CATERPILLAR INC | 2013 | FY | 3

Postemployment benefit plans
 
We provide defined benefit pension plans, defined contribution plans and/or other postretirement benefit plans (retirement health care and life insurance) to employees in many of our locations throughout the world. Our defined benefit pension plans provide a benefit based on years of service and/or the employee’s average earnings near retirement. Our defined contribution plans allow employees to contribute a portion of their salary to help save for retirement, and in certain cases, we provide a matching contribution. The benefit obligation related to our non-U.S. defined benefit pension plans are for employees located primarily in Europe, Japan and Brazil. For other postretirement benefits, substantially all of our benefit obligation is for employees located in the United States.
  
In February 2012, we announced the closure of the Electro-Motive Diesel facility located in London, Ontario. As a result of the closure, we recognized a $37 million other postretirement benefits curtailment gain. This excludes a $21 million loss of a third-party receivable for other postretirement benefits that was eliminated due to the closure. In addition, a $10 million contractual termination benefit expense was recognized related to statutory pension benefits required to be paid to certain affected employees. As a result, a net gain of $6 million related to the facility closure was recognized in Other operating (income) expenses in Statement 1.

In August 2012, we announced changes to our U.S. hourly pension plan, which impacted certain hourly employees. For the impacted employees, pension benefit accruals were frozen on January 1, 2013 or will freeze January 1, 2016, at which time employees will become eligible for various provisions of company sponsored 401(k) plans including a matching contribution and an annual employer contribution. The plan changes resulted in a curtailment and required a remeasurement as of August 31, 2012. The curtailment and the remeasurement resulted in a net increase in our Liability for postemployment benefits of $243 million and a net loss of $153 million, net of tax, recognized in Accumulated other comprehensive income (loss). The increase in the liability was primarily due to a decline in the discount rate. Also, the curtailment resulted in expense of $7 million which was recognized in Other operating (income) expenses in Statement 1.
A.
Benefit obligations
 
 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other Postretirement 
Benefits
(Millions of dollars)
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Change in benefit obligation:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Benefit obligation, beginning of year
 
$
15,913

 
$
14,782

 
$
13,024

 
$
4,737

 
$
4,299

 
$
3,867

 
$
5,453

 
$
5,381

 
$
5,184

Service cost
 
196

 
185

 
158

 
120

 
108

 
115

 
108

 
92

 
84

Interest cost
 
581

 
609

 
651

 
166

 
182

 
182

 
195

 
221

 
253

Plan amendments
 
—

 
—

 
1

 
—

 
12

 
(24
)
 
1

 
(38
)
 
(121
)
Actuarial losses (gains)
 
(1,450
)
 
1,168

 
1,635

 
(41
)
 
385

 
312

 
(658
)
 
186

 
306

Foreign currency exchange rates
 
—

 
—

 
—

 
(81
)
 
49

 
(32
)
 
(19
)
 
(11
)
 
(19
)
Participant contributions
 
—

 
—

 
—

 
10

 
9

 
9

 
57

 
48

 
44

Benefits paid - gross
 
(845
)
 
(831
)
 
(823
)
 
(254
)
 
(190
)
 
(187
)
 
(339
)
 
(394
)
 
(388
)
Less: federal subsidy on benefits paid
 
—

 
—

 
—

 
—

 
—

 
—

 
8

 
16

 
14

Curtailments, settlements and termination benefits
 
(7
)
 
—

 
(3
)
 
(56
)
 
(67
)
 
(83
)
 
—

 
(48
)
 
(6
)
Acquisitions, divestitures and other 1
 
31

 
—

 
139

 
8

 
(50
)
 
140

 
(22
)
 
—

 
30

Benefit obligation, end of year
 
$
14,419

 
$
15,913

 
$
14,782

 
$
4,609

 
$
4,737

 
$
4,299

 
$
4,784

 
$
5,453

 
$
5,381

Accumulated benefit obligation, end of year
 
$
14,056

 
$
15,132

 
$
14,055

 
$
4,247

 
$
4,329

 
$
3,744

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average assumptions used to determine benefit obligation:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Discount rate 2 
 
4.6
%
 
3.7
%
 
4.3
%
 
4.1
%
 
3.7
%
 
4.3
%
 
4.6
%
 
3.7
%
 
4.3
%
Rate of compensation increase 2 
 
4.0
%
 
4.5
%
 
4.5
%
 
4.2
%
 
3.9
%
 
3.9
%
 
4.0
%
 
4.4
%
 
4.4
%
 
1 
In 2013, charge to recognize a previously unrecorded liability related to a subsidiary's pension plans and an adjustment to other postretirement benefits related to certain other benefits. See Note 26 regarding the divestiture of the third party logistics business in 2012 and Note 24 for the acquisition of Bucyrus International in 2011.
2 
End of year rates are used to determine net periodic cost for the subsequent year. See Note 12E.
 
 
 
 
 


Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

(Millions of dollars)
 
One-percentage-
point increase
 
One-percentage-
point decrease
Effect on 2013 service and interest cost components of other postretirement benefit cost
 
$
26

 
$
(22
)
Effect on accumulated postretirement benefit obligation
 
$
274

 
$
(230
)
B.
Plan assets

 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other Postretirement 
Benefits
(Millions of dollars)
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Change in plan assets:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fair value of plan assets, beginning of year
 
$
10,981

 
$
9,997

 
$
10,760

 
$
3,426

 
$
2,818

 
$
2,880

 
$
789

 
$
814

 
$
996

Actual return on plan assets
 
1,722

 
1,235

 
(270
)
 
535

 
368

 
(83
)
 
158

 
117

 
(45
)
Foreign currency exchange rates
 
—

 
—

 
—

 
(41
)
 
47

 
(1
)
 
—

 
—

 
—

Company contributions
 
541

 
580

 
212

 
303

 
446

 
234

 
157

 
204

 
207

Participant contributions
 
—

 
—

 
—

 
10

 
9

 
9

 
57

 
48

 
44

Benefits paid
 
(845
)
 
(831
)
 
(823
)
 
(254
)
 
(190
)
 
(187
)
 
(339
)
 
(394
)
 
(388
)
Settlements and termination benefits
 
(4
)
 
—

 
—

 
(30
)
 
(72
)
 
(41
)
 
—

 
—

 
—

Acquisitions / other 1 
 
—

 
—

 
118

 
—

 
—

 
7

 
—

 
—

 
—

Fair value of plan assets, end of year
 
$
12,395

 
$
10,981

 
$
9,997

 
$
3,949

 
$
3,426

 
$
2,818

 
$
822

 
$
789

 
$
814

 
1 
See Note 24 regarding Bucyrus International in 2011.
 
 
 
 
 


Our current U.S. pension target asset allocations are 60 percent equities and 40 percent fixed income.  Our strategy includes further aligning our investments to our liabilities, while reducing risk in our portfolio. Target allocation policies will be revisited periodically to ensure they reflect the overall objectives of the fund.
 
In general, our non-U.S. pension target asset allocations reflect our investment strategy of maximizing the long-term rate of return on plan assets and the resulting funded status, within an appropriate level of risk.  The weighted-average target allocations for the non-U.S. pension plans are 59 percent equities, 32 percent fixed income, 7 percent real estate and 2 percent other.  The target allocations for each plan vary based upon local statutory requirements, demographics of plan participants and funded status.  Plan assets are primarily invested in non-U.S. securities.
 
Our target allocations for the other postretirement benefit plans are 70 percent equities and 30 percent fixed income. 
 
The U.S. plans are rebalanced to plus or minus 5 percentage points of the target asset allocation ranges on a monthly basis.  The frequency of rebalancing for the non-U.S. plans varies depending on the plan. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments except for the holdings in Caterpillar stock as discussed below.
 
The use of certain derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives.  The plans do not engage in derivative contracts for speculative purposes.
 
The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2 and 3).  See Note 18 for a discussion of the fair value hierarchy.
 
Fair values are determined as follows:
 
•
Equity securities are primarily based on valuations for identical instruments in active markets.
•
Fixed income securities are primarily based upon models that take into consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.
•
Real estate is stated at the fund’s net asset value or at appraised value.
•
Cash, short-term instruments and other are based on the carrying amount, which approximates fair value, or the fund’s net asset value.

The fair value of the pension and other postretirement benefit plan assets by category is summarized below:
 
 
 
December 31, 2013
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
4,337

 
$
—

 
$
129

 
$
4,466

Non-U.S. equities
 
3,058

 
—

 
—

 
3,058

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
2,123

 
34

 
2,157

Non-U.S. corporate bonds
 
—

 
327

 
20

 
347

U.S. government bonds
 
—

 
774

 
—

 
774

U.S. governmental agency mortgage-backed securities
 
—

 
905

 
—

 
905

Non-U.S. government bonds
 
—

 
52

 
—

 
52

 
 
 
 
 
 
 
 
 
Real estate
 
—

 
—

 
8

 
8

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
22

 
606

 
—

 
628

Total U.S. pension assets
 
$
7,417

 
$
4,787

 
$
191

 
$
12,395

 
 
 
December 31, 2012
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
4,460

 
$
3

 
$
98

 
$
4,561

Non-U.S. equities
 
2,691

 
2

 
—

 
2,693

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
1,490

 
23

 
1,513

Non-U.S. corporate bonds
 
—

 
231

 
10

 
241

U.S. government bonds
 
—

 
694

 
8

 
702

U.S. governmental agency mortgage-backed securities
 
—

 
794

 
1

 
795

Non-U.S. government bonds
 
—

 
33

 
3

 
36

 
 
 
 
 
 
 
 
 
Real estate
 
—

 
—

 
8

 
8

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
13

 
419

 
—

 
432

Total U.S. pension assets
 
$
7,164

 
$
3,666

 
$
151

 
$
10,981

 
 
 
December 31, 2011
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
 at Fair Value
U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
4,314

 
$
—

 
$
77

 
$
4,391

Non-U.S. equities
 
2,366

 
—

 
—

 
2,366

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
1,178

 
35

 
1,213

Non-U.S. corporate bonds
 
—

 
143

 
6

 
149

U.S. government bonds
 
—

 
462

 
7

 
469

U.S. governmental agency mortgage-backed securities
 
—

 
891

 
3

 
894

Non-U.S. government bonds
 
—

 
31

 
—

 
31

 
 
 
 
 
 
 
 
 
Real estate
 
—

 
—

 
8

 
8

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
48

 
428

 
—

 
476

Total U.S. pension assets
 
$
6,728

 
$
3,133

 
$
136

 
$
9,997

 
 
 
 
 
 
 
 
 

 
 
December 31, 2013
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
 at Fair Value
Non-U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
607

 
$
1

 
$
—

 
$
608

Non-U.S. equities
 
1,022

 
160

 
—

 
1,182

Global equities 1 
 
235

 
54

 
—

 
289

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
84

 
9

 
93

Non-U.S. corporate bonds
 
—

 
534

 
12

 
546

U.S. government bonds
 
—

 
3

 
—

 
3

Non-U.S. government bonds
 
—

 
418

 
—

 
418

Global fixed income 1 
 
—

 
397

 
—

 
397

 
 
 
 
 
 
 
 
 
Real estate
 
—

 
136

 
111

 
247

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other 2 
 
141

 
25

 
—

 
166

Total non-U.S. pension assets
 
$
2,005

 
$
1,812

 
$
132

 
$
3,949

 
 
 
December 31, 2012
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
Non-U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
436

 
$
2

 
$
—

 
$
438

Non-U.S. equities
 
1,038

 
118

 
—

 
1,156

Global equities 1 
 
244

 
27

 
—

 
271

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
37

 
3

 
40

Non-U.S. corporate bonds
 
—

 
494

 
2

 
496

U.S. government bonds
 
—

 
3

 
—

 
3

Non-U.S. government bonds
 
—

 
169

 
—

 
169

Global fixed income 1 
 
—

 
403

 
—

 
403

 
 
 
 
 
 
 
 
 
Real estate
 
—

 
114

 
104

 
218

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other 2 
 
185

 
47

 
—

 
232

Total non-U.S. pension assets
 
$
1,903

 
$
1,414

 
$
109

 
$
3,426

 
 
 
December 31, 2011
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
 at Fair Value
Non-U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
356

 
$
1

 
$
—

 
$
357

Non-U.S. equities
 
822

 
84

 
—

 
906

Global equities 1 
 
198

 
40

 
—

 
238

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
16

 
4

 
20

Non-U.S. corporate bonds
 
—

 
395

 
5

 
400

U.S. government bonds
 
—

 
3

 
—

 
3

Non-U.S. government bonds
 
—

 
200

 
—

 
200

Global fixed income 1 
 
—

 
363

 
—

 
363

 
 
 
 
 
 
 
 
 
Real estate
 
—

 
100

 
97

 
197

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other 2 
 
109

 
25

 
—

 
134

Total non-U.S. pension assets
 
$
1,485

 
$
1,227

 
$
106

 
$
2,818

 
1 
Includes funds that invest in both U.S. and non-U.S. securities.
2 
Includes funds that invest in multiple asset classes, hedge funds and other.
 
 
 
 
 

 
 
December 31, 2013
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
Other Postretirement Benefits
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
388

 
$
—

 
$
—

 
$
388

Non-U.S. equities
 
189

 
—

 
—

 
189

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
101

 
—

 
101

Non-U.S. corporate bonds
 
—

 
17

 
—

 
17

U.S. government bonds
 
—

 
23

 
—

 
23

U.S. governmental agency mortgage-backed securities
 
—

 
49

 
—

 
49

Non-U.S. government bonds
 
—

 
2

 
—

 
2

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
8

 
45

 
—

 
53

Total other postretirement benefit assets
 
$
585

 
$
237

 
$
—

 
$
822

 
 
 
December 31, 2012
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
 at Fair Value
Other Postretirement Benefits
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
387

 
$
—

 
$
—

 
$
387

Non-U.S. equities
 
194

 
—

 
—

 
194

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
70

 
—

 
70

Non-U.S. corporate bonds
 
—

 
11

 
—

 
11

U.S. government bonds
 
—

 
27

 
—

 
27

U.S. governmental agency mortgage-backed securities
 
—

 
33

 
—

 
33

Non-U.S. government bonds
 
—

 
2

 
—

 
2

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
18

 
47

 
—

 
65

Total other postretirement benefit assets
 
$
599

 
$
190

 
$
—

 
$
789

 
 
 
December 31, 2011
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
Other Postretirement Benefits
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
410

 
$
—

 
$
—

 
$
410

Non-U.S. equities
 
191

 
—

 
—

 
191

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 
—

 
67

 
—

 
67

Non-U.S. corporate bonds
 
—

 
8

 
—

 
8

U.S. government bonds
 
—

 
21

 
—

 
21

U.S. governmental agency mortgage-backed securities
 
—

 
47

 
—

 
47

Non-U.S. government bonds
 
—

 
1

 
—

 
1

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
4

 
65

 
—

 
69

Total other postretirement benefit assets
 
$
605

 
$
209

 
$
—

 
$
814

 
 
 
 
 


Below are roll-forwards of assets measured at fair value using Level 3 inputs for the years ended December 31, 2013, 2012 and 2011.  These instruments were valued using pricing models that, in management’s judgment, reflect the assumptions a market participant would use.
 
(Millions of dollars)
 
Equities
 
Fixed Income
 
Real Estate
 
Other
U.S. Pension
 
 

 
 

 
 

 
 

Balance at December 31, 2010
 
$
50

 
$
48

 
$
10

 
$
—

Unrealized gains (losses)
 
(4
)
 
(2
)
 
(2
)
 
—

Realized gains (losses)
 
1

 
—

 
—

 
—

Purchases, issuances and settlements, net
 
30

 
17

 
—

 
—

Transfers in and/or out of Level 3
 
—

 
(12
)
 
—

 
—

Balance at December 31, 2011
 
$
77

 
$
51

 
$
8

 
$
—

Unrealized gains (losses)
 
(4
)
 
—

 
—

 
(1
)
Realized gains (losses)
 
4

 
2

 
—

 
—

Purchases, issuances and settlements, net
 
21

 
(4
)
 
—

 
1

Transfers in and/or out of Level 3
 
—

 
(4
)
 
—

 
—

Balance at December 31, 2012
 
$
98

 
$
45

 
$
8

 
$
—

Unrealized gains (losses)
 
10

 
(1
)
 
—

 
—

Realized gains (losses)
 
4

 
—

 
—

 
—

Purchases, issuances and settlements, net
 
17

 
12

 
—

 
—

Transfers in and/or out of Level 3
 
—

 
(2
)
 
—

 
—

Balance at December 31, 2013
 
$
129

 
$
54

 
$
8

 
$
—

 
 
 
 
 
 
 
 
 
Non-U.S. Pension
 
 

 
 

 
 

 
 

Balance at December 31, 2010
 
$
1

 
$
8

 
$
90

 
$
35

Unrealized gains (losses)
 
—

 
1

 
7

 
—

Realized gains (losses)
 
—

 
—

 
—

 
3

Purchases, issuances and settlements, net
 
(1
)
 
—

 
—

 
(38
)
Transfers in and/or out of Level 3
 
—

 
—

 
—

 
—

Balance at December 31, 2011
 
$
—

 
$
9

 
$
97

 
$
—

Unrealized gains (losses)
 
—

 
—

 
8

 
—

Realized gains (losses)
 
—

 
—

 
—

 
—

Purchases, issuances and settlements, net
 
—

 
(1
)
 
(1
)
 
—

Transfers in and/or out of Level 3
 
—

 
(3
)
 
—

 
—

Balance at December 31, 2012
 
$
—

 
$
5

 
$
104

 
$
—

Unrealized gains (losses)
 
—

 
—

 
7

 
—

Realized gains (losses)
 
—

 
—

 
—

 
—

Purchases, issuances and settlements, net
 
—

 
16

 
—

 
—

Transfers in and/or out of Level 3
 
—

 
—

 
—

 
—

Balance at December 31, 2013
 
$
—

 
$
21

 
$
111

 
$
—

 
 
 
 
 
 
 
 
 

 
Equity securities within plan assets include Caterpillar Inc. common stock in the amounts of:
 
 
 
U.S. Pension Benefits 1
 
Non-U.S. Pension Benefits
 
Other Postretirement
Benefits
(Millions of dollars)
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Caterpillar Inc. common stock
 
$
495

 
$
597

 
$
653

 
$
—

 
$
1

 
$
1

 
$
—

 
$
1

 
$
1

 
1 
Amounts represent 4 percent, 5 percent and 7 percent of total plan assets for 2013, 2012 and 2011, respectively.
 
 
 
 
 
C.
Funded status
 
The funded status of the plans, reconciled to the amount reported on Statement 3, is as follows:
 
 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other Postretirement Benefits
(Millions of dollars)
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
End of Year
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fair value of plan assets
 
$
12,395

 
$
10,981

 
$
9,997

 
$
3,949

 
$
3,426

 
$
2,818

 
$
822

 
$
789

 
$
814

Benefit obligations
 
14,419

 
15,913

 
14,782

 
4,609

 
4,737

 
4,299

 
4,784

 
5,453

 
5,381

Over (under) funded status recognized in financial position
 
$
(2,024
)
 
$
(4,932
)
 
$
(4,785
)
 
$
(660
)
 
$
(1,311
)
 
$
(1,481
)
 
$
(3,962
)
 
$
(4,664
)
 
$
(4,567
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Components of net amount recognized in financial position:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Other assets (non-current asset)
 
$
5

 
$
—

 
$
—

 
$
123

 
$
30

 
$
3

 
$
—

 
$
—

 
$
—

Accrued wages, salaries and employee benefits (current liability)
 
(26
)
 
(23
)
 
(21
)
 
(29
)
 
(27
)
 
(26
)
 
(169
)
 
(169
)
 
(171
)
Liability for postemployment benefits (non-current liability)
 
(2,003
)
 
(4,909
)
 
(4,764
)
 
(754
)
 
(1,314
)
 
(1,458
)
 
(3,793
)
 
(4,495
)
 
(4,396
)
Net liability recognized
 
$
(2,024
)
 
$
(4,932
)
 
$
(4,785
)
 
$
(660
)
 
$
(1,311
)
 
$
(1,481
)
 
$
(3,962
)
 
$
(4,664
)
 
$
(4,567
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts recognized in Accumulated other comprehensive income (pre-tax) consist of:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net actuarial loss (gain)
 
$
4,396

 
$
7,286

 
$
7,044

 
$
1,373

 
$
1,907

 
$
1,712

 
$
662

 
$
1,528

 
$
1,495

Prior service cost (credit)
 
19

 
36

 
63

 
13

 
22

 
15

 
(84
)
 
(159
)
 
(188
)
Transition obligation (asset)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3

 
5

Total
 
$
4,415

 
$
7,322

 
$
7,107

 
$
1,386

 
$
1,929

 
$
1,727

 
$
578

 
$
1,372

 
$
1,312

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
The estimated amounts that will be amortized from Accumulated other comprehensive income (loss) at December 31, 2013 into net periodic benefit cost (pre-tax) in 2014 are as follows:
 
(Millions of dollars)
 
U.S.
Pension Benefits
 
Non-U.S.
Pension Benefits
 
Other
Postretirement
Benefits
Net actuarial loss (gain)
 
$
392

 
$
86

 
$
41

Prior service cost (credit)
 
17

 
1

 
(54
)
Transition obligation (asset)
 
—

 
—

 
—

Total
 
$
409

 
$
87

 
$
(13
)
 
 
 
 
 
 
 

 
The following amounts relate to our pension plans with projected benefit obligations in excess of plan assets:
 
 
 
U.S. Pension Benefits at Year-end
 
Non-U.S. Pension Benefits at Year-end
(Millions of dollars)
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Projected benefit obligation
 
$
14,352

 
$
15,913

 
$
14,782

 
$
4,177

 
$
4,310

 
$
4,293

Accumulated benefit obligation
 
$
13,989

 
$
15,132

 
$
14,055

 
$
3,820

 
$
3,903

 
$
3,738

Fair value of plan assets
 
$
12,323

 
$
10,981

 
$
9,997

 
$
3,394

 
$
2,969

 
$
2,809


 
The following amounts relate to our pension plans with accumulated benefit obligations in excess of plan assets:
 
 
 
U.S. Pension Benefits at Year-end
 
Non-U.S. Pension Benefits at Year-end
(Millions of dollars)
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Projected benefit obligation
 
$
14,352

 
$
15,913

 
$
14,782

 
$
1,436

 
$
4,107

 
$
4,112

Accumulated benefit obligation
 
$
13,989

 
$
15,132

 
$
14,055

 
$
1,374

 
$
3,752

 
$
3,600

Fair value of plan assets
 
$
12,323

 
$
10,981

 
$
9,997

 
$
797

 
$
2,806

 
$
2,661


 
The accumulated postretirement benefit obligation exceeds plan assets for all of our other postretirement benefit plans for all years presented.
D.
Expected cash flow
 
Information about the expected cash flow for the pension and other postretirement benefit plans is as follows:
 
(Millions of dollars)
 
U.S.
Pension Benefits
 
Non-U.S.
Pension Benefits
 
Other
Postretirement
Benefits
Employer contributions:
 
 

 
 

 
 

2014 (expected)
 
$
240

 
$
270

 
$
210

 
 
 
 
 
 
 
Expected benefit payments:
 
 

 
 

 
 

2014
 
$
890

 
$
250

 
$
340

2015
 
900

 
210

 
350

2016
 
910

 
220

 
350

2017
 
930

 
220

 
360

2018
 
940

 
220

 
360

2019-2023
 
4,810

 
1,200

 
1,850

Total
 
$
9,380

 
$
2,320

 
$
3,610

 
 
 
 
 
 
 

 
The above table reflects the total employer contributions and benefits expected to be paid from the plan or from company assets and does not include the participants’ share of the cost. The expected benefit payments for our other postretirement benefits include payments for prescription drug benefits. Medicare Part D subsidy amounts expected to be received by the company which will offset other postretirement benefit payments are as follows:
 
(Millions of dollars)
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019-2023
 
Total
Other postretirement benefits
 
$
20

 
$
20

 
$
20

 
$
20

 
$
20

 
$
115

 
$
215

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
E.
Net periodic cost
 
 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other Postretirement Benefits
(Millions of dollars)
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Components of net periodic benefit cost:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Service cost
 
$
196

 
$
185

 
$
158

 
$
120

 
$
108

 
$
115

 
$
108

 
$
92

 
$
84

Interest cost
 
581

 
609

 
651

 
166

 
182

 
182

 
195

 
221

 
253

Expected return on plan assets 1
 
(832
)
 
(812
)
 
(798
)
 
(225
)
 
(215
)
 
(210
)
 
(56
)
 
(63
)
 
(70
)
Other adjustments 2
 
31

 
—

 
—

 
—

 
—

 
—

 
(22
)
 
—

 
—

Curtailments, settlements and termination benefits 3 
 
—

 
7

 
—

 
2

 
38

 
19

 
—

 
(40
)
 
—

Amortization of:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Transition obligation (asset)
 
—

 
—

 
—

 
—

 
—

 
—

 
2

 
2

 
2

Prior service cost (credit) 4 
 
18

 
19

 
20

 
1

 
1

 
3

 
(73
)
 
(68
)
 
(55
)
Net actuarial loss (gain) 5
 
546

 
504

 
451

 
128

 
97

 
74

 
107

 
100

 
108

Total cost included in operating profit
 
$
540

 
$
512

 
$
482

 
$
192

 
$
211

 
$
183

 
$
261

 
$
244

 
$
322

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other changes in plan assets and benefit obligations recognized in other comprehensive income (pre-tax):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Current year actuarial loss (gain)
 
$
(2,344
)
 
$
745

 
$
2,700

 
$
(406
)
 
$
225

 
$
526

 
$
(759
)
 
$
133

 
$
408

Amortization of actuarial (loss) gain
 
(546
)
 
(504
)
 
(451
)
 
(128
)
 
(97
)
 
(72
)
 
(107
)
 
(100
)
 
(108
)
Current year prior service cost (credit)
 
—

 
(7
)
 
—

 
(7
)
 
10

 
(25
)
 
2

 
(38
)
 
(121
)
Amortization of prior service (cost) credit
 
(18
)
 
(19
)
 
(20
)
 
(1
)
 
(1
)
 
(3
)
 
73

 
68

 
55

Amortization of transition (obligation) asset
 
—

 
—

 
—

 
—

 
—

 
—

 
(2
)
 
(2
)
 
(2
)
Total recognized in other comprehensive income
 
(2,908
)
 
215

 
2,229

 
(542
)
 
137

 
426

 
(793
)
 
61

 
232

Total recognized in net periodic cost and other comprehensive income
 
$
(2,368
)
 
$
727

 
$
2,711

 
$
(350
)
 
$
348

 
$
609

 
$
(532
)
 
$
305

 
$
554

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average assumptions used to determine net cost:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Discount rate
 
3.7
%
 
4.3
%
 
5.1
%
 
3.7
%
 
4.3
%
 
4.6
%
 
3.7
%
 
4.3
%
 
5.0
%
Expected rate of return on plan assets 6 
 
7.8
%
 
8.0
%
 
8.5
%
 
6.8
%
 
7.1
%
 
7.1
%
 
7.8
%
 
8.0
%
 
8.5
%
Rate of compensation increase
 
4.5
%
 
4.5
%
 
4.5
%
 
3.9
%
 
3.9
%
 
4.1
%
 
4.4
%
 
4.4
%
 
4.4
%
1 
Expected return on plan assets developed using calculated market-related value of plan assets which recognizes differences in expected and actual returns over a three-year period.
2 
Charge to recognize a previously unrecorded liability related to a subsidiary's pension plans and an adjustment to other postretirement benefits related to certain other benefits.
3 
Curtailments, settlements and termination benefits were recognized in Other operating (income) expenses in Statement 1.
4 
Prior service cost (credit) for both pension and other postretirement benefits are generally amortized using the straight-line method over the average remaining service period of active employees expected to receive benefits from the plan. For pension plans in which all or almost all of the plan's participants are inactive and other postretirement benefit plans in which all or almost all of the plan's participants are fully eligible for benefits under the plan, prior service cost (credit) are amortized using the straight-line method over the remaining life expectancy of those participants.
5 
Net actuarial loss (gain) for pension and other postretirement benefit plans are generally amortized using the straight-line method over the average remaining service period of active employees expected to receive benefits from the plan. For plans in which all or almost all of the plan’s participants are inactive, net actuarial loss (gain) are amortized using the straight-line method over the remaining life expectancy of the inactive participants.
6 
The weighted-average rates for 2014 are 7.8 percent and 6.9 percent for U.S. and non-U.S. pension plans, respectively.
 
 
 
 
 


The assumed discount rate is used to discount future benefit obligations back to today’s dollars.  The U.S. discount rate is based on a benefit cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, December 31.  The benefit cash flow-matching approach involves analyzing Caterpillar’s projected cash flows against a high quality bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date.  The very highest and lowest yielding bonds (top and bottom 10 percent) are excluded from the analysis.  A similar process is used to determine the assumed discount rate for our most significant non-U.S. plans. This rate is sensitive to changes in interest rates. A decrease in the discount rate would increase our obligation and future expense.
 
Our U.S. expected long-term rate of return on plan assets is based on our estimate of long-term passive returns for equities and fixed income securities weighted by the allocation of our pension assets. Based on historical performance, we increase the passive returns due to our active management of the plan assets. To arrive at our expected long-term return, the amount added for active management was 1 percent for 2013, 2012 and 2011.  A similar process is used to determine this rate for our non-U.S. plans.
 
The assumed health care trend rate represents the rate at which health care costs are assumed to increase. We assumed a weighted-average increase of 7.1 percent in our calculation of 2013 benefit expense.  We expect a weighted-average increase of 6.6 percent during 2014.  The 2013 and 2014 rates are assumed to decrease gradually to the ultimate health care trend rate of 5 percent in 2019. This rate represents 3 percent general inflation plus 2 percent additional health care inflation.
F.
Other postemployment benefit plans
 
We offer long-term disability benefits, continued health care for disabled employees, survivor income benefit insurance and supplemental unemployment benefits to substantially all U.S. employees.
G.
Defined contribution plans
 
We have both U.S. and non-U.S. employee defined contribution plans to help employees save for retirement. Our primary U.S. 401(k) plan allows eligible employees to contribute a portion of their cash compensation to the plan on a tax-deferred basis. Employees with frozen defined benefit pension accruals are eligible for matching contributions equal to 100 percent of employee contributions to the plan up to 6 percent of cash compensation and an annual employer contribution that ranges from 3 to 5 percent of cash compensation (depending on years of service and age). Employees that are still accruing benefits under a defined benefit pension plan are eligible for matching contributions equal to 50 percent of employee contributions up to 6 percent of cash compensation. Various other U.S. and non-U.S. defined contribution plans allow eligible employees to contribute a portion of their salary to the plans, and in some cases, we provide a matching contribution to the funds.
 
Total company costs related to U.S. and non-U.S. defined contribution plans were as follows:
 
(Millions of dollars)
 
2013
 
2012
 
2011
U.S. plans
 
$
308

 
$
260

 
$
219

Non-U.S. plans
 
64

 
60

 
54

 
 
$
372

 
$
320

 
$
273

 
 
 
 
 
 
 
H.
Summary of long-term liability:
 
 
 
December 31,
(Millions of dollars)
 
2013
 
2012
 
2011
Pensions:
 
 

 
 

 
 

U.S. pensions
 
$
2,003

 
$
4,909

 
$
4,764

Non-U.S. pensions
 
754

 
1,314

 
1,458

Total pensions
 
2,757

 
6,223

 
6,222

Postretirement benefits other than pensions
 
3,793

 
4,495

 
4,396

Other postemployment benefits
 
99

 
81

 
73

Defined contribution
 
324

 
286

 
265

 
 
$
6,973

 
$
11,085

 
$
10,956

 
 
 
 
 
 
 

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