Quarterly report pursuant to Section 13 or 15(d)

EMPLOYEE BENEFIT PLANS

v2.4.0.8
EMPLOYEE BENEFIT PLANS
 9 Months Ended
Sep. 30, 2013
Compensation and Retirement Disclosure [Abstract]  
EMPLOYEE BENEFIT PLANS
EMPLOYEE BENEFIT PLANS
Company-Sponsored Benefit Plans
Information about net periodic benefit cost for our company-sponsored pension and postretirement benefit plans is as follows for the three and nine months ended September 30, 2013 and 2012 (in millions):
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension Benefits
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Three Months Ended September 30:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
337

 
$
249

 
$
20

 
$
23

 
$
11

 
$
12

Interest cost
362

 
353

 
46

 
52

 
11

 
10

Expected return on assets
(537
)
 
(493
)
 
(8
)
 
(4
)
 
(14
)
 
(11
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Transition obligation
—

 
—

 
—

 
—

 
—

 
—

Prior service cost
44

 
43

 
1

 
1

 
—

 
1

Other net (gain) loss
—

 
—

 
—

 
—

 
—

 
—

Actuarial (gain) loss
—

 
—

 
—

 
—

 
—

 
—

Net periodic benefit cost
$
206

 
$
152

 
$
59

 
$
72

 
$
8

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Pension Benefits
 
U.S. Postretirement
Medical Benefits
 
International
Pension Benefits
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Nine Months Ended September 30:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
1,012

 
$
748

 
$
72

 
$
67

 
$
37

 
$
41

Interest cost
1,087

 
1,058

 
139

 
156

 
33

 
31

Expected return on assets
(1,611
)
 
(1,478
)
 
(25
)
 
(13
)
 
(42
)
 
(35
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Transition obligation
—

 
—

 
—

 
—

 
—

 
—

Prior service cost
130

 
130

 
3

 
3

 
—

 
1

Other net (gain) loss
—

 
—

 
—

 
—

 
—

 
—

Actuarial (gain) loss
—

 
—

 
—

 
—

 
—

 
—

Net periodic benefit cost
$
618

 
$
458

 
$
189

 
$
213

 
$
28

 
$
38


During the first nine months of 2013, we contributed $76 and $82 million to our company-sponsored pension and postretirement medical benefit plans, respectively. We also expect to contribute $24 and $29 million over the remainder of the year to the pension and U.S. postretirement medical benefit plans, respectively.
Collective Bargaining Agreements
As of December 31, 2012, we had approximately 249,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with the International Brotherhood of Teamsters (“Teamsters”). These agreements ran through July 31, 2013, and have been extended pending ratification of a new national master agreement (see note 16).
We have approximately 2,600 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association, which became amendable at the end of 2011. Our airline mechanics are covered by a collective bargaining agreement with Teamsters Local 2727, which runs through November 1, 2013. In addition, approximately 3,100 of our ground mechanics who are not employed under agreements with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers (“IAM”). Our agreement with the IAM runs through July 31, 2014.
Multiemployer Benefit Plans
We contribute to a number of multiemployer defined benefit and health and welfare plans under terms of collective bargaining agreements that cover our union-represented employees. Our current collective bargaining agreements set forth the annual contribution increases allotted to the plans that we participate in, and we are in compliance with these contribution rates. These limitations will remain in effect throughout the terms of the existing collective bargaining agreements.
In the third quarter of 2012, we reached an agreement with the New England Teamsters and Trucking Industry Pension Fund ("NETTI Fund"), a multiemployer pension plan in which UPS is a participant, to restructure the pension liabilities for approximately 10,200 UPS employees represented by the Teamsters. The agreement reflected a decision by the NETTI Fund's trustees to restructure the NETTI Fund through plan amendments to utilize a "two pool approach", which effectively subdivided the plan assets and liabilities between two groups of beneficiaries. As part of this agreement, UPS agreed to withdraw from the original pool of the NETTI Fund, of which it had historically been a participant, and reenter the NETTI Fund's newly-established pool as a new employer.
Upon ratification of the agreement by the Teamsters in September 2012, we withdrew from the original pool of the NETTI Fund and incurred an undiscounted withdrawal liability of $2.162 billion to be paid in equal monthly installments over 50 years. The undiscounted withdrawal liability was calculated by independent actuaries employed by the NETTI Fund, in accordance with the governing plan documents and the applicable requirements of the Employee Retirement Income Security Act of 1974. In the third quarter of 2012, we recorded a charge to expense to establish an $896 million withdrawal liability on our consolidated balance sheet, which represented the present value of the $2.162 billion future payment obligation discounted at a 4.25% interest rate. This discount rate represented the estimated credit-adjusted market rate of interest at which we could obtain financing of a similar maturity and seniority.
The $896 million charge to expense recorded in the third quarter of 2012 is included in "compensation and benefits" expense in the statements of consolidated income, while the corresponding withdrawal liability is included in "other non-current liabilities" on the consolidated balance sheet. We impute interest on the withdrawal liability using the 4.25% discount rate, while the monthly payments made to the NETTI Fund reduce the remaining balance of the withdrawal liability.
Our status in the newly-established pool of the NETTI Fund is accounted for as the participation in a new multiemployer pension plan, and therefore we recognize expense based on the contractually-required contribution for each period, and we recognize a liability for any contributions due and unpaid at the end of a reporting period.
Based on the borrowing rates currently available to the Company for long-term financing of a similar maturity, the fair value of the NETTI withdrawal liability as of September 30, 2013 was $808 million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.