GE 2013 Annual Report Download - page 38

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36 GE 2013 ANNUAL REPORT
POSTRETIREMENT BENEFIT PLANS costs were $6.0 billion,
$5.5 billion and $4.1 billion in 2013, 2012 and 2011, respectively.
Costs increased in 2013 and 2012 primarily due to the continued
amortization of 2008 investment losses and the effects of lower
discount rates (principal pension plans discount rate decreased
from 5.28% at December 31, 2010 to 4.21% and 3.96% at
December 31, 2011 and 2012, respectively).
Our discount rate for our principal pension plans at
December 31, 2013 was 4.85%, which refl ected current interest
rates. Considering the current and target asset allocations, as
well as historical and expected returns on various categories of
assets in which our plans are invested, we have assumed that
long-term returns on our principal pension plan assets will be
7.5% for cost recognition in 2014, a reduction from the 8.0% we
assumed in 2013, 2012 and 2011. GAAP provides for recognition
of differences between assumed and actual returns over a period
no longer than the average future service of employees. See the
Critical Accounting Estimates section for additional information.
We expect the costs of our postretirement benefi ts to
decrease in 2014 by approximately $1.3 billion as compared to
2013, primarily because of the effects of higher discount rates
and lower loss amortization related to our principal pension
plans, partially offset by lower expected investment return on
pension plan assets.
Pension expense for our principal pension plans on a GAAP
basis was $4.4 billion, $3.8 billion and $2.4 billion in 2013, 2012
and 2011, respectively. Operating pension costs (non-GAAP) for
these plans were $1.8 billion, $1.7 billion and $1.4 billion in 2013,
2012 and 2011, respectively. Operating earnings include service
cost and prior service cost amortization for our principal pen-
sion plans as these costs represent expenses associated with
employee service. Operating earnings exclude non-operating
pension costs/income such as interest cost, expected return on
plan assets and non-cash amortization of actuarial gains and
losses. We expect operating pension costs for these plans will
be about $1.4 billion in 2014. The expected decrease in operating
pension costs is attributable primarily to the effects of higher dis-
count rates and lower early retirement costs.
The GE Pension Plan was underfunded by $4.7 billion at the
end of 2013 as compared to $13.3 billion at December 31, 2012.
The GE Supplementary Pension Plan, which is an unfunded plan,
had projected benefi t obligations of $5.2 billion and $5.5 billion
at December 31, 2013 and 2012, respectively. Our underfund-
ing at year-end 2013 was signifi cantly reduced as compared to
2012 as the effects of higher discount rates and higher invest-
ment returns (14.6% return in 2013) more than offset liability
growth. Our principal pension plans discount rate increased from
3.96% at December 31, 2012 to 4.85% at December 31, 2013,
which decreased the pension benefi t obligation at year-end
2013 by approximately $6.8 billion. Our GE Pension Plan assets
increased from $44.7 billion at the end of 2012 to $48.3 billion at
December 31, 2013, primarily driven by higher investment returns
that were partially offset by benefi t payments made during the
year. Assets of the GE Pension Plan are held in trust, solely for
the benefi t of Plan participants, and are not available for general
company operations.
On July 6, 2012, the U.S. government enacted the “Moving
Ahead for Progress in the 21st Century Act”, which contained
provisions that changed the interest rate methodology used
to calculate Employee Retirement Income Security Act (ERISA)
minimum pension funding requirements in the U.S. This change
reduced our near-term annual cash funding requirements for the
GE Pension Plan. We contributed $0.4 billion to the GE Pension
Plan in 2012. We did not contribute to the GE Pension Plan
in 2013.
On an ERISA basis, our preliminary estimate is that the GE
Pension Plan was approximately 97% funded at January 1, 2014.
We will contribute approximately $0.5 billion to the GE Pension
Plan in 2014. Our current estimate of the projected 2015 GE
Pension Plan required contribution is approximately $2.4 billion.
At December 31, 2013, the fair value of assets for our other
pension plans was $2.5 billion less than the respective projected
benefi t obligations. The comparable amount at December 31,
2012, was $3.9 billion. This decrease was primarily attributable to
higher discount rates and higher investment returns. We expect
to contribute $0.8 billion to our other pension plans in 2014, as
compared to $0.7 billion in both 2013 and 2012.
The unfunded liability for our principal retiree health and life
plans was $9.0 billion and $10.9 billion at December 31, 2013 and
2012, respectively. This decrease was primarily attributable to
the effects of higher discount rates (retiree health and life plans
discount rate increased from 3.74% at December 31, 2012 to
4.61% at December 31, 2013) and lower costs from new health-
care supplier contracts. We fund our retiree health benefi ts on a
pay-as-you-go basis. We expect to contribute $0.5 billion to these
plans in 2014 compared with actual contributions of $0.5 billion in
both 2013 and 2012.
The funded status of our postretirement benefi ts plans and
future effects on operating results depend on economic condi-
tions and investment performance. For additional information
about funded status, components of earnings effects and actuar-
ial assumptions, see Note 12.
OTHER COSTS AND EXPENSES are primarily selling, general and
administrative expenses (SG&A). GE’s costs were 15.9%, 17.5%
and 18.5% of total sales in 2013, 2012 and 2011, respectively.
The 2013 decrease was primarily driven by the effects of global
cost reduction initiatives both in the industrial segments and
corporate as a result of our simplifi cation efforts, partially offset
by increased acquisition-related costs and higher restructuring.
The 2012 decrease was driven by increased sales and the effects
of global cost reduction initiatives, partially offset by increased
acquisition-related costs at GE.
INTEREST ON BORROWINGS AND OTHER FINANCIAL CHARGES
amounted to $10.1 billion, $12.4 billion and $14.4 billion in 2013,
2012 and 2011, respectively. Substantially all of our borrowings
are in fi nancial services, where interest expense was $9.3 billion,
$11.6 billion and $13.8 billion in 2013, 2012 and 2011, respec-
tively. GECC average borrowings declined from 2012 to 2013
and from 2011 to 2012, in line with changes in average GECC