Dow Chemical 2014 Annual Report Download - page 135

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(b) a default if the Company or an applicable subsidiary fails to make any payment, including principal, premium or
interest, under the applicable agreement on other indebtedness of, or guaranteed by, the Company or such applicable
subsidiary in an aggregate amount of $100 million or more when due, or any other default or other event under the
applicable agreement with respect to such indebtedness occurs which permits or results in the acceleration of
$400 million or more in the aggregate of principal, and
(c) a default if the Company or any applicable subsidiary fails to discharge or stay within 60 days after the entry of a final
judgment against the Company or such applicable subsidiary of more than $400 million.
Failure of the Company to comply with any of the covenants or default provisions could result in a default under the applicable
credit agreement which would allow the lenders to not fund future loan requests and to accelerate the due date of the
outstanding principal and accrued interest on any outstanding indebtedness.
NOTE 17 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Plans
The Company has defined benefit pension plans that cover employees in the United States and a number of other countries. The
U.S. qualified plan covering the parent company is the largest plan. Benefits for employees hired before January 1, 2008 are
based on length of service and the employee’s three highest consecutive years of compensation. Employees hired after
January 1, 2008 earn benefits that are based on a set percentage of annual pay, plus interest.
The Company’s funding policy is to contribute to the plans when pension laws and/or economics either require or encourage
funding. In 2014, Dow contributed $815 million to its pension plans, including contributions to fund benefit payments for its
non-qualified supplemental plans. Dow expects to contribute approximately $750 million to its pension plans in 2015.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for the plans are
provided in the two tables below:
Weighted-Average Assumptions
for All Pension Plans
Benefit Obligations
at December 31
Net Periodic Costs
for the Year
2014 2013 2012 2014 2013 2012
Discount rate 3.60% 4.54% 3.88% 4.54% 3.88% 4.93%
Rate of increase in future compensation levels 4.13% 4.15% 3.96% 4.15% 3.96% 4.14%
Expected long-term rate of return on plan assets — — — 7.40% 7.47% 7.60%
Weighted-Average Assumptions
for U.S. Pension Plans
Benefit Obligations
at December 31
Net Periodic Costs
for the Year
2014 2013 2012 2014 2013 2012
Discount rate 4.04% 4.92% 4.02% 4.92% 4.02% 4.98%
Rate of increase in future compensation levels 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Expected long-term rate of return on plan assets — — — 7.82% 7.85% 7.83%
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.
On October 27, 2014, the Society of Actuaries ("SOA") published updated mortality tables and mortality improvement scales
(generational mortality tables), which reflect increased life expectancy. Based on an evaluation of the mortality experience of