Dow Chemical 2014 Annual Report Download - page 139

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Estimated Future Benefit Payments
The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the following table:
Estimated Future Benefit Payments at December 31, 2014
In millions
Defined Benefit
Pension Plans
Other
Postretirement
Benefits
2015 $ 1,270 $ 150
2016 1,284 140
2017 1,314 134
2018 1,359 133
2019 1,401 129
2020 through 2024 7,554 589
Total $ 14,182 $ 1,275
Plan Assets
Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and include alternative
investments such as real estate, private equity and absolute return strategies. At December 31, 2014, plan assets totaled
$19.6 billion and included no Company common stock. At December 31, 2013, plan assets totaled $18.8 billion and included
no Company common stock. In 2013, the Company received $32 million from residual plan assets after the completion of a
non-U.S. pension plan wind-up.
Investment Strategy and Risk Management for Plan Assets
The Company’s investment strategy for the plan assets is to manage the assets in relation to the liability in order to pay
retirement benefits to plan participants over the life of the plans. This is accomplished by identifying and managing the
exposure to various market risks, diversifying investments across various asset classes and earning an acceptable long-term rate
of return consistent with an acceptable amount of risk, while considering the liquidity needs of the plans.
The plans are permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and
liability exposure and rebalancing the asset allocation. The plans use value at risk, stress testing, scenario analysis and Monte
Carlo simulations to monitor and manage both the risk within the portfolios and the surplus risk of the plans.
Equity securities primarily include investments in large- and small-cap companies located in both developed and emerging
markets around the world. Fixed income securities include investment and non-investment grade corporate bonds of companies
diversified across industries, U.S. treasuries, non-U.S. developed market securities, U.S. agency mortgage-backed securities,
emerging market securities and fixed income related funds. Alternative investments primarily include investments in real estate,
private equity limited partnerships and absolute return strategies. Other significant investment types include various insurance
contracts; and interest rate, equity, commodity and foreign exchange derivative investments and hedges.
Strategic Weighted-Average Target Allocation of Plan
Assets for All Significant Plans
Asset Category Target Allocation
Equity securities 34%
Fixed income securities 35%
Alternative investments 30%
Other investments 1%
Total 100%
Concentration of Risk
The Company mitigates the credit risk of investments by establishing guidelines with investment managers that limit
investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are
monitored for compliance both by the Company and external managers. Credit risk related to derivative activity is mitigated by
utilizing multiple counterparties, collateral support agreements and centralized clearing, where appropriate.
The Northern Trust Collective Government Short Term Investment money market fund is utilized as the sweep vehicle for the
U.S. plans, which from time to time can represent a significant investment. For one U.S. plan, approximately half of the
liability is covered by a participating group annuity issued by Prudential Insurance Company.