GE 2014 Annual Report Download - page 83

GE 2014 FORM 10-K 63
MD&A OTHER CONSOLIDATED INFORMATION
Operating earnings include service cost and prior service cost amortization for our principal pension 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 $1.7 billion in 2015. The expected increase in operating pension costs is
attributable primarily to the effects of lower discount rates and new mortality assumptions.
The GE Pension Plan was underfunded by $15.8 billion at the end of 2014 as compared to $4.7 billion at December 31, 2013.
The GE Supplementary Pension Plan, which is an unfunded plan, had projected benefit obligations (PBO) of $6.6 billion and
$5.2 billion at December 31, 2014 and 2013, respectively. Our underfunding at year-end 2014 was significantly higher
compared to 2013 primarily due to lower discount rates and new mortality assumptions. The decrease in our principal pension
plans’ discount rate increased the PBO at year-end 2014 by approximately $7.7 billion. The new mortality assumptions
increased our PBO by approximately $4.0 billion at December 31, 2014. Our GE Pension Plan assets were $48.3 billion at the
end of both 2014 and 2013 as 2014 investment returns and participant contributions were offset by benefit payments made
during the year. Assets of the GE Pension Plan are held in trust, solely for the benefit of Plan participants, and are not
available for general company operations.
In August 2014, the U.S. Government enacted the “Highway and Transportation Funding Act ”(HATFA), 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 did not contribute to the GE Pension Plan in either 2014 or 2013. On an ERISA basis, our
preliminary estimate is that the GE Pension Plan was approximately 104% funded at January 1, 2015. The ERISA funded
status is higher than the GAAP funded status primarily because the ERISA prescribed interest rate in HATFA is calculated
using an average interest rate. As a result, the ERISA interest rate is higher than the year-end GAAP discount rate. The higher
ERISA interest rate lowers pension liabilities for ERISA funding purposes. Our current estimate projects that we will not be
required to make minimum pension funding contributions to the GE Pension Plan in 2015 or 2016.
At December 31, 2014, the fair value of assets for our other pension plans was $3.2 billion less than the respective projected
benefit obligations. The comparable amount at December 31, 2013, was $2.5 billion. This increase was primarily attributable to
lower discount rates, which were partially offset by investment returns. We expect to contribute $0.5 billion to our other
pension plans in 2015, as compared to $0.7 billion in both 2014 and 2013.
The unfunded liability for our principal retiree health and life plans was $9.9 billion and $9.0 billion at December 31, 2014 and
2013, respectively. This increase was primarily attributable to the effects of lower discount rates (retiree health and life plans’
discount rate decreased from 4.61% at December 31, 2013 to 3.89% at December 31, 2014) and new mortality assumptions,
which were partially offset by an amendment to our post-65 retiree health coverage. We fund our retiree health benefits on a
pay-as-you-go basis. We expect to contribute $0.5 billion to these plans in 2015 compared with actual contributions of $0.5
billion in both 2014 and 2013.
The funded status of our postretirement benefits plans and future effects on operating results depend primarily on economic
conditions and investment performance. For additional information about funded status, components of earnings effects and
actuarial assumptions, see Note 12 to the consolidated financial statements in this Form 10-K Report.
INCOME TAXES
Income taxes have a significant effect on our net earnings. As a global commercial enterprise, our tax rates are affected by
many factors, including our global mix of earnings, the extent to which those global earnings are indefinitely reinvested outside
the United States, legislation, acquisitions, dispositions and tax characteristics of our income. Our tax rates are also affected
by tax incentives introduced in the U.S. and other countries in furtherance of policies to encourage and support certain types of
activity. Our tax returns are routinely audited and settlements of issues raised in these audits sometimes affect our tax
provisions.