Dow Chemical 2014 Annual Report Download - page 84

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and other postretirement obligations. 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 the Company's U.S. pension plans and the SOA's
tables, the Company adopted updated generational mortality tables for purposes of measuring U.S. pension and other
postretirement obligations at year-end.
The following discussion relates to the Company’s significant pension plans.
The Company bases the determination of pension expense on a market-related valuation of plan assets that reduces
year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period
from the year in which they occur. Investment gains or losses for this purpose represent the difference between the
expected return calculated using the market-related value of plan assets and the actual return based on the market value
of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the
future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the
plans, both gains and losses have been recognized and amortized. At December 31, 2014, net gains of $762 million
remain to be recognized in the calculation of the market-related value of plan assets. These net gains will result in
decreases in future pension expense as they are recognized in the market-related value of assets.
The increase in the market-related value of assets due to the recognition of prior gains is presented in the following
table:
Increase in Market-Related Asset Value Due to
Recognition of Prior Gains
In millions
2015 $ 207
2016 291
2017 159
2018 105
Total $ 762
Based on the 2015 pension assumptions, the Company expects net periodic benefit costs to increase in 2015 by
approximately $100 million for all pension and other postretirement benefits. The increase in net periodic benefit costs
is primarily due to the impact of lower discount rates, which was partially offset by a favorable impact from plan
amendments in the U.S. and The Netherlands.
A 25 basis point increase or decrease in the long-term return on assets assumption would change the Company’s total
pension expense for 2015 by $47 million. A 25 basis point increase in the discount rate assumption would lower the
Company's total pension expense for 2015 by $65 million. A 25 basis point decrease in the discount rate assumption
would increase the Company's total pension expense for 2015 by $68 million. A 25 basis point change in the long-term
return and discount rate assumptions would have an immaterial impact on the other postretirement benefit expense for
2015.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and
tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the
differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the
Company recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the
extent that realizing these benefits is considered to be more likely than not.
At December 31, 2014, the Company had a net deferred tax asset balance of $2,220 million, after valuation allowances
of $1,106 million.
In evaluating the ability to realize the deferred tax assets, the Company relies on, in order of increasing subjectivity,
taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning
strategies and forecasted taxable income using historical and projected future operating results.
At December 31, 2014, the Company had deferred tax assets for tax loss and tax credit carryforwards of
$1,843 million, $177 million of which is subject to expiration in the years 2015-2019. In order to realize these deferred