Hess 2014 Annual Report Download - page 84

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HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Components of net periodic benefit cost for funded and unfunded pension plans and the postretirement medical plan consisted of
the following:
Pension Plans Postretirement Medical Plan
2014 2013 2012 2014 2013 2012
(In millions)
Service cost ................................................................ $ 57 $ 73 $ 74 $ 4 $ 4 $ 7
Interest cost ................................................................ 100 89 88 3 3 5
Expected return on plan assets ................................... (161) (141) (116) — — —
Amortization of unrecognized net actuarial losses ..... 31 61 83 — 1 2
Settlement loss ........................................................... 24 — 9 — — —
Curtailment loss ......................................................... — 1 — — — —
Special termination benefit recognized ...................... 1 5 — — — —
Net periodic benefit cost ....................................... $ 52 $ 88 $ 138 $ 7 $ 8 $ 14
The Corporation’s 2015 pension and postretirement medical expense is estimated to be approximately $80 million, which includes
approximately $75 million related to the amortization of unrecognized net actuarial losses.
The weighted average actuarial assumptions used by the Corporation’s funded and unfunded pension plans were as follows:
2014 2013 2012
Weighted average assumptions used to determine benefit obligations at December 31
Discount rate ......................................................................................................................... 3.8 % 4.6% 3.8%
Rate of compensation increase .............................................................................................. 5.0 4.4 4.3
Weighted average assumptions used to determine net periodic benefit cost for the years
ended December 31
Discount rate ......................................................................................................................... 4.6 4.0 4.3
Expected return on plan assets .............................................................................................. 7.5 7.5 7.5
Rate of compensation increase .............................................................................................. 4.4 4.3 4.3
The actuarial assumptions used by the Corporation’s postretirement medical plan were as follows:
2014 2013 2012
Assumptions used to determine benefit obligations at December 31
Discount rate ......................................................................................................................... 3.1 % 3.6% 3.1%
Initial health care trend rate ................................................................................................... 6.8 % 7.1% 7.3%
Ultimate trend rate ................................................................................................................. 4.5 % 4.6% 4.8%
Year in which ultimate trend rate is reached ......................................................................... 2029 2027 2022
The assumptions used to determine net periodic benefit cost for each year were established at the end of each previous year while
the assumptions used to determine benefit obligations were established at each year-end. The net periodic benefit cost and the
actuarial present value of benefit obligations are based on actuarial assumptions that are reviewed on an annual basis. The discount
rate is developed based on a portfolio of high-quality, fixed income debt instruments with maturities that approximate the expected
payment of plan obligations. The overall expected return on plan assets is developed from the expected future returns for each asset
category, weighted by the target allocation of pension assets to that asset category.
The Corporation’s investment strategy is to maximize long-term returns at an acceptable level of risk through broad diversification
of plan assets in a variety of asset classes. Asset classes and target allocations are determined by the Corporation’s investment
committee and include domestic and foreign equities, fixed income, and other investments, including hedge funds, real estate and
private equity. Investment managers are prohibited from investing in securities issued by the Corporation unless indirectly held as
part of an index strategy. The majority of plan assets are highly liquid, providing ample liquidity for benefit payment requirements.
The current target allocations for plan assets are 50% equity securities, 25% fixed income securities (including cash and short-term
investment funds) and 25% to all other types of investments. Asset allocations are rebalanced on a periodic basis throughout the year
to bring assets to within an acceptable range of target levels.