GENERAL ELECTRIC CO | 2013 | FY |

NOTE 12. POSTRETIREMENT BENEFIT PLANS

Pension Benefits

We sponsor a number of pension plans. Principal pension plans, together with affiliate and certain other pension plans (other pension plans) detailed in this note, represent about 99% of our total pension assets. We use a December 31 measurement date for our plans.

Principal Pension Plans are the GE Pension Plan and the GE Supplementary Pension Plan.

The GE Pension Plan provides benefits to certain U.S. employees based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Certain benefit provisions are subject to collective bargaining. Salaried employees who commence service on or after January 1, 2011 and any employee who commences service on or after January 1, 2012 will not be eligible to participate in the GE Pension Plan, but will participate in a defined contribution retirement program.

The GE Supplementary Pension Plan is an unfunded plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees.

Other Pension Plans in 2013 included 40 U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. These defined benefit plans generally provide benefits to employees based on formulas recognizing length of service and earnings.

Actuarial assumptions are described below. The actuarial assumptions at December 31 are used to measure the year-end benefit obligations and the pension costs for the subsequent year.

To determine the expected long-term rate of return on pension plan assets, we consider current and target asset allocations, as well as historical and expected returns on various categories of plan assets. In developing future return expectations for our principal pension plans' assets, we formulate views on the future economic environment, both in the U.S. and abroad. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. We also take into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and target allocations. Based on our analysis of future expectations of asset performance, past return results, and our current and target asset allocations, we have assumed a 7.5% long-term expected return on those assets for cost recognition in 2014. This is a reduction from the 8.0% we had assumed in 2013, 2012 and 2011. For the principal pension plans, we apply our expected rate of return to a market-related value of assets, which stabilizes variability in the amounts to which we apply that expected return.

We amortize experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over a period no longer than the average future service of employees.

Funding policy for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as we may determine to be appropriate. We contributed $433 million to the GE Pension Plan in 2012. The ERISA minimum funding requirements did not require a contribution in 2013. As such, we did not contribute to the GE Pension Plan in 2013. We expect to contribute $528 million to the GE Pension Plan in 2014. In addition, we expect to pay approximately $244 million for benefit payments under our GE Supplementary Pension Plan and administrative expenses of our principal pension plans and expect to contribute approximately $800 million to other pension plans in 2014. In 2013, comparative amounts were $225 million and $673 million, respectively.

Benefit obligations are described in the following tables. Accumulated and projected benefit obligations (ABO and PBO) represent the obligations of a pension plan for past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on current compensation levels. PBO is ABO increased to reflect expected future compensation.

(a)       Principally associated with discount rate changes.

(b)       The PBO for the GE Supplementary Pension Plan, which is an unfunded plan, was $5,162 million and $5,494 million at year-end 2013 and 2012, respectively.

(a)       Primarily related to the GE Supplementary Pension Plan.

Plan Assets

The fair value of the classes of the pension plans' investments is presented below. The inputs and valuation techniques used to measure the fair value of the assets are consistently applied and described in Note 1.

(a)       Target equally divided between U.S. equity securities and non-U.S. equity securities.

(b)       Actual allocations were 26% for U.S. equity securities and 19% for non-U.S. equity securities.

Plan fiduciaries of the GE Pension Plan set investment policies and strategies for the GE Pension Trust and oversee its investment allocation, which includes selecting investment managers, commissioning periodic asset-liability studies and setting long-term strategic targets. Long-term strategic investment objectives take into consideration a number of factors, including the funded status of the plan, a balance between risk and return and the plan's liquidity needs. Target allocation percentages are established at an asset class level by plan fiduciaries. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.

Plan fiduciaries monitor the GE Pension Plan's liquidity position in order to meet the near-term benefit payment and other cash needs. The GE Pension Plan holds short-term debt securities to meet its liquidity needs.

GE Pension Trust assets are invested subject to the following additional guidelines:

• Short-term securities must generally be rated A-1/P-1 or better, except for 15% of such securities that may be rated A-2/P-2 and other short-term securities as may be approved by the plan fiduciaries.
  
• Real estate investments may not exceed 25% of total assets.
  
• Investments in restricted securities (excluding real estate investments) that are not freely tradable may not exceed 30% of total assets (actual was 17% of trust assets at December 31, 2013).
  

According to statute, the aggregate holdings of all qualifying employer securities (e.g., GE common stock) and qualifying employer real property may not exceed 10% of the fair value of trust assets at the time of purchase. GE securities represented 4.5% and 4.2% of trust assets at year-end 2013 and 2012, respectively.

The GE Pension Plan has a broadly diversified portfolio of investments in equities, fixed income, private equities, real estate and hedge funds; these investments are both U.S. and non-U.S. in nature. As of December 31, 2013, U.S. government direct and indirect obligations represented 16% of total GE Pension Plan assets. No other sector concentration of assets exceeded 15% of total GE Pension Plan assets.

The following tables present GE Pension Plan investments measured at fair value.

(a)       Included direct investments and investment funds.

(b)       Primarily represented investment-grade bonds of U.S. issuers from diverse industries.

(c)       Included short-term investments to meet liquidity needs.

(d)       Primarily represented investments in non-U.S. corporate bonds, non-U.S. government bonds and commercial mortgage-backed securities.

(e)       Substantially all represented hedge fund investments.

(f)       Primarily represented net unsettled transactions related to purchases and sales of investments and accrued income receivables.

The following tables present the changes in Level 3 investments for the GE Pension Plan.

(a)       Transfers in and out of Level 3 are considered to occur at the beginning of the period.

(a)       Transfers in and out of Level 3 are considered to occur at the beginning of the period.

Other pension plans' assets were $11,059 million and $9,702 million at December 31, 2013 and 2012, respectively. Equity and debt securities amounting to $9,781 million and $8,497 million represented approximately 89% of total investments at both December 31, 2013 and 2012. The plans' investments were classified as 11% Level 1, 78% Level 2 and 11% Level 3 at December 31, 2013. The plans' investments were classified as 14% Level 1, 75% Level 2 and 11% Level 3 at December 31, 2012. The changes in Level 3 investments were insignificant for the years ended December 31, 2013 and 2012.

(a)       Fair value of assets less PBO, as shown in the preceding tables.

(b)       The GE Pension Plan was underfunded by $4.7 billion and $13.3 billion at December 31, 2013 and December 31, 2012, respectively.

(c)       For principal pension plans, represents the GE Supplementary Pension Plan liability.

In 2014, we estimate that we will amortize $215 million of prior service cost and $2,565 million of net actuarial loss for the principal pension plans from shareowners' equity into pension cost. For other pension plans, the estimated prior service cost and net actuarial loss to be amortized in 2014 will be $5 million and $215 million, respectively. Comparable amortized amounts in 2013, respectively, were $246 million and $3,664 million for the principal pension plans and $7 million and $343 million for other pension plans.

Retiree Health and Life Benefits

We sponsor a number of retiree health and life insurance benefit plans (retiree benefit plans). Principal retiree benefit plans are discussed below; other such plans are not significant individually or in the aggregate. We use a December 31 measurement date for our plans.

Principal Retiree Benefit Plans provide health and life insurance benefits to certain eligible participants and these participants share in the cost of healthcare benefits. In 2012, we amended our principal retiree benefit plans such that, effective January 1, 2015, our post-65 retiree medical plans will be closed to salaried and retired salaried employees who are not enrolled in the plans as of that date, and we will no longer offer company-provided life insurance in retirement for certain salaried employees who retire after that date. These plans cover approximately 198,000 retirees and dependents.

Actuarial assumptions are described below. The actuarial assumptions at December 31 are used to measure the year-end benefit obligations and the retiree benefit plan costs for the subsequent year.

• Weighted average discount rates of 3.77% and 3.94% were used for determination of costs in 2013 and 2012, respectively.
• For 2013, ultimately declining to 5% for 2030 and thereafter.

To determine the expected long-term rate of return on retiree life plan assets, we consider current and target asset allocations, historical and expected returns on various categories of plan assets, as well as expected benefit payments and resulting asset levels. In developing future return expectations for retiree benefit plan assets, we formulate views on the future economic environment, both in the U.S. and abroad. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. We also take into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and target allocations. Based on our analysis of future expectations of asset performance, past return results, our current and target asset allocations as well as a shorter time horizon for retiree life plan assets, we have assumed a 7.0% long-term expected return on those assets for cost recognition in 2014. We apply our expected rate of return to a market-related value of assets, which stabilizes variability in the amounts to which we apply that expected return.

We amortize experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over a period no longer than the average future service of employees.

Funding Policy. We fund retiree health benefits on a pay-as-you-go basis. We expect to contribute approximately $545 million in 2014 to fund such benefits. We fund the retiree life insurance trust at our discretion.

Changes in the accumulated postretirement benefit obligation for retiree benefit plans follow.

(a)       Primarily associated with discount rate change and lower costs from new healthcare supplier contracts.

(b)       The APBO for the retiree health plans was $7,626 million and $9,218 million at year-end 2013 and 2012, respectively.

A one percentage point change in the assumed healthcare cost trend rate would have the following effects.

Plan Assets

The fair value of the classes of retiree benefit plans' investments is presented below. The inputs and valuation techniques used to measure the fair value of assets are consistently applied and described in Note 1.

(a)       Target allocations were 18-38% for U.S. equity securities and 17-37% for non-U.S. equity securities.

(b)       Actual allocations were 23% for U.S. equity securities and 16% for non-U.S. equity securities.

Plan fiduciaries set investment policies and strategies for the trust and oversee its investment allocation, which includes selecting investment managers and setting long-term strategic targets. The primary strategic investment objectives are balancing investment risk and return and monitoring the plan's liquidity position in order to meet the near-term benefit payment and other cash needs. Target allocation percentages are established at an asset class level by plan fiduciaries. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.

Trust assets invested in short-term securities must generally be invested in securities rated A-1/P-1 or better, except for 15% of such securities that may be rated A-2/P-2 and other short-term securities as may be approved by the plan fiduciaries. According to statute, the aggregate holdings of all qualifying employer securities (e.g., GE common stock) and qualifying employer real property may not exceed 10% of the fair value of trust assets at the time of purchase. GE securities represented 4.0% and 5.8% of trust assets at year-end 2013 and 2012, respectively.

Retiree life plan assets were $903 million and $946 million at December 31, 2013 and 2012, respectively. Equity and debt securities amounting to $727 million and $741 million represented approximately 77% and 75% of total investments at December 31, 2013 and 2012, respectively. The plans' investments were classified as 33% Level 1, 43% Level 2 and 24% Level 3 at December 31, 2013. The plans' investments were classified as 28% Level 1, 47% Level 2 and 25% Level 3 at December 31, 2012. The changes in Level 3 investments were insignificant for the years ended December 31, 2013 and 2012.

(a)       Fair value of assets less APBO, as shown in the preceding tables.

In 2014, we estimate that we will amortize $395 million of prior service cost and $170 million of net actuarial gain from shareowners' equity into retiree benefit plans cost. Comparable amortized amounts in 2013 were $393 million of prior service cost and $45 million of net actuarial gain.

Postretirement Benefit Plans

2013 Cost of Postretirement Benefit Plans and Changes in Other Comprehensive Income

• Principally associated with discount rate changes and plan asset gains in excess of expected return on plan assets.

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