Annual report pursuant to Section 13 and 15(d)

COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS

v2.4.0.8
COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
12 Months Ended
Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]  
COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
We sponsor various retirement and pension plans, including defined benefit and defined contribution plans which cover our employees worldwide.
U.S. Pension Benefits
In the U.S. we maintain the following single-employer defined benefit pension plans: UPS Retirement Plan, UPS Pension Plan, UPS IBT Pension Plan and the UPS Excess Coordinating Benefit Plan, a non-qualified plan.
The UPS Retirement Plan is noncontributory and includes substantially all eligible employees of participating domestic subsidiaries who are not members of a collective bargaining unit, as well as certain employees covered by a collective bargaining agreement. This plan generally provides for retirement benefits based on average compensation levels earned by employees prior to retirement. Benefits payable under this plan are subject to maximum compensation limits and the annual benefit limits for a tax qualified defined benefit plan as prescribed by the Internal Revenue Service (“IRS”).
The UPS Excess Coordinating Benefit Plan is a non-qualified plan that provides benefits to certain participants in the UPS Retirement Plan for amounts that exceed the benefit limits described above.
The UPS Pension Plan is noncontributory and includes certain eligible employees of participating domestic subsidiaries and members of collective bargaining units that elect to participate in the plan. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement.
The UPS IBT Pension Plan is noncontributory and includes employees that were previously members of the Central States, Southeast and Southwest Areas Pension Fund (“Central States Pension Fund”), a multiemployer pension plan, in addition to other eligible employees who are covered under certain collective bargaining agreements. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement.

U.S. Postretirement Medical Benefits
We also sponsor postretirement medical plans in the U.S. that provide health care benefits to our retirees who meet certain eligibility requirements and who are not otherwise covered by multiemployer plans. Generally, this includes employees with at least 10 years of service who have reached age 55 and employees who are eligible for postretirement medical benefits from a Company-sponsored plan pursuant to collective bargaining agreements. We have the right to modify or terminate certain of these plans. These benefits have been provided to certain retirees on a noncontributory basis; however, in many cases, retirees are required to contribute all or a portion of the total cost of the coverage.
International Pension Benefits
We also sponsor various defined benefit plans covering certain of our international employees. The majority of our international obligations are for defined benefit plans in Canada and the United Kingdom. In addition, many of our international employees are covered by government-sponsored retirement and pension plans. We are not directly responsible for providing benefits to participants of government-sponsored plans.
Defined Contribution Plans
We also sponsor several defined contribution plans for all employees not covered under collective bargaining agreements, and for certain employees covered under collective bargaining agreements. The Company matches, in shares of UPS common stock or cash, a portion of the participating employees’ contributions. Matching contributions charged to expense were $90, $83 and $80 million for 2013, 2012 and 2011, respectively.
Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged to expense were $80, $80 and $76 million for 2013, 2012 and 2011, respectively.
Net Periodic Benefit Cost
Information about net periodic benefit cost for the company-sponsored pension and postretirement benefit plans is as follows (in millions):
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension Benefits
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Net Periodic Cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
1,349

 
$
998

 
$
870

 
$
103

 
$
89

 
$
89

 
$
47

 
$
41

 
$
34

Interest cost
1,449

 
1,410

 
1,309

 
185

 
208

 
207

 
44

 
41

 
39

Expected return on assets
(2,147
)
 
(1,970
)
 
(1,835
)
 
(33
)
 
(18
)
 
(16
)
 
(55
)
 
(47
)
 
(43
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transition obligation

 

 

 

 

 

 

 

 

Prior service cost
172

 
173

 
171

 
4

 
5

 
7

 
2

 
2

 
1

Actuarial (gain) loss

 
4,388

 
736

 

 
374

 

 

 
69

 
91

Other

 

 

 

 

 

 
(5
)
 
(10
)
 

Net periodic benefit cost
$
823

 
$
4,999

 
$
1,251

 
$
259

 
$
658

 
$
287

 
$
33

 
$
96

 
$
122



Actuarial Assumptions
The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost.
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension Benefits
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Discount rate
4.42
%
 
5.64
%
 
5.98
%
 
4.21
%
 
5.47
%
 
5.77
%
 
4.00
%
 
4.63
%
 
5.36
%
Rate of compensation increase
4.16
%
 
4.50
%
 
4.50
%
 
N/A

 
N/A

 
N/A

 
3.03
%
 
3.58
%
 
3.57
%
Expected return on assets
8.75
%
 
8.75
%
 
8.75
%
 
8.75
%
 
8.75
%
 
8.75
%
 
6.90
%
 
7.20
%
 
7.31
%

The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our plans.
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension Benefits
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Discount rate
5.32
%
 
4.42
%
 
5.14
%
 
4.21
%
 
4.40
%
 
4.00
%
Rate of compensation increase
4.29
%
 
4.16
%
 
N/A

 
N/A

 
3.30
%
 
3.03
%

A discount rate is used to determine the present value of our future benefit obligations. To determine our discount rate for our U.S. pension and postretirement benefit plans, we use a bond matching approach to select specific bonds that would satisfy our projected benefit payments. We believe the bond matching approach reflects the process we would employ to settle our pension and postretirement benefit obligations. For our international plans, the discount rate is determined by matching the expected cash flows of a sample plan of similar duration to a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date. These assumptions are updated each measurement date, which is typically annually.
As of December 31, 2013, the impact of each basis point change in the discount rate on the projected benefit obligation of the pension and postretirement medical benefit plans are as follows (in millions):
 
Increase (Decrease) in the Projected Benefit Obligation
 
Pension Benefits
 
Postretirement Medical Benefits
One basis point increase in discount rate
$
(46
)
 
$
(4
)
One basis point decrease in discount rate
$
49

 
$
4


An assumption for expected return on plan assets is used to determine a component of net periodic benefit cost for the fiscal year. This assumption for our U.S. plans was developed using a long-term projection of returns for each asset class, and taking into consideration our target asset allocation. The expected return for each asset class is a function of passive, long-term capital market assumptions and excess returns generated from active management. The capital market assumptions used are provided by independent investment advisors, while excess return assumptions are supported by historical performance, fund mandates and investment expectations. In addition, we compare the expected return on asset assumption with the average historical rate of return these plans have been able to generate.
For plans outside the U.S., consideration is given to local market expectations of long-term returns. Strategic asset allocations are determined by plan, based on the nature of liabilities and considering the demographic composition of the plan participants.
Health care cost trends are used to project future postretirement benefits payable from our plans. For year-end 2013 U.S. plan obligations, future postretirement medical benefit costs were forecasted assuming an initial annual increase of 7.0%, decreasing to 5.0% by the year 2018 and with consistent annual increases at those ultimate levels thereafter.

Assumed health care cost trends can have a significant effect on the amounts reported for our postretirement medical plans. A one-percent change in assumed health care cost trend rates would have had the following effects on 2013 results (in millions):
 
1% Increase
 
1% Decrease
Effect on total of service cost and interest cost
$
3

 
$
(3
)
Effect on postretirement benefit obligation
$
50

 
$
(64
)



Funded Status
The following table discloses the funded status of our plans and the amounts recognized in our balance sheet as of December 31 (in millions):
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension
 Benefits
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Funded Status:
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets
$
26,224

 
$
24,941

 
$
355

 
$
460

 
$
931

 
$
801

Benefit obligation
(29,508
)
 
(31,868
)
 
(4,046
)
 
(4,412
)
 
(1,076
)
 
(1,089
)
Funded status recognized at December 31
$
(3,284
)
 
$
(6,927
)
 
$
(3,691
)
 
$
(3,952
)
 
$
(145
)
 
$
(288
)
Funded Status Amounts Recognized in our Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Other non-current assets
$

 
$

 
$

 
$

 
$
47

 
$
26

Other current liabilities
(16
)
 
(14
)
 
(97
)
 
(108
)
 
(3
)
 
(3
)
Pension and postretirement benefit obligations
(3,268
)
 
(6,913
)
 
(3,594
)
 
(3,844
)
 
(189
)
 
(311
)
Net liability at December 31
$
(3,284
)
 
$
(6,927
)
 
$
(3,691
)
 
$
(3,952
)
 
$
(145
)
 
$
(288
)
Amounts Recognized in AOCI:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized net prior service cost
$
(1,286
)
 
$
(1,318
)
 
$
(79
)
 
$
(79
)
 
$
(9
)
 
$
(13
)
Unrecognized net actuarial gain (loss)
1,233

 
(3,187
)
 
(29
)
 
(441
)
 
(7
)
 
(86
)
Gross unrecognized cost at December 31
(53
)
 
(4,505
)
 
(108
)
 
(520
)
 
(16
)
 
(99
)
Deferred tax asset at December 31
20

 
1,694

 
41

 
196

 
2

 
26

Net unrecognized cost at December 31
$
(33
)
 
$
(2,811
)
 
$
(67
)
 
$
(324
)
 
$
(14
)
 
$
(73
)

The accumulated benefit obligation for our pension plans as of the measurement dates in 2013 and 2012 was $28.586 and $30.350 billion, respectively.
Benefit payments under the pension plans include $16 million paid from employer assets in both 2013 and 2012. Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $108 and $110 million paid from employer assets in 2013 and 2012, respectively. Such benefit payments from employer assets are also categorized as employer contributions.
At December 31, 2013 and 2012, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets for pension plans with benefit obligations in excess of plan assets were as follows (in millions):
 
Projected Benefit Obligation
Exceeds the Fair Value of  Plan
Assets
 
Accumulated Benefit Obligation
Exceeds the Fair Value of  Plan
Assets
2013
 
2012
 
2013
 
2012
U.S. Pension Benefits
 
 
 
 
 
 
 
Projected benefit obligation
$
29,508

 
$
31,868

 
$
29,508

 
$
31,868

Accumulated benefit obligation
27,623

 
29,382

 
27,623

 
29,382

Fair value of plan assets
26,224

 
24,941

 
26,224

 
24,941

International Pension Benefits
 
 
 
 
 
 
 
Projected benefit obligation
$
764

 
$
1,028

 
$
361

 
$
678

Accumulated benefit obligation
658

 
917

 
301

 
606

Fair value of plan assets
580

 
723

 
184

 
388


The accumulated postretirement benefit obligation exceeds plan assets for all of our U.S. postretirement medical benefit plans.

Benefit Obligations and Fair Value of Plan Assets
The following table provides a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets as of the respective measurement dates in each year (in millions).
 
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension
Benefits
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Benefit Obligations:
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
$
31,868

 
$
24,386

 
$
4,412

 
$
3,836

 
$
1,089

 
$
841

Service cost
1,349

 
998

 
103

 
89

 
47

 
41

Interest cost
1,449

 
1,410

 
185

 
208

 
44

 
41

Gross benefits paid
(813
)
 
(774
)
 
(258
)
 
(233
)
 
(21
)
 
(20
)
Plan participants’ contributions

 

 
17

 
16

 
4

 
4

Plan amendments
140

 
(2
)
 
4

 
1

 

 

Actuarial (gain)/loss
(4,485
)
 
5,850

 
(417
)
 
495

 
(55
)
 
112

Foreign currency exchange rate changes

 

 

 

 
(26
)
 
24

Curtailments and settlements

 

 

 

 
(6
)
 
(5
)
Other

 

 

 

 

 
51

Projected benefit obligation at end of year
$
29,508

 
$
31,868

 
$
4,046

 
$
4,412

 
$
1,076

 
$
1,089

 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension
Benefits
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Fair Value of Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
24,941

 
$
22,663

 
$
460

 
$
174

 
$
801

 
$
613

Actual return on plan assets
2,082

 
2,684

 
28

 
19

 
81

 
56

Employer contributions
14

 
368

 
108

 
475

 
90

 
74

Plan participants’ contributions

 

 
17

 
16

 
1

 
1

Gross benefits paid
(813
)
 
(774
)
 
(258
)
 
(233
)
 
(21
)
 
(20
)
Foreign currency exchange rate changes

 

 

 

 
(20
)
 
20

Curtailments and settlements

 

 

 

 
(1
)
 
(4
)
Other

 

 

 
9

 

 
61

Fair value of plan assets at end of year
$
26,224

 
$
24,941

 
$
355

 
$
460

 
$
931

 
$
801


Pension and Postretirement Plan Assets
The applicable benefit plan committees establish investment guidelines and strategies, and regularly monitor the performance of the funds and portfolio managers. Our investment guidelines address the following items: governance, general investment beliefs and principles, investment objectives, specific investment goals, process for determining/maintaining the asset allocation policy, long-term asset allocation, rebalancing, investment restrictions/prohibited transactions, portfolio manager structure and diversification (which addresses limits on the amount of investments held by any one manager to minimize risk), portfolio manager selection criteria, plan evaluation, portfolio manager performance review and evaluation and risk management (including various measures used to evaluate risk tolerance).
Our investment strategy with respect to pension assets is to invest the assets in accordance with applicable laws and regulations. The long-term primary objectives for our pension assets are to: (1) provide for a reasonable amount of long-term growth of capital, with prudent exposure to risk; and protect the assets from erosion of purchasing power; (2) provide investment results that meet or exceed the plans’ expected long-term rate of return; and (3) match the duration of the liabilities and assets of the plans to reduce the potential risk of large employer contributions being necessary in the future. The plans strive to meet these objectives by employing portfolio managers to actively manage assets within the guidelines and strategies set forth by the benefit plan committees. These managers are evaluated by comparing their performance to applicable benchmarks.
Fair Value Measurements
Pension assets utilizing Level 1 inputs include fair values of equity investments, corporate debt instruments, and U.S. government securities that were determined by closing prices for those securities traded on national stock exchanges, while securities traded in the over-the-counter market and listed securities for which no sale was reported on the valuation date are valued at the mean between the last reported bid and asked prices.
Level 2 assets include certain bonds that are valued based on yields currently available on comparable securities of other issues with similar credit ratings, mortgage-backed securities that are valued based on cash flow and yield models using acceptable modeling and pricing conventions, and certain investments that are pooled with other investments held by the trustee in a commingled employee benefit trust fund. The investments in the commingled funds are valued by taking the percentage owned by the respective plan in the underlying net asset value of the trust fund, which was determined in accordance with the paragraph above.
Certain investments’ estimated fair value is based on unobservable inputs that are not corroborated by observable market data and are thus classified as Level 3. These investments include commingled funds comprised of corporate and government bonds, hedge funds, real estate investments and private equity funds. The fair values may, due to the inherent uncertainty of valuation for those alternative investments, differ significantly from the values that would have been used had a ready market for the alternative investments existed, and the differences could be material. These investments are described further below:
Commingled Stock Funds: We maintain plan assets invested in commingled stock funds, which hold U.S. and international public market securities. These commingled funds are valued using net asset values, adjusted, as appropriate, for investment fund specific inputs determined to be significant to the valuation. Our plans maintain the right to liquidate positions in these commingled stock funds at any time, subject only to a brief notification period. No unfunded commitments existed with respect to these commingled stock funds at December 31, 2013.
Hedge Funds: We maintain plan assets invested in hedge funds that pursue multiple strategies to diversify risk and reduce volatility. Investments in hedge funds are valued using reported net asset values as of December 31. These assets are primarily invested in a portfolio of diversified, direct investments and funds of hedge funds. Most of these funds allow redemptions either quarterly or semi-annually after a two to three month notice period, while other funds allow for redemption after only a brief notification period with no restriction on redemption frequency. No unfunded commitments existed with respect to these hedge funds as of December 31, 2013.
Real Estate and Private Equity Funds: We maintain plan assets invested in limited partnership interests in various private equity and real estate funds. These private equity and real estate investment funds are valued using fair values per the most recent partnership audited financial reports, adjusted as appropriate for any lag between the date of the financial reports and December 31. The real estate investments consist of U.S. and non-U.S. real estate investments and are broadly diversified. Limited provision exists for the redemption of these interests by the general partners that invest in these funds until the end of the term of the partnerships, typically ranging between 12 and 18 years from the date of inception. An active secondary market exists for similar partnership interests, although no particular value (discount or premium) can be guaranteed. At December 31, 2013, unfunded commitments to such limited partnerships totaling approximately $858 million are expected to be contributed over the remaining investment period, typically ranging between three and six years.



The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2013 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations.
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
Percentage of
Plan Assets -
2013
 
Target
Allocation
2013
Asset Category (U.S. Plans):
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
112

 
$
514

 
$

 
$
626

 
2.3
%
 
0-5
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Large Cap
2,264

 
1,948

 

 
4,212

 
 
 
 
U.S. Small Cap
457

 
50

 

 
507

 
 
 
 
Emerging Markets
1,247

 
120

 

 
1,367

 
 
 
 
Global Equity
2,154

 

 

 
2,154

 
 
 
 
International Equity
1,397

 
825

 

 
2,222

 
 
 
 
Total Equity Securities
7,519

 
2,943

 

 
10,462

 
39.4

 
25-55
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government Securities
3,746

 
615

 

 
4,361

 
 
 
 
Corporate Bonds
7

 
2,550

 
223

 
2,780

 
 
 
 
Global Bonds

 
681

 

 
681

 
 
 
 
Municipal Bonds

 
55

 

 
55

 
 
 
 
Total Fixed Income Securities
3,753

 
3,901

 
223

 
7,877

 
29.6

 
15-35
Other Investments:
 
 
 
 
 
 
 
 
 
 
 
Hedge Funds

 

 
3,738

 
3,738

 
14.1

 
8-15
Private Equity

 

 
1,397

 
1,397

 
5.3

 
3-10
Real Estate
285

 
21

 
1,091

 
1,397

 
5.3

 
3-10
Structured Products(1)

 
326

 

 
326

 
1.2

 
0-5
Other(2)

 

 
756

 
756

 
2.8

 
1-10
Total U.S. Plan Assets
$
11,669

 
$
7,705

 
$
7,205

 
$
26,579

 
100.0
%
 
 
Asset Category (International Plans):
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
11

 
$
17

 
$

 
28

 
3.0

 
0-5
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
Local Markets Equity
122

 
97

 

 
219

 
 
 
 
U.S. Equity
17

 

 

 
17

 
 
 
 
Emerging Markets
19

 

 

 
19

 
 
 
 
International / Global Equity
88

 
79

 

 
167

 
 
 
 
Total Equity Securities
246

 
176

 

 
422

 
45.3

 
50-65
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
Local Government Bonds
68

 

 

 
68

 
 
 
 
Corporate Bonds
86

 
85

 

 
171

 
 
 
 
Total Fixed Income Securities
154

 
85

 

 
239

 
25.7

 
15-35
Other Investments:
 
 
 
 
 
 
 
 
 
 
 
Real Estate

 
63

 

 
63

 
6.8

 
0-17
Structured Products(1)

 

 
55

 
55

 
5.9

 
0-10
Other

 
124

 

 
124

 
13.3

 
0-20
Total International Plan Assets
$
411

 
$
465

 
$
55

 
$
931

 
100.0
%
 
 
Total Plan Assets
$
12,080

 
$
8,170

 
$
7,260

 
$
27,510

 
 
 
 
(1) Represents mortgage and asset-backed securities.
(2) Represents global balanced-risk commingled funds, consisting primarily of equity, bonds, and some currencies and commodities.

The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2012 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations. This table has been revised from our 2012 Form 10-K filing to include international plan assets in conformity with the 2013 presentation of international plan assets.
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
Percentage of
Plan Assets -
2012
 
Target
Allocation
2012
Asset Category (U.S. Plans):
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
103

 
$
139

 
$

 
$
242

 
0.9
%
 
0-5
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Large Cap
2,548

 
2,162

 

 
4,710

 
 
 
 
U.S. Small Cap
450

 
31

 

 
481

 
 
 
 
Emerging Markets
1,160

 
123

 

 
1,283

 
 
 
 
Global Equity
2,242

 

 

 
2,242

 
 
 
 
International Equity
442

 
694

 

 
1,136

 
 
 
 
Total Equity Securities
6,842

 
3,010

 

 
9,852

 
38.8

 
35-55
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government Securities
4,008

 
443

 

 
4,451

 
 
 
 
Corporate Bonds
9

 
3,113

 
138

 
3,260

 
 
 
 
Global Bonds

 
457

 

 
457

 
 
 
 
Municipal Bonds

 
83

 

 
83

 
 
 
 
Total Fixed Income Securities
4,017

 
4,096

 
138

 
8,251

 
32.5

 
25-35
Other Investments:
 
 
 
 
 
 
 
 
 
 
 
Hedge Funds

 

 
2,829

 
2,829

 
11.1

 
5-15
Private Equity

 

 
1,416

 
1,416

 
5.6

 
1-10
Real Estate
177

 
23

 
1,039

 
1,239

 
4.9

 
1-10
Structured Products(1)

 
210

 

 
210

 
0.8

 
0-5
Other(2)

 

 
1,362

 
1,362

 
5.4

 
1-10
Total U.S. Plan Assets
$
11,139

 
$
7,478

 
$
6,784

 
$
25,401

 
100.0
%
 
 
Asset Category (International Plans):
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
5

 
$
17

 
$

 
22

 
2.8

 
0-5
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
Local Markets Equity
118

 
79

 

 
197

 
 
 
 
U.S. Equity
14

 

 

 
14

 
 
 
 
International / Global Equity
71

 
59

 

 
130

 
 
 
 
Total Equity Securities
203

 
138

 

 
341

 
42.6

 
50-65
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
Local Government Bonds
64

 

 

 
64

 
 
 
 
Corporate Bonds
85

 
70

 

 
155

 
 
 
 
Total Fixed Income Securities
149

 
70

 

 
219

 
27.3

 
15-35
Other Investments:
 
 
 
 
 
 
 
 
 
 
 
Real Estate

 
46

 

 
46

 
5.7

 
0-17
Structured Products(1)

 

 
49

 
49

 
6.1

 
0-10
Other

 
124

 

 
124

 
15.5

 
0-20
Total International Plan Assets
$
357

 
$
395

 
$
49

 
$
801

 
100.0
%
 
 
Total Plan Assets
$
11,496

 
$
7,873

 
$
6,833

 
$
26,202

 
 
 
 

(1) Represents mortgage and asset-backed securities.
(2) Represents global balanced-risk commingled funds, consisting primarily of equity, bonds, and some currencies and commodities.
The following table presents the changes in the Level 3 instruments measured on a recurring basis for the years ended December 31, 2013 and 2012 (in millions). The information presented for 2012 has been revised to include international plan assets in conformity with the 2013 presentation of international plan assets.
 
Corporate
Bonds
 
Hedge
Funds
 
Real
Estate
 
Private
Equity
 
Other
 
Total
Balance on January 1, 2012
$
80

 
$
2,132

 
$
948

 
$
1,354

 
$
644

 
$
5,158

Actual Return on Assets:
 
 
 
 
 
 
 
 
 
 
 
Assets Held at End of Year
1

 
59

 
85

 
163

 
159

 
467

Assets Sold During the Year
(3
)
 
5

 
4

 

 

 
6

Purchases
71

 
1,300

 
144

 
184

 
608

 
2,307

Sales
(11
)
 
(667
)
 
(142
)
 
(285
)
 

 
(1,105
)
Settlements

 

 

 

 

 

Transfers Into (Out of) Level 3

 

 

 

 

 

Balance on December 31, 2012
$
138

 
$
2,829

 
$
1,039

 
$
1,416

 
$
1,411

 
$
6,833

Actual Return on Assets:
 
 
 
 
 
 
 
 
 
 
 
Assets Held at End of Year
(1
)
 
229

 
81

 
71

 
(93
)
 
287

Assets Sold During the Year

 
5

 
54

 
153

 
54

 
266

Purchases
165

 
1,676

 
145

 
143

 
1

 
2,130

Sales
(79
)
 
(1,001
)
 
(228
)
 
(386
)
 
(562
)
 
(2,256
)
Settlements

 

 

 

 

 

Transfers Into (Out of) Level 3

 

 

 

 

 

Balance on December 31, 2013
$
223

 
$
3,738

 
$
1,091

 
$
1,397

 
$
811

 
$
7,260


There were no UPS class A or B shares of common stock directly held in plan assets as of December 31, 2013 or December 31, 2012.
Accumulated Other Comprehensive Income
The estimated amounts of prior service cost in AOCI expected to be amortized and recognized as a component of net periodic benefit cost in 2014 are as follows (in millions):
 
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International Pension
Benefits
Prior service cost / (benefit)
$
169

 
$
4

 
$
1


Expected Cash Flows
Information about expected cash flows for the pension and postretirement benefit plans is as follows (in millions):
 
U.S.
Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International Pension
Benefits
Employer Contributions:
 
 
 
 
 
2014 (expected) to plan trusts
$

 
$

 
$
77

2014 (expected) to plan participants
16

 
100

 
3

Expected Benefit Payments:
 
 
 
 
 
2014
$
885

 
$
239

 
$
24

2015
981

 
253

 
26

2016
1,081

 
270

 
27

2017
1,188

 
286

 
30

2018
1,306

 
300

 
32

2019 - 2023
8,502

 
1,610

 
199


Our funding policy for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations, or to directly fund payments to plan participants, as applicable. International plans will be funded in accordance with local regulations. Additional discretionary contributions may be made when deemed appropriate to meet the long-term obligations of the plans. Expected benefit payments for pensions will be primarily paid from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets.