Dow Chemical 2013 Annual Report Download - page 137

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The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key
economic and market factors driving historical returns for each asset class and formulating a projected return based on factors
in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate
yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each
asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The
Company’s historical experience with the pension fund asset performance is also considered. The discount rates utilized to
measure the pension and other postretirement obligations of the U.S. qualified plans are based on the yield on high-quality
fixed income investments at the measurement date. Future expected actuarially determined cash flows of Dow’s major U.S.
plans are matched against the Towers Watson RATE:Link yield curve (based on 60th to 90th percentile bond yields) to arrive at
a single discount rate for each plan.
The accumulated benefit obligation for all defined benefit pension plans was $23.8 billion at December 31, 2013 and
$25.3 billion at December 31, 2012.
Pension Plans with Accumulated Benefit Obligations in Excess
of Plan Assets at December 31
In millions 2013 2012
Projected benefit obligations $ 22,565 $ 24,659
Accumulated benefit obligations $ 21,554 $ 23,422
Fair value of plan assets $ 16,247 $ 15,458
In addition to the U.S. qualified defined benefit pension plan, U.S. employees may participate in defined contribution plans
(Employee Savings Plans or 401(k) plans) by contributing a portion of their compensation, which is partially matched by the
Company. Defined contribution plans also cover employees in some subsidiaries in other countries, including Australia, Brazil,
Canada, Italy, Spain and the United Kingdom. Expense recognized for all defined contribution plans was $231 million in 2013,
$186 million in 2012 and $163 million in 2011.
Other Postretirement Benefits
The Company provides certain health care and life insurance benefits to retired employees. The Company’s plans outside of the
United States are not significant; therefore, this discussion relates to the U.S. plans only. The plans provide health care benefits,
including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits. In general, for
employees hired before January 1, 1993, the plans provide benefits supplemental to Medicare when retirees are eligible for
these benefits. The Company and the retiree share the cost of these benefits, with the Company portion increasing as the retiree
has increased years of credited service, although there is a cap on the Company portion. The Company has the ability to change
these benefits at any time. Employees hired after January 1, 2008 are not covered under the plans.
During the fourth quarter 2013, the Company started implementing an Employer Group Waiver Plan (“EGWP”) for its
Medicare-eligible, retiree medical plan participants, which became effective on January 1, 2014. As a result, the Medicare Part
D Retiree Drug Subsidy program (“RDS”) was eliminated on January 1, 2014. The EGWP does not significantly alter the
benefits provided to retiree medical plan participants. The federal subsidies to be earned under the EGWP are expected to
exceed those earned under the RDS and will be partially offset by increased costs related to the administration of the EGWP.
The formation of the EGWP and the resulting change in assumption generated an actuarial gain of $250 million at December
31, 2013, included in "Accumulated other comprehensive loss" in the consolidated balance sheets. The Company also
recognized a reduction in the postretirement benefit obligation of $250 million at December 31, 2013. The Company estimates
net periodic benefit cost will decrease by approximately $25 million in 2014 due to the EGWP.
The Company funds most of the cost of these health care and life insurance benefits as incurred. In 2013, Dow did not make
any contributions to its other postretirement benefit plan trusts. The trusts did not hold assets at December 31, 2013. Dow does
not expect to contribute assets to its other postretirement benefits plan trusts in 2014.