Pension and Other Benefit Programs
The Company maintains pension and postretirement medical benefit plans covering most of its employees not covered by union or industry-wide plans. Employees generally hired after January 1, 1987 for certain of our media businesses and other employees generally hired after January 1, 1994 are not eligible for postretirement medical benefits. Pension benefits are generally based on years of service and/or compensation.
In fiscal 2011, the Company substantially amended its salaried employee pension plans with respect to benefits earned for service after December 31, 2011. The Company reduced the vesting requirement from five years of vesting service to three years of vesting service, revised the early retirement reduction factors and excluded employees hired after December 31, 2011 from plan participation. In addition, the percentage of average monthly compensation on which salary-related benefits are based was reduced while overtime, commissions and regular bonus amounts were added to the calculation of average monthly compensation received after December 31, 2011 to the extent those elements of compensation were not previously included.
The following chart summarizes the benefit obligations, assets, funded status and balance sheet impacts associated with the pension and postretirement medical benefit plans based upon the actuarial valuations prepared as of September 28, 2013 and September 29, 2012.
|
| | | | | | | | | | | | | | | |
| Pension Plans | | Postretirement Medical Plans |
| September 28, 2013 | | September 29, 2012 | | September 28, 2013 | | September 29,
2012 |
Projected benefit obligations | | | | | | | |
Beginning obligations | $ | (11,530 | ) | | $ | (9,481 | ) | | $ | (1,748 | ) | | $ | (1,578 | ) |
Service cost | (349 | ) | | (278 | ) | | (18 | ) | | (21 | ) |
Interest cost | (433 | ) | | (440 | ) | | (66 | ) | | (74 | ) |
Actuarial gain / (loss) | 2,044 |
| | (1,635 | ) | | 476 |
| | (107 | ) |
Plan amendments and other | (60 | ) | | 51 |
| | (9 | ) | | — |
|
Benefits paid | 262 |
| | 253 |
| | 40 |
| | 32 |
|
Ending obligations | $ | (10,066 | ) | | $ | (11,530 | ) | | $ | (1,325 | ) | | $ | (1,748 | ) |
Fair value of plans’ assets | | | | | | | |
Beginning fair value | $ | 8,049 |
| | $ | 6,551 |
| | $ | 388 |
| | $ | 302 |
|
Actual return on plan assets | 807 |
| | 972 |
| | 45 |
| | 48 |
|
Contributions | 397 |
| | 833 |
| | 108 |
| | 72 |
|
Benefits paid | (262 | ) | | (253 | ) | | (40 | ) | | (32 | ) |
Expenses and other | (26 | ) | | (54 | ) | | 7 |
| | (2 | ) |
Ending fair value | $ | 8,965 |
| | $ | 8,049 |
| | $ | 508 |
| | $ | 388 |
|
| | | | | | | |
Underfunded status of the plans | $ | (1,101 | ) | | $ | (3,481 | ) | | $ | (817 | ) | | $ | (1,360 | ) |
Amounts recognized in the balance sheet | | | | | | | |
Non-current assets | $ | 234 |
| | $ | 27 |
| | $ | — |
| | $ | — |
|
Current liabilities | (46 | ) | | (24 | ) | | (15 | ) | | (16 | ) |
Non-current liabilities | (1,289 | ) | | (3,484 | ) | | (802 | ) | | (1,344 | ) |
| $ | (1,101 | ) | | $ | (3,481 | ) | | $ | (817 | ) | | $ | (1,360 | ) |
The components of net periodic benefit cost are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Postretirement Medical Plans |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Service costs | $ | 349 |
| | $ | 278 |
| | $ | 293 |
| | $ | 18 |
| | $ | 21 |
| | $ | 18 |
|
Interest costs | 433 |
| | 440 |
| | 411 |
| | 66 |
| | 74 |
| | 66 |
|
Expected return on plan assets | (604 | ) | | (514 | ) | | (440 | ) | | (30 | ) | | (23 | ) | | (24 | ) |
Amortization of prior year service costs | 10 |
| | 12 |
| | 14 |
| | (2 | ) | | (2 | ) | | (1 | ) |
Recognized net actuarial loss | 418 |
| | 309 |
| | 230 |
| | 40 |
| | 31 |
| | 9 |
|
Net periodic benefit cost | $ | 606 |
| | $ | 525 |
| | $ | 508 |
| | $ | 92 |
| | $ | 101 |
| | $ | 68 |
|
|
| | | | | | | | | | | | | | | | | |
Key assumptions are as follows: | | | | | | | | | | | |
| Pension Plans | | Postretirement Medical Plans |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Discount rate | 5.00 | % | | 3.85 | % | | 4.75 | % | | 5.00 | % | | 3.85 | % | | 4.75 | % |
Rate of return on plan assets | 7.50 | % | | 7.75 | % | | 7.75 | % | | 7.50 | % | | 7.75 | % | | 7.75 | % |
Rate of salary increase | 4.00 | % | | 4.00 | % | | 4.00 | % | | n/a |
| | n/a |
| | n/a |
|
Year 1 increase in cost of benefits | n/a |
| | n/a |
| | n/a |
| | 7.25 | % | | 7.50 | % | | 8.00 | % |
Rate of increase to which the cost of benefits is assumed to decline (the ultimate trend rate) | n/a |
| | n/a |
| | n/a |
| | 4.25 | % | | 4.50 | % | | 4.50 | % |
Year that the rate reaches the ultimate trend rate | n/a |
| | n/a |
| | n/a |
| | 2027 |
| | 2026 |
| | 2025 |
|
Net periodic benefit cost is based on assumptions determined at the prior-year end measurement date.
AOCI, before tax, as of September 28, 2013 consists of the following amounts that have not yet been recognized in net periodic benefit cost:
|
| | | | | | | | | | | |
| Pension Plans | | Postretirement Medical Plans | | Total |
Unrecognized prior service (cost) / credit | $ | (74 | ) | | $ | 4 |
| | $ | (70 | ) |
Unrecognized net actuarial (loss) / gain | (1,984 | ) | | 71 |
| | (1,913 | ) |
Total amounts included in AOCI | (2,058 | ) | | 75 |
| | (1,983 | ) |
Prepaid / (accrued) pension cost | 957 |
| | (892 | ) | | 65 |
|
Net balance sheet liability | $ | (1,101 | ) | | $ | (817 | ) | | $ | (1,918 | ) |
Amounts included in AOCI, before tax, as of September 28, 2013 that are expected to be recognized as components of net periodic benefit cost during fiscal 2014 are:
|
| | | | | | | | | | | |
| Pension Plans | | Postretirement Medical Plans | | Total |
Prior service (cost) / credit | $ | (14 | ) | | $ | 2 |
| | $ | (12 | ) |
Net actuarial (loss) / gain | (153 | ) | | 7 |
| | (146 | ) |
Total | $ | (167 | ) | | $ | 9 |
| | $ | (158 | ) |
Plan Funded Status
The projected benefit obligation, accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $864 million, $797 million and $2 million, respectively, as of September 28, 2013 and $10.6 billion, $9.8 billion and $7.1 billion as of September 29, 2012, respectively.
For pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation and aggregate fair value of plan assets were $7.9 billion and $6.6 billion, respectively, as of September 28, 2013 and $10.6 billion and $7.1 billion as of September 29, 2012, respectively.
The Company’s total accumulated pension benefit obligations at September 28, 2013 and September 29, 2012 were $9.3 billion and $10.7 billion, respectively, of which 97% for both years was vested.
The accumulated postretirement medical benefit obligations and fair value of plan assets for postretirement medical plans with accumulated postretirement medical benefit obligations in excess of plan assets were $1.3 billion and $0.5 billion, respectively, at September 28, 2013 and $1.7 billion and $0.4 billion, respectively, at September 29, 2012.
Plan Assets
A significant portion of the assets of the Company’s defined benefit plans are managed on a commingled basis in a third-party master trust. The investment policy and allocation of the assets in the master trust were approved by the Company’s Investment and Administrative Committee, which has oversight responsibility for the Company’s retirement plans. The investment policy ranges for the major asset classes are as follows:
|
| | | | | | |
Asset Class | | Minimum | | Maximum |
Equity investments | | | | |
Domestic small cap | | — | % | | 10 | % |
Domestic mid/large cap | | 15 | % | | 30 | % |
International | | 7 | % | | 37 | % |
Total equity investments | | 31 | % | | 60 | % |
| | |
Fixed income investments | | 20 | % | | 40 | % |
| | |
Alternative investments | | | | |
Diversified | | — | % | | 10 | % |
Distressed | | — | % | | 10 | % |
Private equity/venture capital | | — | % | | 12 | % |
Real estate | | — | % | | 15 | % |
Commodity | | — | % | | 10 | % |
Total alternative investments | | 15 | % | | 30 | % |
| | |
Cash & money market funds | | — | % | | 10 | % |
The primary investment objective for the assets within the master trust is the prudent and cost effective management of assets to satisfy benefit obligations to plan participants. Financial risks are managed through diversification of plan assets, selection of investment managers and through the investment guidelines incorporated in investment management agreements. Assets are monitored to ensure that investment returns are commensurate with risks taken.
The long-term asset allocation policy for the master trust was established taking into consideration a variety of factors that include, but are not limited to, the average age of participants, the number of retirees, the duration of liabilities and the expected payout ratio. Liquidity needs of the master trust are generally managed using cash generated by investments or by liquidating securities.
Assets are generally managed by external investment managers, and we have investment management agreements with respect to securities in the master trust. These agreements include account guidelines that establish permitted securities and risk controls commensurate with the account’s investment strategy. Some agreements permit the use of derivative securities (futures, options, interest rate swaps, credit default swaps) that enable investment managers to enhance returns and manage exposures within their accounts. Investment managers are prohibited from using derivatives to leverage returns.
Fair Value Measurements of Plan Assets
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is classified in the following three categories:
Level 1 – Quoted prices for identical instruments in active markets
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
Following is a description of the valuation methodologies used for assets reported at fair value. There have been no changes in the methodologies used at September 28, 2013 and September 29, 2012.
Level 1 investments are valued based on observable market prices on the last trading day of the year. Investments in common and preferred stocks are valued based on the securities exchange-listed price or a broker’s quote in an active market. Investments in U.S. Treasury securities are valued based on a broker’s quote in an active market.
Level 2 investments in certain government and federal agency bonds, mortgage-backed securities (MBS), asset-backed securities and corporate bonds are valued using a broker’s quote in a non-active market or an evaluated price based on a compilation of reported market information, such as benchmark yield curves, credit spreads and estimated default rates. Derivative financial instruments are valued based on models that incorporate observable inputs for the underlying securities, such as interest rates. Shares in money market and mutual funds are valued at the net asset value of the shares held by the Plan at year-end based on the fair value of the underlying investments.
Level 3 investments consist of investments in limited partnerships, which are valued based on the master trust's pro-rata share of the partnerships' underlying net investment holdings as reported in the partnerships' financial statements. The investments held by the partnerships are recorded at fair value by the partnerships and the partnerships' financial statements are generally audited annually. The fair values of the underlying investments are estimated using significant unobservable inputs (e.g., discounted cash flow models or relative valuation methods that incorporate comparable market information such as earnings and cash flow multiples from similar publicly traded companies or real estate properties).
The Company’s defined benefit plan assets are summarized by level in the following tables:
|
| | | | | | | | | | | | | | | | | | | |
| | As of September 28, 2013 |
Description | | Level 1 | | Level 2 | | Level 3 | | Total | | Plan Asset Mix |
Equities: | | | | | | | | | | |
Domestic small cap | | $ | 220 |
| | $ | — |
| | $ | — |
| | $ | 220 |
| | 2 | % |
Domestic mid/large cap (1) | | 1,864 |
| | — |
| | — |
| | 1,864 |
| | 19 | % |
International | | 1,384 |
| | 595 |
| | — |
| | 1,979 |
| | 21 | % |
Fixed income | | | | | | | | | | |
Corporate bonds | | — |
| | 667 |
| | — |
| | 667 |
| | 7 | % |
Government and federal agency bonds, notes and MBS | | 802 |
| | 770 |
| | — |
| | 1,572 |
| | 17 | % |
MBS & asset-backed securities | | — |
| | 322 |
| | — |
| | 322 |
| | 3 | % |
Alternative investments | | | | | | | | | | |
Diversified | | 85 |
| | 262 |
| | 270 |
| | 617 |
| | 7 | % |
Distressed | | — |
| | — |
| | 153 |
| | 153 |
| | 2 | % |
Private equity/venture capital | | — |
| | — |
| | 673 |
| | 673 |
| | 7 | % |
Real estate | | — |
| | — |
| | 359 |
| | 359 |
| | 4 | % |
Derivatives and other, net | | — |
| | 119 |
| | — |
| | 119 |
| | 1 | % |
Cash & money market funds | | 42 |
| | 886 |
| | — |
| | 928 |
| | 10 | % |
Total | | $ | 4,397 |
| | $ | 3,621 |
| | $ | 1,455 |
| | $ | 9,473 |
| | 100 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | As of September 29, 2012 |
Description | | Level 1 | | Level 2 | | Level 3 | | Total | | Plan Asset Mix |
Equities: | | | | | | |
Domestic small cap | | $ | 93 |
| | $ | — |
| | $ | — |
| | $ | 93 |
| | 1 | % |
Domestic mid/large cap (1) | | 1,746 |
| | — |
| | — |
| | 1,746 |
| | 21 | % |
International | | 1,096 |
| | 450 |
| | — |
| | 1,546 |
| | 18 | % |
Fixed income | | | | | | | | | | |
Corporate bonds | | — |
| | 736 |
| | — |
| | 736 |
| | 9 | % |
Government and federal agency bonds, notes and MBS | | 827 |
| | 910 |
| | — |
| | 1,737 |
| | 21 | % |
MBS & asset-backed securities | | — |
| | 212 |
| | — |
| | 212 |
| | 3 | % |
Alternative investments | | | | | | | | | | |
Diversified | | 83 |
| | 282 |
| | 179 |
| | 544 |
| | 6 | % |
Distressed | | — |
| | — |
| | 194 |
| | 194 |
| | 2 | % |
Private equity/venture capital | | — |
| | — |
| | 623 |
| | 623 |
| | 7 | % |
Real estate | | — |
| | — |
| | 328 |
| | 328 |
| | 4 | % |
Derivatives and other, net | | — |
| | 11 |
| | — |
| | 11 |
| | — | % |
Cash & money market funds | | 95 |
| | 572 |
| | — |
| | 667 |
| | 8 | % |
Total | | $ | 3,940 |
| | $ | 3,173 |
| | $ | 1,324 |
| | $ | 8,437 |
| | 100 | % |
| |
(1) | Large cap domestic equities include 2.9 million shares of Company common stock valued at $185 million (2% of total plan assets) and 2.8 million shares valued at $147 million (2% of total plan assets) at September 28, 2013 and September 29, 2012, respectively. |
Changes in Level 3 assets for the years ended September 28, 2013 and September 29, 2012 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Alternative Investments |
| Diversified | | Distressed | | Private equity/venture capital | | Real estate | | Total |
Balance at Oct 1, 2011 | $ | 171 |
| | $ | 228 |
| | $ | 567 |
| | $ | 263 |
| | $ | 1,229 |
|
Additions | 1 |
| | 19 |
| | 121 |
| | 75 |
| | 216 |
|
Distributions | (2 | ) | | (52 | ) | | (68 | ) | | (20 | ) | | (142 | ) |
Gain / (loss) | 9 |
| | (1 | ) | | 3 |
| | 10 |
| | 21 |
|
Balance at Sept. 29, 2012 | $ | 179 |
| | $ | 194 |
| | $ | 623 |
| | $ | 328 |
| | $ | 1,324 |
|
Additions | 86 |
| | 23 |
| | 115 |
| | 46 |
| | 270 |
|
Distributions | (6 | ) | | (73 | ) | | (73 | ) | | (43 | ) | | (195 | ) |
Gain / (loss) | 11 |
| | 9 |
| | 8 |
| | 28 |
| | 56 |
|
Balance at Sept. 28, 2013 | $ | 270 |
| | $ | 153 |
| | $ | 673 |
| | $ | 359 |
| | $ | 1,455 |
|
Uncalled Capital Commitments
Alternative investments held by the master trust include interests in limited partnerships that have rights to make capital calls to the limited partner investors. In such cases, the master trust would be contractually obligated to make a cash capital contribution to the limited partnership at the time of a capital call. At September 28, 2013, the total committed capital still uncalled and unpaid was $584 million.
Plan Contributions
During fiscal 2013, the Company made contributions to its pension and postretirement medical plans totaling $505 million, which included discretionary contributions above the minimum requirements for pension plans. The Company currently expects pension and postretirement medical plan contributions in fiscal 2014 to total approximately $275 million to $325 million. Final minimum funding requirements for fiscal 2014 will be determined based on our January 1, 2014 funding actuarial valuation, which we expect to receive during the fourth quarter of fiscal 2014.
Estimated Future Benefit Payments
The following table presents estimated future benefit payments for the next ten fiscal years:
|
| | | | | | | |
| Pension Plans | | Postretirement Medical Plans(1) |
2014 | $ | 419 |
| | $ | 42 |
|
2015 | 364 |
| | 45 |
|
2016 | 389 |
| | 48 |
|
2017 | 416 |
| | 51 |
|
2018 | 444 |
| | 55 |
|
2019 – 2023 | 2,691 |
| | 336 |
|
| |
(1) | Estimated future benefit payments are net of expected Medicare subsidy receipts of $65 million. |
Assumptions
Actuarial assumptions, such as the discount rate, long-term rate of return on plan assets and the healthcare cost trend rate, have a significant effect on the amounts reported for net periodic benefit cost as well as the related benefit obligations.
Discount Rate — The assumed discount rate for pension and postretirement medical plans reflects the market rates for high-quality corporate bonds currently available. The Company’s discount rate was determined by considering the average of pension yield curves constructed of a large population of high quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves.
Long-term rate of return on plan assets — The long-term rate of return on plan assets represents an estimate of long-term returns on an investment portfolio consisting of a mixture of equities, fixed income and alternative investments. When determining the long-term rate of return on plan assets, the Company considers long-term rates of return on the asset classes (both historical and forecasted) in which the Company expects the pension funds to be invested. The following long-term rates of return by asset class were considered in setting the long-term rate of return on plan assets assumption:
|
| | | | | |
Equity Securities | 9 | % | - | 12 | % |
Debt Securities | 4 | % | - | 7 | % |
Alternative Investments | 6 | % | - | 13 | % |
Healthcare cost trend rate — The Company reviews external data and its own historical trends for healthcare costs to determine the healthcare cost trend rates for the postretirement medical benefit plans. For the 2013 actuarial valuation, we assumed a 7.25% annual rate of increase in the per capita cost of covered healthcare claims with the rate decreasing in even increments over fourteen years until reaching 4.25%.
Sensitivity — A one percentage point (ppt) change in the key assumptions would have had the following effects on the projected benefit obligations for pension and postretirement medical plans as of September 28, 2013 and on cost for fiscal 2014:
|
| | | | | | | | | | | | | | | | | | | |
| Discount Rate | | Expected Long-Term Rate of Return On Assets | | Assumed Healthcare Cost Trend Rate |
Increase/(decrease) | Benefit Expense | | Projected Benefit Obligations | | Benefit Expense | | Net Periodic Postretirement Medical Cost | | Projected Benefit Obligations |
1 ppt decrease | $ | 204 |
| | $ | 1,912 |
| | $ | 90 |
| | $ | (24 | ) | | $ | (171 | ) |
1 ppt increase | (192 | ) | | (1,629 | ) | | (90 | ) | | 34 |
| | 209 |
|
Multiemployer Pension Plans
The Company participates in a number of multiemployer pension plans under union and industry-wide collective bargaining agreements that cover our union-represented employees and expenses its contributions to these plans as incurred. These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods and benefit formulas. The risks of participating in these multiemployer plans are different from single-employer plans. For example:
| |
• | Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. |
| |
• | If a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may become the obligation of the remaining participating employers. |
| |
• | If the Company chooses to stop participating in these multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. |
The Company also participates in several multiemployer health and welfare plans that cover both active and retired employees. Health care benefits are provided to participants who meet certain eligibility requirements under the applicable collective bargaining unit.
The following table sets forth our fiscal year contributions to multiemployer pension and health and welfare benefit plans that were expensed during the fiscal years 2013, 2012 and 2011, respectively:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Pension plans | $ | 97 |
| | $ | 91 |
| | $ | 86 |
|
Health & welfare plans | 147 |
| | 140 |
| | 119 |
|
Total contributions | $ | 244 |
| | $ | 231 |
| | $ | 205 |
|
Defined Contribution Plans
The Company has savings and investment plans that allow eligible employees to allocate up to 50% of their salary through payroll deductions depending on the plan in which the employee participates. The Company matches 50% of the employee’s pre-tax contribution up to plan limits. Effective January 1, 2012, the Company adopted new defined contribution retirement plans for employees who begin service after December 31, 2011 and are not eligible to participate in the defined benefit pension plans. In general, the Company contributes from 3% to 9% of an employee’s compensation depending on the employee’s age and years of service with the Company up to plan limits. In fiscal years 2013, 2012 and 2011, the costs of these plans were $68 million, $63 million and $59 million, respectively.
