CenturyLink 2015 Annual Report Download - page 174

Post-Retirement Benefit Plans
Years Ended December 31,
2015 2014 2013
(Dollars in millions)
Change in plan assets
Fair value of plan assets at beginning of year ........... $353 535 626
Return on plan assets .............................. 3 37 45
Benefits paid from plan assets ....................... (163) (219) (136)
Fair value of plan assets at end of year .................... $193 353 535
Pension Plans: Our investment objective for the qualified pension plan assets is to achieve an attractive
risk-adjusted return over time that will provide for the payment of benefits and minimize the risk of large losses.
Our pension plan investment strategy is designed to meet this objective by broadly diversifying plan assets across
numerous strategies with differing expected returns, volatilities and correlations. The pension plan assets have
target allocations of 45% to interest rate sensitive investments and 55% to investments designed to provide
higher expected returns than the interest rate sensitive investments. Interest rate sensitive investments include
30% of plan assets targeted primarily to long-duration investment grade bonds, 10% targeted to high yield and
emerging market bonds and 5% targeted to diversified strategies, which primarily have exposures to global
bonds, as well as some exposures to global stocks and commodities. Assets expected to provide higher returns
than the interest rate sensitive assets include broadly diversified equity investments with targets of approximately
15% to U.S. equity markets and 15% to non-U.S. developed and emerging markets. Approximately 7% is
targeted to broadly diversified multi-asset class strategies that have the flexibility to adjust exposures to different
asset classes. Approximately 10% is allocated to private markets investments including funds primarily invested
in private equity, private debt and hedge funds. Real estate investments are targeted at 8% of plan assets. At the
beginning of 2016, our expected annual long-term rate of return on pension assets before consideration of
administrative expenses is assumed to be 7.5%. However, projected increases in PBGC (Pension Benefit
Guaranty Corporation) premium rates have now become large enough to reduce the annual long-term expected
return net of administrative expenses to 7.0%.
Our non-qualified pension plans are not funded. We pay benefits directly to the participants of these plans.
Post-Retirement Benefit Plans: Our investment objective for the post-retirement benefit plans’ assets is to
achieve an attractive risk-adjusted return and minimize the risk of large losses over the expected life of the assets.
Investment risk is managed by broadly diversifying assets across numerous strategies with differing expected
returns, volatilities and correlations. Our investment strategy is designed to be consistent with the investment
objective, with particular focus on providing liquidity for the reimbursement of our union-represented
employees’ post-retirement health care costs. The liquid post-retirement benefit plan assets (excluding private
market investments) have target allocations of 20% to equities and 80% to non-equity investments. Specific
target allocations within these broad categories are allowed to vary to meet reimbursement requirements. Liquid
equity investments are broadly diversified with exposure to publicly traded U.S., non-U.S. and emerging market
stocks. The 80% non-equity allocation includes investment grade bonds, real estate, hedge funds and diversified
strategies. While no new private market investments have been made in recent years, the percent allocation to
existing private market investments is expected to increase as liquid, publicly traded stocks are drawn down for
the reimbursement of health care costs. At the beginning of 2016, our expected annual long-term rate of return on
post-retirement benefit plan assets is assumed to be 7.0%.
Permitted investments: Plan assets are managed consistent with the restrictions set forth by the Employee
Retirement Income Security Act of 1974, as amended, which requires diversification of assets and also generally
prohibits defined benefit and welfare plans from investing more than 10% of their assets in securities issued by
the sponsor company. At December 31, 2015 and 2014, the pension and post-retirement benefit plans did not
directly own any shares of our common stock or any of our debt.
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