | | | | | |
Service cost | $ | 6.7 |
| | $ | 6.8 |
| | $ | 6.3 |
|
Interest cost | 22.4 |
| | 27.5 |
| | 31.4 |
|
Expected return on assets | (22.1 | ) | | (21.0 | ) | | (17.3 | ) |
Recognized actuarial loss | 11.2 |
| | 14.1 |
| | 10.2 |
|
Amortization of prior service credit | (13.3 | ) | | (13.3 | ) | | (12.0 | ) |
Net periodic benefit cost | $ | 4.9 |
| | $ | 14.1 |
| | $ | 18.6 |
|
During the years ended December 31, 2013, 2012 and 2011 we incurred total settlement losses of $11.0, $13.8 and $21.3, respectively, as lump-sum payments exceeded the service cost and interest cost components of net periodic benefit cost for certain of our plans.
The weighted-average assumptions used in calculating the net periodic benefit cost for all plans are as follows:
|
| | | | | | | | |
| 2013 | | 2012 | | 2011 |
Pension Benefits | | | | | |
Discount rate | 3.60 | % | | 4.29 | % | | 5.15 | % |
Rate of compensation increase | 3.50 | % | | 3.50 | % | | 3.75 | % |
Expected rate of return on plan assets | 7.91 | % | | 8.00 | % | | 8.00 | % |
| | | | | |
Other Benefits | | | | | |
Discount rate | 3.71 | % | | 4.36 | % | | 5.24 | % |
Rate of compensation increase | 3.50 | % | | 3.50 | % | | 3.75 | % |
Expected rate of return on plan assets | 7.00 | % | | 7.00 | % | | 6.75 | % |
The assumed health care cost trend rates used to measure the expected cost of pre-Medicare (those who are not currently eligible for Medicare benefits) other benefits at our December 31, 2013 measurement date was 8.00% for 2014 with a gradual decline to 4.50% by the year 2025. The assumed health care cost trend rates used to measure the expected cost of post-Medicare (those who are currently eligible for Medicare benefits) other benefits at our December 31, 2013 measurement date was 6.00% for 2014 with a gradual decline to 4.50% by the year 2021. These estimated trend rates are subject to change in the future. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, an increase in the assumed health care cost trend rate of one percentage point would increase the postretirement benefit obligation as of December 31, 2013 by $44.2 and would increase service and interest costs by $1.8. Conversely, a decrease in the assumed health care cost trend rate of one percentage point would decrease the postretirement benefit obligation by $38.1 as of December 31, 2013 and would decrease service and interest costs by $1.5.
Plan assets include a diversified mix of investment grade fixed maturity securities, equity securities and alternative investments across a range of sectors and levels of capitalization to maximize the long-term return for a prudent level of risk. The weighted-average target allocation for pension benefit plan assets is 45% equity securities, 46% fixed maturity securities, and 9% to all other types of investments. Equity securities primarily include a mix of domestic securities, foreign securities and mutual funds invested in equities. Fixed maturity securities primarily include treasury securities, corporate bonds, and asset-backed investments issued by corporations and the U.S. government. Other types of investments include partnership interests, collective trusts that replicate money market funds and insurance contracts designed specifically for employee benefit plans. As of December 31, 2013, there were no significant concentrations of investments in the pension benefit assets or other benefit assets. No plan assets were invested in WellPoint common stock.
Pension benefit assets and other benefit assets recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
The fair values of our pension benefit assets and other benefit assets at December 31, 2013, excluding $3.9 of cash, investment income receivable and amounts due to/from brokers, by asset category and level inputs, as defined by FASB guidance regarding fair value measurements and disclosures (see Note 7, “Fair Value,” for additional information regarding the definition of level inputs), are as follows:
|
| | | | | | | | | | | | | | | |
| Level I | | Level II | | Level III | | Total |
December 31, 2013: | | | | | | | |
Pension Benefit Assets: | | | | | | | |
Equity securities: | | | | | | | |
U.S. securities | $ | 613.8 |
| | $ | — |
| | $ | — |
| | $ | 613.8 |
|
Foreign securities | 296.8 |
| | — |
| | — |
| | 296.8 |
|
Mutual funds | 37.4 |
| | — |
| | — |
| | 37.4 |
|
Fixed maturity securities: | | | | | | | |
Government securities | 177.9 |
| | 11.5 |
| | — |
| | 189.4 |
|
Corporate securities | — |
| | 272.1 |
| | — |
| | 272.1 |
|
Asset-backed securities | — |
| | 127.0 |
| | — |
| | 127.0 |
|
Other types of investments: | | | | | | | |
Common and collective trusts | — |
| | 46.6 |
| | — |
| | 46.6 |
|
Partnership interests | — |
| | — |
| | 159.1 |
| | 159.1 |
|
Insurance company contracts | — |
| | — |
| | 197.4 |
| | 197.4 |
|
Treasury futures contracts | 0.7 |
| | — |
| | — |
| | 0.7 |
|
Total pension benefit assets | $ | 1,126.6 |
| | $ | 457.2 |
| | $ | 356.5 |
| | $ | 1,940.3 |
|
| | | | | | | |
Other Benefit Assets: | | | | | | | |
Equity securities: | | | | | | | |
U.S. securities | $ | 39.0 |
| | $ | — |
| | $ | — |
| | $ | 39.0 |
|
Foreign securities | 18.6 |
| | — |
| | — |
| | 18.6 |
|
Mutual funds | 4.7 |
| | — |
| | — |
| | 4.7 |
|
Fixed maturity securities: | | | | | | | |
Government securities | 14.3 |
| | — |
| | — |
| | 14.3 |
|
Corporate securities | 4.3 |
| | 9.9 |
| | — |
| | 14.2 |
|
Asset-backed securities | — |
| | 11.2 |
| | — |
| | 11.2 |
|
Other types of investments: | | | | | | | |
Common and collective trusts | — |
| | 2.2 |
| | — |
| | 2.2 |
|
Partnership interests | — |
| | — |
| | 1.2 |
| | 1.2 |
|
Life insurance contracts | — |
| | — |
| | 230.0 |
| | 230.0 |
|
Investment in DOL 103-12 trust | — |
| | 14.2 |
| | — |
| | 14.2 |
|
Total other benefit assets | $ | 80.9 |
| | $ | 37.5 |
| | $ | 231.2 |
| | $ | 349.6 |
|
The fair values of our pension benefit assets and other benefit assets at December 31, 2012, excluding $3.2 of cash, investment income receivable and amounts due to/from brokers, by asset category and level inputs, as defined by FASB guidance regarding fair value measurements and disclosures (see Note 7, “Fair Value,” for additional information regarding the definition of level inputs) are as follows:
|
| | | | | | | | | | | | | | | |
| Level I | | Level II | | Level III | | Total |
December 31, 2012: | | | | | | | |
Pension Benefit Assets: | | | | | | | |
Equity securities: | | | | | | | |
U.S. securities | $ | 514.3 |
| | $ | — |
| | $ | — |
| | $ | 514.3 |
|
Foreign securities | 272.5 |
| | — |
| | — |
| | 272.5 |
|
Mutual funds | 30.9 |
| | — |
| | — |
| | 30.9 |
|
Fixed maturity securities: | | | | | | | |
Government securities | 192.1 |
| | 18.0 |
| | — |
| | 210.1 |
|
Corporate securities | — |
| | 240.5 |
| | — |
| | 240.5 |
|
Asset-backed securities | — |
| | 138.7 |
| | — |
| | 138.7 |
|
Other types of investments: | | | | | | | |
Common and collective trusts | — |
| | 28.9 |
| | — |
| | 28.9 |
|
Partnership interests | — |
| | — |
| | 176.5 |
| | 176.5 |
|
Insurance company contracts | — |
| | — |
| | 202.5 |
| | 202.5 |
|
Treasury futures contracts | (0.2 | ) | | — |
| | — |
| | (0.2 | ) |
Total pension benefit assets | $ | 1,009.6 |
| | $ | 426.1 |
| | $ | 379.0 |
| | $ | 1,814.7 |
|
| | | | | | | |
Other Benefit Assets: | | | | | | | |
Equity securities: | | | | | | | |
U.S. securities | $ | 23.2 |
| | $ | — |
| | $ | — |
| | $ | 23.2 |
|
Foreign securities | 11.6 |
| | — |
| | — |
| | 11.6 |
|
Mutual funds | 36.1 |
| | — |
| | — |
| | 36.1 |
|
Fixed maturity securities: | | | | | | | |
Government securities | 4.3 |
| | — |
| | — |
| | 4.3 |
|
Corporate securities | — |
| | 9.2 |
| | — |
| | 9.2 |
|
Asset-backed securities | — |
| | 13.8 |
| | — |
| | 13.8 |
|
Other types of investments: | | | | | | | |
Common and collective trusts | — |
| | 2.1 |
| | — |
| | 2.1 |
|
Partnership interests | — |
| | — |
| | 1.2 |
| | 1.2 |
|
Life insurance contracts | — |
| | — |
| | 203.7 |
| | 203.7 |
|
Investment in DOL 103-12 trust | — |
| | 15.1 |
| | — |
| | 15.1 |
|
Total other benefit assets | $ | 75.2 |
| | $ | 40.2 |
| | $ | 204.9 |
| | $ | 320.3 |
|
A reconciliation of the beginning and ending balances of plan assets measured at fair value using Level III inputs for the years ended December 31, 2013, 2012 and 2011 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| U.S. Equity Securities | | Partnership Interests | | Insurance Company Contracts | | Life Insurance Contracts | | Total |
Year Ended December 31, 2013: | | | | | | | | | |
Beginning balance at January 1, 2013 | $ | — |
| | $ | 177.7 |
| | $ | 202.5 |
| | $ | 203.7 |
| | $ | 583.9 |
|
Actual return on plan assets: | | | | | | | | | |
Relating to assets still held at the reporting date | — |
| | 2.2 |
| | (5.6 | ) | | 26.3 |
| | 22.9 |
|
Purchases | — |
| | 15.6 |
| | 9.5 |
| | — |
| | 25.1 |
|
Sales | — |
| | (35.2 | ) | | (9.0 | ) | | — |
| | (44.2 | ) |
Ending balance at December 31, 2013 | $ | — |
| | $ | 160.3 |
| | $ | 197.4 |
| | $ | 230.0 |
| | $ | 587.7 |
|
| | | | | | | | | |
Year Ended December 31, 2012: | | | | | | | | | |
Beginning balance at January 1, 2012 | $ | 317.6 |
| | $ | 166.1 |
| | $ | 195.5 |
| | $ | 95.7 |
| | $ | 774.9 |
|
Actual return on plan assets: | | | | | | | | | |
Relating to assets still held at the reporting date | — |
| | 4.5 |
| | 5.5 |
| | 13.2 |
| | 23.2 |
|
Purchases | — |
| | 14.1 |
| | 8.8 |
| | 94.8 |
| | 117.7 |
|
Sales | (317.6 | ) | | (7.0 | ) | | (7.3 | ) | | — |
| | (331.9 | ) |
Ending balance at December 31, 2012 | $ | — |
| | $ | 177.7 |
| | $ | 202.5 |
| | $ | 203.7 |
| | $ | 583.9 |
|
| | | | | | | | | |
Year Ended December 31, 2011: | | | | | | | | | |
Beginning balance at January 1, 2011 | $ | 429.8 |
| | $ | 153.1 |
| | $ | 188.8 |
| | $ | — |
| | $ | 771.7 |
|
Actual return on plan assets: | | | | | | | | | |
Relating to assets still held at the reporting date | 4.8 |
| | 5.8 |
| | 2.7 |
| | 1.0 |
| | 14.3 |
|
Purchases | — |
| | 7.6 |
| | 11.6 |
| | 94.7 |
| | 113.9 |
|
Sales | (117.0 | ) | | (0.4 | ) | | (7.6 | ) | | — |
| | (125.0 | ) |
Ending balance at December 31, 2011 | $ | 317.6 |
| | $ | 166.1 |
| | $ | 195.5 |
| | $ | 95.7 |
| | $ | 774.9 |
|
There were no transfers between Levels I, II and III during the years ended December 31, 2013, 2012 and 2011. The significant decline in plan assets measured using Level III inputs as of December 31, 2012 was primarily due to the sale of an equity partnership.
Our current funding strategy is to fund an amount at least equal to the minimum required funding as determined under ERISA with consideration of maximum tax deductible amounts. We may elect to make discretionary contributions up to the maximum amount deductible for income tax purposes. For the years ended December 31, 2013, 2012 and 2011, no material contributions were necessary to meet ERISA required funding levels. However, during the years ended December 31, 2013, 2012 and 2011, we made tax deductible discretionary contributions to the pension benefit plans of $38.6, $34.5 and $57.7, respectively. Additionally, during the year ended December 31, 2011, we made tax deductible discretionary contributions to other benefit plans of $30.0. Employer contributions to other benefit plans represent discretionary contributions and do not include payments to retirees for current benefits.
Our estimated future payments for pension benefits and postretirement benefits, which reflect expected future service, as appropriate, are as follows:
|
| | | | | | | |
| Pension Benefits | | Other Benefits |
2014 | $ | 138.2 |
| | $ | 43.4 |
|
2015 | 147.9 |
| | 43.5 |
|
2016 | 141.0 |
| | 43.9 |
|
2017 | 145.6 |
| | 44.7 |
|
2018 | 148.3 |
| | 45.4 |
|
2019 – 2023 | 656.5 |
| | 225.8 |
|
In addition to the defined benefit plans, we maintain the WellPoint 401(k) Retirement Savings Plan, CareMore 401(k) Pension Plan and the Amerigroup Retirement Savings Plan which are qualified defined contribution plans covering substantially all employees. Voluntary employee contributions are matched by us subject to certain limitations. Contributions made by us totaled $102.5, $91.0 and $87.8 during 2013, 2012 and 2011, respectively.
