Annual report pursuant to Section 13 and 15(d)

COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS

v2.4.1.9
COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
12 Months Ended
Dec. 31, 2014
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: The UPS Retirement Plan, the UPS Pension Plan, the 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.
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.
U.S. Postretirement Medical Benefits
We also sponsor postretirement medical plans in the U.S. that provide healthcare 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.
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 $95, $90 and $83 million for 2014, 2013 and 2012, respectively.
Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged to expense were $82, $80 and $80 million for 2014, 2013 and 2012, 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
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Net Periodic Cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
1,137

 
$
1,349

 
$
998

 
$
62

 
$
103

 
$
89

 
$
43

 
$
47

 
$
41

Interest cost
1,604

 
1,449

 
1,410

 
152

 
185

 
208

 
49

 
44

 
41

Expected return on assets
(2,257
)
 
(2,147
)
 
(1,970
)
 
(25
)
 
(33
)
 
(18
)
 
(61
)
 
(55
)
 
(47
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transition obligation

 

 

 

 

 

 

 

 

Prior service cost
169

 
172

 
173

 

 
4

 
5

 
1

 
2

 
2

Actuarial (gain) loss
991

 

 
4,388

 
767

 

 
374

 
48

 

 
69

Curtailment and settlement loss

 

 

 
356

 

 

 

 

 

Other

 

 

 

 

 

 
4

 
(5
)
 
(10
)
Net periodic benefit cost
$
1,644

 
$
823

 
$
4,999

 
$
1,312

 
$
259

 
$
658

 
$
84

 
$
33

 
$
96



The curtailment and settlement loss in 2014 for the U.S. postretirement medical benefit plans is discussed further in note 5 under the section entitled "Accounting Impact of Health and Welfare Plan Changes".
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
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Discount rate
5.32
%
 
4.42
%
 
5.64
%
 
4.89
%
 
4.21
%
 
5.47
%
 
4.35
%
 
4.00
%
 
4.63
%
Rate of compensation increase
4.29
%
 
4.16
%
 
4.50
%
 
N/A

 
N/A

 
N/A

 
3.22
%
 
3.03
%
 
3.58
%
Expected return on assets
8.75
%
 
8.75
%
 
8.75
%
 
8.75
%
 
8.75
%
 
8.75
%
 
6.29
%
 
6.90
%
 
7.20
%

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
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Discount rate
4.40
%
 
5.32
%
 
4.18
%
 
5.14
%
 
3.56
%
 
4.40
%
Rate of compensation increase
4.29
%
 
4.29
%
 
N/A

 
N/A

 
3.08
%
 
3.30
%
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, 2014, 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
$
(65
)
 
$
(3
)
One basis point decrease in discount rate
$
69

 
$
3


The Society of Actuaries' ("SOA") published mortality tables and improvement scales are used in developing the best estimate of mortality for plans in the U.S. On October 27, 2014, the SOA published updated mortality tables and an updated improvement scale, both of which reflect longer anticipated lifetimes. Based on an evaluation of these new tables and our perspective of future longevity, we updated the mortality assumptions for purposes of measuring pension and other postretirement benefit obligations at December 31, 2014. The change to the mortality assumption increased the year-end pension and other postretirement benefit obligations by $1.119 billion and $51 million, respectively. At December 31, 2014, we also revised the retirement assumptions for non-union plan participants based on recent retirement experience. The change to the retirement assumption decreased the year-end pension and other postretirement benefit obligations by $383 and $234 million, respectively.
An assumption for the 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.
Healthcare cost trends are used to project future postretirement benefits payable from our plans. For year-end 2014 U.S. plan obligations, future postretirement medical benefit costs were forecasted assuming an initial annual increase of 7.0%, decreasing to 4.5% by the year 2020 and with consistent annual increases at those ultimate levels thereafter.

Assumed healthcare 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 2014 results (in millions):
 
1% Increase
 
1% Decrease
Effect on total of service cost and interest cost
$
4

 
$
(4
)
Effect on postretirement benefit obligation
$
89

 
$
(98
)

Funded Status
The following table discloses the funded status of our plans and the amounts recognized in our consolidated balance sheets as of December 31 (in millions):
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension Benefits
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Funded Status:
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets
$
28,828

 
$
26,224

 
$
259

 
$
355

 
$
1,042

 
$
931

Benefit obligation
(37,521
)
 
(29,508
)
 
(2,883
)
 
(4,046
)
 
(1,274
)
 
(1,076
)
Funded status recognized at December 31
$
(8,693
)
 
$
(3,284
)
 
$
(2,624
)
 
$
(3,691
)
 
$
(232
)
 
$
(145
)
Funded Status Recognized in our Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Other non-current assets
$

 
$

 
$

 
$

 
$
25

 
$
47

Other current liabilities
(17
)
 
(16
)
 
(102
)
 
(97
)
 
(3
)
 
(3
)
Pension and postretirement benefit obligations
(8,676
)
 
(3,268
)
 
(2,522
)
 
(3,594
)
 
(254
)
 
(189
)
Net liability at December 31
$
(8,693
)
 
$
(3,284
)
 
$
(2,624
)
 
$
(3,691
)
 
$
(232
)
 
$
(145
)
Amounts Recognized in AOCI:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized net prior service cost
$
(1,122
)
 
$
(1,286
)
 
$
(32
)
 
$
(79
)
 
$
(7
)
 
$
(9
)
Unrecognized net actuarial gain (loss)
(3,752
)
 
1,233

 
(89
)
 
(29
)
 
(103
)
 
(7
)
Gross unrecognized cost at December 31
(4,874
)
 
(53
)
 
(121
)
 
(108
)
 
(110
)
 
(16
)
Deferred tax asset at December 31
1,833

 
20

 
45

 
41

 
29

 
2

Net unrecognized cost at December 31
$
(3,041
)
 
$
(33
)
 
$
(76
)
 
$
(67
)
 
$
(81
)
 
$
(14
)

The accumulated benefit obligation for our pension plans as of the measurement dates in 2014 and 2013 was $35.867 and $28.586 billion, respectively.
Benefit payments under the pension plans include $19 and $16 million paid from employer assets in 2014 and 2013, respectively. Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $122 and $108 million paid from employer assets in 2014 and 2013, respectively. Such benefit payments from employer assets are also categorized as employer contributions.
At December 31, 2014 and 2013, 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
2014
 
2013
 
2014
 
2013
U.S. Pension Benefits:
 
 
 
 
 
 
 
Projected benefit obligation
$
37,521

 
$
29,508

 
$
37,521

 
$
29,508

Accumulated benefit obligation
34,725

 
27,623

 
34,725

 
27,623

Fair value of plan assets
28,828

 
26,224

 
28,828

 
26,224

International Pension Benefits:
 
 
 
 
 
 
 
Projected benefit obligation
$
510

 
$
764

 
$
474

 
$
361

Accumulated benefit obligation
426

 
658

 
398

 
301

Fair value of plan assets
261

 
580

 
232

 
184


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
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Benefit Obligations:
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
$
29,508

 
$
31,868

 
$
4,046

 
$
4,412

 
$
1,076

 
$
1,089

Service cost
1,137

 
1,349

 
62

 
103

 
43

 
47

Interest cost
1,604

 
1,449

 
152

 
185

 
49

 
44

Gross benefits paid
(924
)
 
(813
)
 
(255
)
 
(258
)
 
(26
)
 
(21
)
Plan participants’ contributions

 

 
15

 
17

 
5

 
4

Plan amendments
5

 
140

 
65

 
4

 

 

Actuarial (gain)/loss
6,191

 
(4,485
)
 
1,069

 
(417
)
 
194

 
(55
)
Foreign currency exchange rate changes

 

 

 

 
(103
)
 
(26
)
Curtailments and settlements

 

 
(2,271
)
 

 
(2
)
 
(6
)
Other

 

 

 

 
38

 

Projected benefit obligation at end of year
$
37,521

 
$
29,508

 
$
2,883

 
$
4,046

 
$
1,274

 
$
1,076

 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension
Benefits
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Fair Value of Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
26,224

 
$
24,941

 
$
355

 
$
460

 
$
931

 
$
801

Actual return on plan assets
2,471

 
2,082

 
22

 
28

 
106

 
81

Employer contributions
1,057

 
14

 
122

 
108

 
79

 
90

Plan participants’ contributions

 

 
15

 
17

 
3

 
1

Gross benefits paid
(924
)
 
(813
)
 
(255
)
 
(258
)
 
(26
)
 
(21
)
Foreign currency exchange rate changes

 

 

 

 
(79
)
 
(20
)
Curtailments and settlements

 

 

 

 
(2
)
 
(1
)
Other

 

 

 

 
30

 

Fair value of plan assets at end of year
$
28,828

 
$
26,224

 
$
259

 
$
355

 
$
1,042

 
$
931


The curtailments and settlements amount in 2014 for the U.S. postretirement medical benefit plans is discussed further in note 5 under the section entitled "Accounting Impact of Health and Welfare Plan Changes".
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).
We invest pension assets in accordance with applicable laws and regulations. The long-term primary investment 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 equity investments, corporate debt instruments, and U.S. government securities. Fair values 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:
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. At December 31, 2014, unfunded commitments to these hedge funds totaling approximately $90 million are expected to be contributed over the remaining investment period, typically ranging between three and six years.
Risk Parity Funds: We maintain plan assets invested in risk parity strategies in order to provide diversification and balance risk / return objectives.  Investments in risk parity funds are valued using reported net asset values as of December 31. These strategies reflect a multi-asset class balanced risk approach generally consisting of equity, interest rates, credit, and commodities.  These funds allow for monthly redemptions with only a brief notification period. No unfunded commitments existed with respect to these hedge funds as of December 31, 2014.
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 10 and 15 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, 2014, unfunded commitments to such limited partnerships totaling approximately $1.01 billion 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, 2014 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 -
2014
 
Target
Allocation
2014
Asset Category (U.S. Plans):
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
744

 
$
1,028

 
$

 
$
1,772

 
6.1
%
 
0-5
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Large Cap
2,066

 
2,082

 

 
4,148

 
 
 
 
U.S. Small Cap
322

 
44

 

 
366

 
 
 
 
Emerging Markets
1,270

 
116

 

 
1,386

 
 
 
 
Global Equity
2,788

 

 

 
2,788

 
 
 
 
International Equity
1,154

 
792

 

 
1,946

 
 
 
 
Total Equity Securities
7,600

 
3,034

 

 
10,634

 
36.6

 
35-55
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government Securities
4,541

 
239

 

 
4,780

 
 
 
 
Corporate Bonds
6

 
2,921

 
269

 
3,196

 
 
 
 
Global Bonds

 
159

 
613

 
772

 
 
 
 
Municipal Bonds

 
100

 

 
100

 
 
 
 
Total Fixed Income Securities
4,547

 
3,419

 
882

 
8,848

 
30.4

 
25-35
Other Investments:
 
 
 
 
 
 
 
 
 
 
 
Hedge Funds

 

 
3,595

 
3,595

 
12.4

 
5-15
Private Equity

 

 
1,323

 
1,323

 
4.5

 
1-10
Real Estate
412

 
47

 
1,307

 
1,766

 
6.1

 
1-10
Structured Products(1)

 
332

 

 
332

 
1.1

 
0-5
Risk Parity Funds

 

 
817

 
817

 
2.8

 
1-10
Total U.S. Plan Assets
$
13,303

 
$
7,860

 
$
7,924

 
$
29,087

 
100.0
%
 
 
Asset Category (International Plans):
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
6

 
$
26

 
$

 
32

 
3.1

 
0-5
Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
Local Markets Equity
145

 
105

 

 
250

 
 
 
 
U.S. Equity
17

 

 

 
17

 
 
 
 
Emerging Markets
19

 

 

 
19

 
 
 
 
International / Global Equity
82

 
95

 

 
177

 
 
 
 
Total Equity Securities
263

 
200

 

 
463

 
44.3

 
50-65
Fixed Income Securities:
 
 
 
 
 
 
 
 
 
 
 
Local Government Bonds
78

 

 

 
78

 
 
 
 
Corporate Bonds
55

 
94

 

 
149

 
 
 
 
Total Fixed Income Securities
133

 
94

 

 
227

 
21.8

 
15-35
Other Investments:
 
 
 
 
 
 
 
 
 
 
 
Real Estate

 
108

 

 
108

 
10.4

 
0-17
Other

 
159

 
53

 
212

 
20.4

 
0-20
Total International Plan Assets
$
402

 
$
587

 
$
53

 
$
1,042

 
100.0
%
 
 
Total Plan Assets
$
13,705

 
$
8,447

 
$
7,977

 
$
30,129

 
 
 
 
(1) Represents mortgage and asset-backed securities.


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
Risk Parity Funds

 

 
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
Other

 
124

 
55

 
179

 
19.2

 
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.

The following table presents the changes in the Level 3 instruments measured on a recurring basis for the years ended December 31, 2014 and 2013 (in millions).
 
Corporate
Bonds
 
Hedge
Funds
 
Real
Estate
 
Private
Equity
 
Global Bonds
 
Risk Parity Funds
 
Other
 
Total
Balance on January 1, 2013
$
138

 
$
2,829

 
$
1,039

 
$
1,416

 
$

 
$
1,362

 
$
49

 
$
6,833

Actual Return on Assets:
 
 
 
 
 
 
 
 

 
 
 
 
 
 
Assets Held at End of Year
(1
)
 
229

 
81

 
71

 

 
(99
)
 
6

 
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
)
Transfers Into (Out of) Level 3

 

 

 

 

 

 

 

Balance on December 31, 2013
$
223

 
$
3,738

 
$
1,091

 
$
1,397

 
$

 
$
756

 
$
55

 
$
7,260

Actual Return on Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets Held at End of Year

 
71

 
104

 
11

 

 
61

 
(2
)
 
245

Assets Sold During the Year

 
(9
)
 
23

 
126

 

 

 

 
140

Purchases
108

 
1,043

 
350

 
166

 
735

 

 

 
2,402

Sales
(62
)
 
(1,248
)
 
(261
)
 
(377
)
 
(122
)
 

 

 
(2,070
)
Transfers Into (Out of) Level 3

 

 

 

 

 

 

 

Balance on December 31, 2014
$
269

 
$
3,595

 
$
1,307

 
$
1,323

 
$
613

 
$
817

 
$
53

 
$
7,977


There were no UPS class A or B shares of common stock directly held in plan assets as of December 31, 2014 or December 31, 2013.
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 2015 are as follows (in millions):
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International Pension
Benefits
Prior service cost / (benefit)
$
168

 
$
5

 
$
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
Expected Employer Contributions:
 
 
 
 
 
2015 to plan trusts
$
1,030

 
$

 
$
69

2015 to plan participants
17

 
104

 
4

Expected Benefit Payments:
 
 
 
 
 
2015
$
960

 
$
245

 
$
26

2016
1,052

 
238

 
25

2017
1,151

 
236

 
28

2018
1,262

 
231

 
30

2019
1,382

 
230

 
33

2020 - 2024
9,013

 
1,034

 
214


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.