Employee Benefit Plans
The Company provides substantially all U.S. employees and employees at certain foreign subsidiaries with retirement benefits including defined benefit pension plans and defined contribution plans. The Company provides eligible U.S. employees who retire under qualifying conditions with access to postretirement health care, at full cost to the retiree (certain employees are “grandfathered” into subsidized coverage while others are provided with Health Care Reimbursement Accounts as described below).
In September 2012, the Company amended its U.S. qualified pension plans and began notifying certain former employees of its offer to pay those employees’ pension benefit in a lump sum. This lump sum payment offer expired in December 2012. Former employees eligible for the voluntary lump sum payment option were generally those who were vested traditional formula participants of the U.S. qualified pension plans who terminated employments prior to August 1, 2012 and who had not started receiving monthly payments of their pension benefits. The voluntary lump sum payments which amounted to $134 million reduced the Company’s global projected benefit obligations by $174 million, resulting in a net improvement of its pension underfunding by $40 million. The Company incurred a non-cash pre-tax charge of $53 million as a result of the requirement to expense the unrealized actuarial losses recognized in accumulated other comprehensive income (loss) pertaining to the liabilities settled at December 31, 2012.
In November 2012, the Company amended its U.S. postretirement benefit plan by providing participants with Health Care Reimbursement Accounts funded by credits, based on years of service, to be used to access post-65 supplemental Medicare insurance markets. The credit indexes annually up to a maximum rate of 3% per year. As a result of this amendment, the Company recognized a prior service credit of $109 million in accumulated other comprehensive income (loss) in the quarter ended December 31, 2012. The prior service credit is being amortized over 8 years starting in 2013.
The Company maintains 401(k) plans covering substantially all U.S. employees. The Company contributes cash to the plans to match qualifying employee contributions, and also provides a non-matching employer contribution of 1% of pay to eligible participants. Under an employee stock ownership component of the 401(k) plans, employees may choose to invest in ADM stock as part of their own investment elections. The employer contributions are expensed when paid. Assets of the Company’s 401(k) plans consist primarily of listed common stocks and pooled funds. The Company’s 401(k) plans held 13 million shares of Company common stock at December 31, 2013, with a market value of $549 million. Cash dividends received on shares of Company common stock by these plans during the year ended ended December 31, 2013 were $10 million.
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
(In millions) | Year Ended December 31 | | Year Ended December 31 |
| 2013 | | 2012 | | 2013 | | 2012 |
| | | (Unaudited) | | | | (Unaudited) |
Retirement plan expense | | | | | | | |
Defined benefit plans: | | | | | | | |
Service cost (benefits earned | | | | | | | |
during the period) | $ | 84 |
| | $ | 79 |
| | $ | 5 |
| | $ | 8 |
|
Interest cost | 114 |
| | 126 |
| | 7 |
| | 12 |
|
Expected return on plan assets | (144 | ) | | (146 | ) | | — |
| | — |
|
Settlement charges | — |
| | 68 |
| | — |
| | — |
|
Remeasurement charge (1) | — |
| | 30 |
| | — |
| | 4 |
|
Amortization of actuarial loss | 74 |
| | 70 |
| | 5 |
| | — |
|
Other amortization expense | 3 |
| | 5 |
| | (18 | ) | | (2 | ) |
Net periodic defined benefit plan expense | 131 |
| | 232 |
| | (1 | ) | | 22 |
|
Defined contribution plans | 44 |
| | 45 |
| | — |
| | — |
|
Total retirement plan expense | $ | 175 |
| | $ | 277 |
| | $ | (1 | ) | | $ | 22 |
|
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
(In millions) | Six Months Ended December 31 | | Six Months Ended December 31 |
| 2012 | | 2011 | | 2012 | | 2011 |
Retirement plan expense | | | | | | | |
Defined benefit plans: | | | | | | | |
Service cost (benefits earned | | | | | | | |
during the period) | $ | 44 |
| | $ | 36 |
| | $ | 4 |
| | $ | 3 |
|
Interest cost | 61 |
| | 65 |
| | 6 |
| | 6 |
|
Expected return on plan assets | (75 | ) | | (70 | ) | | — |
| | — |
|
Settlement charges | 68 |
| | — |
| | — |
| | |
|
Amortization of actuarial loss | 42 |
| | 24 |
| | — |
| | — |
|
Other amortization | 2 |
| | 2 |
| | — |
| | — |
|
Net periodic defined benefit plan expense | 142 |
| | 57 |
| | 10 |
| | 9 |
|
Defined contribution plans | 23 |
| | 23 |
| | — |
| | — |
|
Total retirement plan expense | $ | 165 |
| | $ | 80 |
| | $ | 10 |
| | $ | 9 |
|
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
(In millions) | Year Ended June 30 | | Year Ended June 30 |
| 2012 | | 2011 | | 2012 | | 2011 |
Retirement plan expense | | | | | | | |
Defined benefit plans: | | | | | | | |
Service cost (benefits earned | | | | | | | |
during the period) | $ | 71 |
| | $ | 71 |
| | $ | 7 |
| | $ | 8 |
|
Interest cost | 130 |
| | 120 |
| | 12 |
| | 13 |
|
Expected return on plan assets | (141 | ) | | (132 | ) | | — |
| | — |
|
Remeasurement charge(1) | 30 |
| | — |
| | 4 |
| | — |
|
Amortization of actuarial loss | 52 |
| | 59 |
| | — |
| | — |
|
Other amortization | 5 |
| | 5 |
| | (2 | ) | | (1 | ) |
Net periodic defined benefit plan expense | 147 |
| | 123 |
| | 21 |
| | 20 |
|
Defined contribution plans | 45 |
| | 43 |
| | — |
| | — |
|
Total retirement plan expense | $ | 192 |
| | $ | 166 |
| | $ | 21 |
| | $ | 20 |
|
(1) See Note 19
Prior to December 31, 2012, the Company used a June 30 measurement date for all defined benefit plans. As a result of the change in fiscal year end (see Note 1), the Company changed its measurement date for all defined benefit plans to December 31 effective in the transition period ended December 31, 2012. The following tables set forth changes in the defined benefit obligation and the fair value of defined benefit plan assets for the year ended December 31, 2013 and the six months ended December 31, 2012:
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| December 31
2013 | | December 31
2012 | | December 31
2013 | | December 31
2012 |
| (In millions) | | (In millions) |
Benefit obligation, beginning | $ | 2,954 |
| | $ | 3,095 |
| | $ | 208 |
| | $ | 305 |
|
Service cost | 84 |
| | 44 |
| | 5 |
| | 4 |
|
Interest cost | 114 |
| | 61 |
| | 7 |
| | 6 |
|
Actuarial loss (gain) | (236 | ) | | (4 | ) | | (34 | ) | | 7 |
|
Employee contributions | 2 |
| | 1 |
| | — |
| | — |
|
Curtailments | — |
| | (12 | ) | | — |
| | — |
|
Settlements | — |
| | (204 | ) | | — |
| | — |
|
Benefits paid | (119 | ) | | (53 | ) | | (12 | ) | | (5 | ) |
Plan amendments | (1 | ) | | — |
| | — |
| | (109 | ) |
Actual expenses | (2 | ) | | (1 | ) | | — |
| | — |
|
Foreign currency effects | 18 |
| | 27 |
| | — |
| | — |
|
Benefit obligation, ending | $ | 2,814 |
| | $ | 2,954 |
| | $ | 174 |
| | $ | 208 |
|
| | | | | | | |
Fair value of plan assets, beginning | $ | 2,174 |
| | $ | 2,236 |
| | $ | — |
| | $ | — |
|
Actual return on plan assets | 222 |
| | 161 |
| | — |
| | — |
|
Employer contributions | 50 |
| | 31 |
| | 12 |
| | 5 |
|
Employee contributions | 2 |
| | 1 |
| | — |
| | — |
|
Settlements | — |
| | (224 | ) | | — |
| | — |
|
Benefits paid | (119 | ) | | (53 | ) | | (12 | ) | | (5 | ) |
Actual expenses | (2 | ) | | (1 | ) | | — |
| | — |
|
Foreign currency effects | 14 |
| | 23 |
| | — |
| | — |
|
Fair value of plan assets, ending | $ | 2,341 |
| | $ | 2,174 |
| | $ | — |
| | $ | — |
|
| | | | | | | |
Funded status | $ | (473 | ) | | $ | (780 | ) | | $ | (174 | ) | | $ | (208 | ) |
| | | | | | | |
Prepaid benefit cost | $ | 63 |
| | $ | 52 |
| | $ | — |
| | $ | — |
|
Accrued benefit liability – current | (15 | ) | | (14 | ) | | (11 | ) | | (13 | ) |
Accrued benefit liability – long-term | (521 | ) | | (818 | ) | | (163 | ) | | (195 | ) |
Net amount recognized in the balance sheet | $ | (473 | ) | | $ | (780 | ) | | $ | (174 | ) | | $ | (208 | ) |
Included in accumulated other comprehensive income for pension benefits at December 31, 2013, are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized transition obligation of $1 million, unrecognized prior service cost of $6 million, and unrecognized actuarial loss of $589 million. The prior service cost and actuarial loss included in accumulated other comprehensive income expected to be recognized in net periodic pension cost during 2014 is $3 million and $35 million, respectively.
Included in accumulated other comprehensive income for postretirement benefits at December 31, 2013, are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized prior service credit of $106 million and unrecognized actuarial loss of $28 million. Prior service credit of $18 million and actuarial loss of $1 million included in accumulated other comprehensive income are expected to be recognized in net periodic benefit cost during 2014.
The following table sets forth the principal assumptions used in developing net periodic pension cost:
|
| | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| December 31
2013 | | December 31
2012 | | December 31
2013 | | December 31
2012 |
Discount rate | 3.9% | | 4.0% | | 3.6% | | 4.0% |
Expected return on plan assets | 7.0% | | 7.0% | | N/A | | N/A |
Rate of compensation increase | 3.9% | | 3.9% | | N/A | | N/A |
The following table sets forth the principal assumptions used in developing the year-end actuarial present value of the projected benefit obligations:
|
| | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| December 31
2013 | | December 31
2012 | | December 31
2013 | | December 31
2012 |
Discount rate | 4.6 | % | | 3.9 | % | | 4.4% | | 3.6% |
Rate of compensation increase | 3.9 | % | | 3.9 | % | | N/A | | N/A |
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets were $2.2 billion, $2.0 billion, and $1.6 billion, respectively as of December 31, 2013, and $2.4 billion, $2.2 billion, and $1.6 billion, respectively, as of December 31, 2012. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $2.1 billion, $1.9 billion, and $1.6 billion, respectively, as of December 31, 2013 and $2.4 billion, $2.2 billion, and $1.6 billion, respectively, as of December 31, 2012. The accumulated benefit obligation for all pension plans as of December 31, 2013 and 2012, was $2.6 billion and $2.7 billion, respectively.
For postretirement benefit measurement purposes, a 7% annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended December 31, 2013. The rate was assumed to decrease gradually to 5% by 2022 and remain at that level thereafter. The credits used to fund certain retirees with Health Reimbursement Accounts are indexed up to a maximum of 3% per year.
A 1% change in assumed health care cost trend rates would have the following effects:
|
| | | | | | | |
| 1% Increase | | 1% Decrease |
| (In millions) |
Effect on combined service and interest cost components | $ | — |
| | $ | — |
|
Effect on accumulated postretirement benefit obligations | $ | 4 |
| | $ | (4 | ) |
Plan Assets
The Company’s employee benefit plan assets are principally comprised of the following types of investments:
Common stock:
Equity securities are valued based on quoted exchange prices and are classified within Level 1 of the valuation hierarchy.
Mutual funds:
Mutual funds are valued at the closing price reported on the active market on which they are traded and are classified within Level 1 of the valuation hierarchy.
Common collective trust (CCT) funds:
The fair values of the CCTs are based on the cumulative net asset value (NAV) of their underlying investments. The investments in CCTs are comprised of international equity funds, a small cap U.S. equity fund, large cap U.S. equity funds, fixed income funds, and other funds. The fund units are valued at NAV based on the closing market value of the units bought or sold as of the valuation date and are classified in Level 2 of the fair value hierarchy. The CCTs seek primarily to provide investment results approximating the aggregate price, dividend performance, total return, and income stream of underlying investments of the funds. Issuances and redemptions of certain of the CCT investments may be restricted by date and/or amount.
Corporate debt instruments:
Corporate debt instruments are valued at the closing price reported on the active market on which they are traded and are classified within Level 2 of the valuation hierarchy.
U.S. Treasury instruments:
U.S. Treasury instruments are valued at the closing price reported on the active market on which they are traded and are classified within Level 1 of the valuation hierarchy.
U.S. government agency, state, and local government bonds:
U.S. government agency obligations and state and municipal debt securities are valued using third-party pricing services and are classified within Level 2 of the valuation hierarchy.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants’ methods, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following tables set forth, by level within the fair value hierarchy, the fair value of plan assets as of December 31, 2013 and 2012.
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2013 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| (In millions) |
Common stock | | | | | | | |
U.S. companies | $ | 221 |
| | $ | — |
| | $ | — |
| | $ | 221 |
|
International companies | 2 |
| | — |
| | — |
| | 2 |
|
Equity mutual funds | |
| | |
| | |
| | |
|
Emerging markets | 75 |
| | — |
| | — |
| | 75 |
|
International | 111 |
| | — |
| | — |
| | 111 |
|
Large cap U.S. | 419 |
| | — |
| | — |
| | 419 |
|
Common collective trust funds | |
| | |
| | |
| | |
|
International equity | — |
| | 373 |
| | — |
| | 373 |
|
Large cap U.S. equity | — |
| | 51 |
| | — |
| | 51 |
|
Fixed income | — |
| | 437 |
| | — |
| | 437 |
|
Other | — |
| | 62 |
| | — |
| | 62 |
|
Debt instruments | |
| | |
| | |
| | |
|
Corporate bonds | — |
| | 422 |
| | — |
| | 422 |
|
U.S. Treasury instruments | 134 |
| | — |
| | — |
| | 134 |
|
U.S. government agency, state and local government bonds | — |
| | 32 |
| | — |
| | 32 |
|
Other | — |
| | 2 |
| | — |
| | 2 |
|
Total assets at fair value | $ | 962 |
| | $ | 1,379 |
| | $ | — |
| | $ | 2,341 |
|
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2012 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| (In millions) |
Common stock | | | | | | | |
U.S. companies | $ | 182 |
| | $ | — |
| | $ | — |
| | $ | 182 |
|
International companies | 1 |
| | — |
| | — |
| | 1 |
|
Equity mutual funds | |
| | |
| | |
| | |
|
Emerging markets | 81 |
| | — |
| | — |
| | 81 |
|
International | 110 |
| | — |
| | — |
| | 110 |
|
Large cap U.S. | 386 |
| | — |
| | — |
| | 386 |
|
Other | 1 |
| | — |
| | — |
| | 1 |
|
Common collective trust funds | |
| | |
| | |
| | |
|
International equity | — |
| | 406 |
| | — |
| | 406 |
|
Large cap U.S. equity | — |
| | 17 |
| | — |
| | 17 |
|
Fixed income | — |
| | 373 |
| | — |
| | 373 |
|
Other | — |
| | 47 |
| | — |
| | 47 |
|
Debt instruments | |
| | |
| | |
| | |
|
Corporate bonds | — |
| | 437 |
| | — |
| | 437 |
|
U.S. Treasury instruments | 90 |
| | — |
| | — |
| | 90 |
|
U.S. government agency, state and local government bonds | — |
| | 39 |
| | — |
| | 39 |
|
Other | — |
| | 4 |
| | — |
| | 4 |
|
Total assets at fair value | $ | 851 |
| | $ | 1,323 |
| | $ | — |
| | $ | 2,174 |
|
Level 3 Gains and Losses:
There are no Plan assets classified as Level 3 in the fair value hierarchy; therefore there are no gains or losses associated with Level 3 assets.
The following table sets forth the actual asset allocation for the Company’s global pension plan assets as of the measurement date:
|
| | | |
| December 31 2013(1)(2) | | December 31 2012(2) |
| | | |
Equity securities | 54% | | 52% |
Debt securities | 45% | | 47% |
Other | 1% | | 1% |
Total | 100% | | 100% |
| |
(1) | The Company’s U.S. pension plans contain approximately 67% of the Company’s global pension plan assets. The actual asset allocation for the Company’s U.S. pension plans as of the measurement date consists of 60% equity securities and 40% debt securities. The target asset allocation for the Company’s U.S. pension plans is approximately the same as the actual asset allocation. The actual asset allocation for the Company’s foreign pension plans as of the measurement date consists of 41% equity securities, 56% debt securities, and 3% in other investments. The target asset allocation for the Company’s foreign pension plans is approximately the same as the actual asset allocation. |
| |
(2) | The Company’s pension plans did not hold any shares of Company common stock as of the December 31, 2013 and 2012 measurement dates. |
Investment objectives for the Company’s plan assets are to:
| |
• | Optimize the long-term return on plan assets at an acceptable level of risk. |
| |
• | Maintain a broad diversification across asset classes and among investment managers. |
| |
• | Maintain careful control of the risk level within each asset class. |
Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the pension plans. Selection of the targeted asset allocation for plan assets was based upon a review of the expected return and risk characteristics of each asset class, as well as the correlation of returns among asset classes. The U.S. pension plans target asset allocation is also based on an asset and liability study that is updated periodically.
Investment guidelines are established with each investment manager. These guidelines provide the parameters within which the investment managers agree to operate, including criteria that determine eligible and ineligible securities, diversification requirements, and credit quality standards, where applicable. In some countries, derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of underlying investments.
The Company uses external consultants to assist in monitoring the investment strategy and asset mix for the Company’s plan assets. To develop the Company’s expected long-term rate of return assumption on plan assets, the Company generally uses long-term historical return information for the targeted asset mix identified in asset and liability studies. Adjustments are made to the expected long-term rate of return assumption when deemed necessary based upon revised expectations of future investment performance of the overall investment markets.
Contributions and Expected Future Benefit Payments
Based on actuarial calculations, the Company expects to contribute $41 million to the pension plans and $11 million to the postretirement benefit plan during 2014. The Company may elect to make additional discretionary contributions during this period.
The following benefit payments, which reflect expected future service, are expected to be paid by the benefit plans:
|
| | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| (In millions) |
| | | |
2014 | $ | 117 |
| | $ | 11 |
|
2015 | 121 |
| | 11 |
|
2016 | 125 |
| | 11 |
|
2017 | 130 |
| | 11 |
|
2018 | 136 |
| | 12 |
|
2019 – 2023 | 776 |
| | 64 |
|
