International Paper 2015 Annual Report Download - page 54

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approximately $27 million, while a (decrease) increase
of 0.25% in the discount rate would (increase) decrease
pension expense by approximately $36 million. The
effect on net postretirement benefit cost from a 1%
increase or decrease in the annual health care cost
trend rate would be approximately $1 million.
Actual rates of return earned on U.S. pension plan
assets for each of the last 10 years were:
Year Return Year Return
2015 1.3%2010 15.1 %
2014 6.4% 2009 23.8 %
2013 14.1% 2008 (23.6)%
2012 14.1% 2007 9.6 %
2011 2.5% 2006 14.9 %
The 2012, 2013 and 2014 returns above represent
weighted averages of International Paper and Temple-
Inland asset returns. International Paper and Temple-
Inland assets were combined in October 2014. The
annualized time-weighted rate of return earned on U.S.
pension plan assets was 7.5% and 7.0% for the past
five and ten years, respectively. The following graph
shows the growth of a $1,000 investment in
International Paper’s U.S. Pension Plan Master Trust.
The graph portrays the time-weighted rate of return from
2005 – 2015.
ASC 715, “Compensation – Retirement Benefits,”
provides for delayed recognition of actuarial gains and
losses, including amounts arising from changes in the
estimated projected plan benefit obligation due to
changes in the assumed discount rate, differences
between the actual and expected return on plan assets,
and other assumption changes. These net gains and
losses are recognized in pension expense
prospectively over a period that approximates the
average remaining service period of active employees
expected to receive benefits under the plans to the
extent that they are not offset by gains and losses in
subsequent years. The estimated net loss and prior
service cost that will be amortized from accumulated
other comprehensive income into net periodic pension
cost for the U.S. pension plans over the next fiscal year
are $374 million and $41 million, respectively.
Net periodic pension and postretirement plan
expenses, calculated for all of International Paper’s
plans, were as follows:
In millions 2015 2014 2013 2012 2011
Pension expense
U.S. plans (non-
cash) $ 461 $ 387 $ 545 $ 342 $ 195
Non-U.S. plans 6—531
Postretirement
expense
U.S. plans 87(1)(4)7
Non-U.S. plans 57712
Net expense $ 480 $ 401 $ 556 $ 342 $ 205
The increase in 2015 U.S. pension expense principally
reflects a decrease in the discount rate, updated
mortality assumptions, higher amortization of
unrecognized actuarial losses and a settlement charge
in 2015.
Assuming that discount rates, expected long-term
returns on plan assets and rates of future compensation
increases remain the same as in 2015, projected future
net periodic pension and postretirement plan expenses
would be as follows:
In millions 2017 (1) 2016 (1)
Pension expense
U.S. plans (non-cash) $ 278 $ 364
Non-U.S. plans 4 5
Postretirement expense
U.S. plans 14 14
Non-U.S. plans 8 5
Net expense $304$388
(1) Based on assumptions at December 31, 2015.
The Company estimates that it will record net pension
expense of approximately $364 million for its U.S.
defined benefit plans in 2016, with the decrease from
expense of $461 million in 2015 reflecting an increase
in the assumed discount rate to 4.40% in 2016 from
4.10% in 2015, updated demographic assumptions and
lower unrecognized losses.
The market value of plan assets for International
Paper’s U.S. qualified pension plan at December 31,
2015 totaled approximately $10.9 billion, consisting of
approximately 48% equity securities, 33% debt
securities, 10% real estate and 9% other assets. Plan
assets include an immaterial amount of International
Paper common stock.
The Company’s funding policy for its qualified pension
plans is to contribute amounts sufficient to meet legal
funding requirements, plus any additional amounts that
the Company may determine to be appropriate
considering the funded status of the plan, tax
deductibility, the cash flows generated by the Company,