Annual report pursuant to Section 13 and 15(d)

PENSIONS AND OTHER POSTRETIREMENT BENEFITS

v3.3.1.900
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
 12 Months Ended
Dec. 31, 2015
Postemployment Benefits [Abstract]  
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
NOTE 7 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS
We offer defined benefit pension plans, defined contribution pension plans and other postretirement benefit plans, primarily consisting of retiree healthcare benefits, to most employees in the United States as part of a total compensation and benefits program. We do not have employee retirement benefit obligations at our Asia Pacific Iron Ore operations. The defined benefit pension plans largely are noncontributory and benefits generally are based on employees’ years of service and average earnings for a defined period prior to retirement or a minimum formula.
The labor agreements we have with the USW at our U.S. Iron Ore operations cover approximately 2,000 USW-represented employees at our Empire and Tilden mines in Michigan and our United Taconite and Hibbing mines in Minnesota, or 81.0 percent of our total U.S. Iron Ore hourly workforce. This percentage includes the U.S. Iron Ore hourly employees that are on lay-off.
We offer retiree medical coverage to hourly retirees of our USW-represented mines. The 2012 USW agreement set temporary maximum monthly medical premiums for participants who retired prior to January 1, 2015. These premium maximums expired on December 31, 2015 and reverted to increasing premiums based on the terms of the 2012 bargaining agreement. The agreements also provide for an OPEB cap that limits the amount of contributions that we have to make toward retiree medical insurance coverage for each retiree and spouse of a retiree per calendar year who retired on or after January 1, 2015.  The amount of the annual OPEB cap is based upon the gross plan costs we incurred in 2014. The OPEB cap applies to employees who retired on or after January 1, 2015 and does not apply to surviving spouses.
In addition, we currently provide various levels of retirement health care and OPEB to some full-time employees who meet certain length of service and age requirements (a portion of which is pursuant to collective bargaining agreements). Most plans require retiree contributions and have deductibles, co-pay requirements and benefit limits. Most bargaining unit plans require retiree contributions and co-pays for major medical and prescription drug coverage. There is a cap on our cost for medical coverage under the salaried plans. The annual limit applies to each covered participant and equals $7,000 for coverage prior to age 65, with the retiree’s participation adjusted based on the age at which the retiree’s benefits commence. Beginning in 2015, Cliffs changed the delivery of the post-65 salaried retiree medical benefit program, including salaried retirees from our Northshore operation, from an employer sponsored plan to the combination of an employer subsidy plan and an individual supplemental Medicare insurance plan purchased through a Medicare exchange. This allows the program to take full advantage of available government subsidies and more efficient pricing in the Medicare market. For participants at our Northshore operation, the annual limit ranges from $4,020 to $4,500 for coverage prior to age 65. Covered participants pay an amount for coverage equal to the excess of (i) the average cost of coverage for all covered participants, over (ii) the participant’s individual limit, but in no event will the participant’s cost be less than 15.0 percent of the average cost of coverage for all covered participants. For Northshore participants, the minimum participant cost is a fixed dollar amount. We do not provide OPEB for most salaried employees hired after January 1, 1993. Retiree healthcare coverage is provided through programs administered by insurance companies whose charges are based on benefits paid.
In December 2003, The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was enacted. This act introduced a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that at least actuarially is equivalent to Medicare Part D. Our measures of the accumulated postretirement benefit obligation and net periodic postretirement benefit cost as of December 31, 2004 and for periods thereafter reflect amounts associated with the subsidy. We elected to adopt the retroactive transition method for recognizing the cost reduction in 2004.
The Pinnacle and Oak Grove mines were sold in December 2015, and the liabilities representing vested benefits at the time of the sale remained with Cliffs. The sale triggered a curtailment event for the Salaried Pension Plan. Liabilities for other postretirement benefits were transferred as part of the sale, and associated adjustments were made to the Accumulated other comprehensive loss balances as they pertained to Pinnacle and Oak Grove participants in the Hourly OPEB plan. Accordingly, all amounts shown below include retained obligations of vested employees of the North American Coal mines.  Further, all disclosures presented include the annual expense, contributions and obligations associated with the retained vested benefits of these participants.
The following table summarizes the annual expense recognized related to the retirement plans for 2015, 2014 and 2013:
 
(In Millions)
 
2015
 
2014
 
2013
Defined benefit pension plans
$
23.9

 
$
26.2

 
$
46.8

Defined contribution pension plans
3.6

 
4.4

 
5.0

Other postretirement benefits
4.4

 
(2.5
)
 
3.2

Total
$
31.9

 
$
28.1

 
$
55.0


The following tables and information provide additional disclosures for our consolidated plans.
Obligations and Funded Status
The following tables and information provide additional disclosures for the periods ending December 31, 2015 and 2014:
 
(In Millions)
 
Pension Benefits
 
Other Benefits
Change in benefit obligations:
2015
 
2014
 
2015
 
2014
Benefit obligations — beginning of year
$
998.0

 
$
891.2

 
$
295.8

 
$
265.1

Service cost (excluding expenses)
22.7

 
26.1

 
1.9

 
1.9

Interest cost
37.7

 
40.2

 
11.5

 
11.9

Plan amendments
—

 
—

 
—

 
(0.9
)
Actuarial (gain) loss
(67.7
)
 
113.4

 
(27.0
)
 
37.4

Benefits paid
(78.7
)
 
(71.4
)
 
(20.6
)
 
(25.3
)
Participant contributions
—

 
—

 
4.0

 
4.8

Federal subsidy on benefits paid
—

 
—

 
0.4

 
0.9

Curtailment gain
(1.2
)
 
(1.5
)
 
—

 
—

Benefit obligations — end of year
$
910.8

 
$
998.0

 
$
266.0

 
$
295.8

 
 
 
 
 
 
 
 
Change in plan assets:
 
 
 
 
 
 
 
Fair value of plan assets — beginning of year
$
749.8

 
$
712.5

 
$
269.3

 
$
251.8

Actual return on plan assets
(6.4
)
 
59.1

 
(3.9
)
 
31.9

Participant contributions
—

 
—

 
0.4

 
0.8

Employer contributions
35.7

 
49.6

 
1.3

 
5.2

Asset transfers
0.2

 
—

 
—

 
—

Benefits paid
(78.7
)
 
(71.4
)
 
(16.5
)
 
(20.4
)
Fair value of plan assets — end of year
$
700.6

 
$
749.8

 
$
250.6

 
$
269.3

 
 
 
 
 
 
 
 
Funded status at December 31:
 
 
 
 
 
 
 
Fair value of plan assets
$
700.6

 
$
749.8

 
$
250.6

 
$
269.3

Benefit obligations
(910.8
)
 
(998.0
)
 
(266.0
)
 
(295.8
)
Funded status (plan assets less benefit obligations)
$
(210.2
)
 
$
(248.2
)
 
$
(15.4
)
 
$
(26.5
)
Amount recognized at December 31
$
(210.2
)
 
$
(248.2
)
 
$
(15.4
)
 
$
(26.5
)
 
 
 
 
 
 
 
 
Amounts recognized in Statements of Financial Position:
 
 
 
 
 
 
 
Current liabilities
$
(0.5
)
 
$
(2.2
)
 
$
(4.1
)
 
$
(4.2
)
Noncurrent liabilities
(209.7
)
 
(246.0
)
 
(11.3
)
 
(22.3
)
Net amount recognized
$
(210.2
)
 
$
(248.2
)
 
$
(15.4
)
 
$
(26.5
)
 
 
 
 
 
 
 
 
Amounts recognized in accumulated other comprehensive loss:
 
 
 
 
 
 
 
Net actuarial loss
$
290.9

 
$
311.8

 
$
91.5

 
$
99.3

Prior service cost (credit)
7.5

 
9.8

 
(39.5
)
 
(42.9
)
Net amount recognized
$
298.4

 
$
321.6

 
$
52.0

 
$
56.4

 
 
 
 
 
 
 
 
The estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2016:
 
 
 
 
 
 
 
Net actuarial loss
$
21.1

 
 
 
$
5.5

 
 
Prior service cost
2.2

 
 
 
(3.7
)
 
 
Net amount recognized
$
23.3

 
 
 
$
1.8

 
 

 
(In Millions)
 
2015
 
Pension Plans
 
Other Benefits
 
Salaried
 
Hourly
 
Mining
 
SERP
 
Total
 
Salaried
 
Hourly
 
Total
Fair value of plan assets
$
258.3

 
$
436.7

 
$
5.6

 
$
—

 
$
700.6

 
$
—

 
$
250.6

 
$
250.6

Benefit obligation
(340.0
)
 
(558.6
)
 
(8.6
)
 
(3.6
)
 
(910.8
)
 
(38.2
)
 
(227.8
)
 
(266.0
)
Funded status
$
(81.7
)
 
$
(121.9
)
 
$
(3.0
)
 
$
(3.6
)
 
$
(210.2
)
 
$
(38.2
)
 
$
22.8

 
$
(15.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
Pension Plans
 
Other Benefits
 
Salaried
 
Hourly
 
Mining
 
SERP
 
Total
 
Salaried
 
Hourly
 
Total
Fair value of plan assets
$
288.3

 
$
454.9

 
$
6.6

 
$
—

 
$
749.8

 
$
—

 
$
269.3

 
$
269.3

Benefit obligation
(379.2
)
 
(603.9
)
 
(9.2
)
 
(5.7
)
 
(998.0
)
 
(41.6
)
 
(254.2
)
 
(295.8
)
Funded status
$
(90.9
)
 
$
(149.0
)
 
$
(2.6
)
 
$
(5.7
)
 
$
(248.2
)
 
$
(41.6
)
 
$
15.1

 
$
(26.5
)

The accumulated benefit obligation for all defined benefit pension plans was $898.9 million and $980.6 million at December 31, 2015 and 2014, respectively. The decrease in the accumulated benefit obligation primarily is a result of an increase in the discount rates.
Components of Net Periodic Benefit Cost
 
(In Millions)
 
Pension Benefits
 
Other Benefits
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Service cost
$
22.7

 
$
26.1

 
$
32.9

 
$
6.4

 
$
1.8

 
$
4.0

Interest cost
37.7

 
40.3

 
36.4

 
13.4

 
11.9

 
12.6

Expected return on plan assets
(59.8
)
 
(58.1
)
 
(52.3
)
 
(18.3
)
 
(17.1
)
 
(20.0
)
Amortization:

 

 

 

 

 

Prior service costs (credits)
2.3

 
2.5

 
2.8

 
(3.7
)
 
(3.6
)
 
(3.6
)
Net actuarial loss
20.8

 
14.0

 
27.0

 
6.6

 
4.5

 
10.2

Curtailments and settlements
0.2

 
1.4

 
—

 
—

 
—

 
—

Net periodic benefit cost
$
23.9

 
$
26.2

 
$
46.8

 
$
4.4

 
$
(2.5
)
 
$
3.2

Curtailment effects
(1.2
)
 
—

 
—

 
—

 
—

 
—

Current year actuarial (gain)/loss
(0.7
)
 
109.7

 
(128.0
)
 
0.2

 
22.2

 
(68.6
)
Amortization of net loss
(21.0
)
 
(15.4
)
 
(27.0
)
 
(6.6
)
 
(4.5
)
 
(10.2
)
Current year prior service (credit) cost
—

 
—

 
0.8

 
—

 
(0.9
)
 
—

Amortization of prior service (cost) credit
(2.3
)
 
(2.5
)
 
(2.8
)
 
3.7

 
3.6

 
3.6

Total recognized in other comprehensive income
$
(25.2
)
 
$
91.8

 
$
(157.0
)
 
$
(2.7
)
 
$
20.4

 
$
(75.2
)
Total recognized in net periodic cost and other
    comprehensive income
$
(1.3
)
 
$
118.0

 
$
(110.2
)
 
$
1.7

 
$
17.9

 
$
(72.0
)

Additional Information
 
(In Millions)
 
Pension Benefits
 
Other Benefits
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Effect of change in mine ownership & noncontrolling interest
$
48.4

 
$
51.2

 
$
46.3

 
$
5.5

 
$
5.9

 
$
4.8

Actual return on plan assets
(6.4
)
 
59.1

 
80.3

 
(3.9
)
 
31.9

 
11.0


Assumptions
The discount rate for determining PBO is determined individually for each plan. For our pension and other postretirement benefit plans, we used a discount rate as of December 31, 2015 of 4.27 percent for Iron Hourly, 4.12 percent for Salaried, 4.28 percent for Ore Mining and 4.22 percent for SERP, and 4.22 percent for Salaried OPEB, and 4.32 percent for Hourly OPEB, compared with a discount rate of 3.83 percent as of December 31, 2014. The discount rates are determined by matching the projected cash flows used to determine the PBO and APBO to a projected yield curve of 688 Aa graded bonds in the 40th to 90th percentiles. These bonds are either noncallable or callable with make-whole provisions. For the year ended December 31, 2014, bonds in the 10th to 90th percentile were utilized. The portion of the increases in discount rates due to market conditions resulted in decreases to our plan projected benefit obligations of approximately $31.5 million and $13.6 million for the pension and other postretirement benefit plans, respectively. In addition, the portion of the increases in discount rates due to the change to the 40th to 90th percentiles measurement resulted in decreases to our plan projected benefit obligations of approximately $8.3 million and $2.7 million for the pension and other postretirement benefit plans, respectively.
On December 31, 2015, the assumed mortality improvement projection was changed from generational scale MP-2014 to generational scale MP-2015. The healthy mortality assumption remains the RP-2014 mortality tables with blue collar adjustments for the Iron Hourly and Hourly PRW plans, with white collar adjustments for the SERP and Salaried PRW Plan, and without collar adjustments for the Salaried and Ore Mining. The adoption of the new projection scale resulted in decreases to our projected benefit obligations totaling approximately $15.1 million or 1.5 percent for the pension plans and $7.9 million or 2 percent for the OPEB plans.
The rates of retirement and termination for certain groups were also updated as a result of a recent experience review.
Weighted-average assumptions used to determine benefit obligations at December 31 were:
 
Pension Benefits
 
Other Benefits
 
 
2015
 
2014
 
2015
 
2014
 
Discount rate
 
 
 
 
 
 
 
 
Iron Hourly Pension Plan
4.27
%
3.83
%
N/A
%
N/A
%
Salaried Pension Plan
4.12
 
3.83
 
N/A
 
N/A
 
Ore Mining Pension Plan
4.28
 
3.83
 
N/A
 
N/A
 
SERP
4.22
 
3.83
 
N/A
 
N/A
 
Hourly OPEB Plan
N/A
 
N/A
 
4.32
 
3.83
 
Salaried OPEB Plan
N/A
 
N/A
 
4.22
 
3.83
 
Salaried rate of compensation increase
3.00
 
3.00
 
3.00
 
3.00
 
Hourly rate of compensation increase (ultimate)
2.00
 
2.50
 
N/A
 
N/A
 

Weighted-average assumptions used to determine net benefit cost for the years 2015, 2014 and 2013 were:
 
Pension Benefits
 
Other Benefits
 
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
 
Discount rate
3.83
%
4.57
%
3.70
%
3.83
%
4.57
%
3.70
%
Expected return on plan assets
8.25
 
8.25
 
8.25
 
7.00
 
7.00
 
8.25
 
Salaried rate of compensation increase
3.00
 
4.00
 
4.00
 
3.00
 
4.00
 
4.00
 
Hourly rate of compensation increase
2.50
 
3.00
 
4.00
 
N/A
 
N/A
 
N/A
 

Assumed health care cost trend rates at December 31 were:
 
2015
 
2014
 
Health care cost trend rate assumed for next year
6.75
%
7.00
%
Ultimate health care cost trend rate
5.00
 
5.00
 
Year that the ultimate rate is reached
2023
 
2023
 

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A change of one percentage point in assumed health care cost trend rates would have the following effects:
 
(In Millions)
 
Increase
 
Decrease
Effect on total of service and interest cost
$
3.4

 
$
(2.6
)
Effect on postretirement benefit obligation
27.2

 
(22.6
)

Plan Assets
Our financial objectives with respect to our pension and VEBA plan assets are to fully fund the actuarial accrued liability for each of the plans, to maximize investment returns within reasonable and prudent levels of risk, and to maintain sufficient liquidity to meet benefit obligations on a timely basis.
Our investment objective is to outperform the expected ROA assumption used in the plans’ actuarial reports over the life of the plans. The expected ROA takes into account historical returns and estimated future long-term returns based on capital market assumptions applied to the asset allocation strategy. The expected return is net of investment expenses paid by the plans. In addition, investment performance is monitored on a quarterly basis by benchmarking to various indices and metrics for the one-, three- and five-year periods.
The asset allocation strategy is determined through a detailed analysis of assets and liabilities by plan, which defines the overall risk that is acceptable with regard to the expected level and variability of portfolio returns, surplus (assets compared to liabilities), contributions and pension expense.
The asset allocation review process involves simulating capital market behaviors including global asset class performance, inflation and interest rates in order to evaluate various asset allocation scenarios and determine the asset mix with the highest likelihood of meeting financial objectives. The process includes factoring in the current funded status and likely future funded status levels of the plans by taking into account expected growth or decline in the contributions over time.
The asset allocation strategy varies by plan. The following table reflects the actual asset allocations for pension and VEBA plan assets as of December 31, 2015 and 2014, as well as the 2016 weighted average target asset allocations as of December 31, 2015. Equity investments include securities in large-cap, mid-cap and small-cap companies located in the U.S. and worldwide. Fixed income investments primarily include corporate bonds and government debt securities. Alternative investments include hedge funds, private equity, structured credit and real estate.
 
Pension Assets
 
VEBA Assets
Asset Category
2016
Target
Allocation
 
Percentage of
Plan Assets at
December 31,
 
2016
Target
Allocation
 
Percentage of
Plan Assets at
December 31,
2015
 
2014
 
2015
 
2014
Equity securities
45.0
%
 
44.0
%
 
45.6
%
 
8.0
%
 
8.8
%
 
8.6
%
Fixed income
28.0
%
 
27.7
%
 
28.7
%
 
80.1
%
 
78.2
%
 
79.3
%
Hedge funds
5.0
%
 
5.8
%
 
5.5
%
 
4.2
%
 
4.5
%
 
4.3
%
Private equity
7.0
%
 
4.7
%
 
4.2
%
 
2.6
%
 
2.2
%
 
2.3
%
Structured credit
7.5
%
 
8.9
%
 
8.7
%
 
2.1
%
 
2.3
%
 
2.3
%
Real estate
7.5
%
 
8.2
%
 
6.7
%
 
3.0
%
 
4.0
%
 
3.2
%
Cash
—
%
 
0.7
%
 
0.6
%
 
—
%
 
—
%
 
—
%
Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

Pension
The fair values of our pension plan assets at December 31, 2015 and 2014 by asset category are as follows:
 
(In Millions)
 
December 31, 2015
Asset Category
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Equity securities:
 
 
 
 
 
 
 
U.S. large-cap
$
150.5

 
$
—

 
$
—

 
$
150.5

U.S. small/mid-cap
40.6

 
—

 
—

 
40.6

International
116.8

 
—

 
—

 
116.8

Fixed income
166.3

 
27.9

 
—

 
194.2

Hedge funds
—

 
—

 
40.7

 
40.7

Private equity
—

 
—

 
33.1

 
33.1

Structured credit
—

 
—

 
62.1

 
62.1

Real estate
—

 
—

 
57.5

 
57.5

Cash
5.1

 
—

 
—

 
5.1

Total
$
479.3

 
$
27.9

 
$
193.4

 
$
700.6

 
(In Millions)
 
December 31, 2014
Asset Category
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
 
Significant  Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Equity securities:
 
 
 
 
 
 
 
U.S. large-cap
$
168.4

 
$
—

 
$
—

 
$
168.4

U.S. small/mid-cap
45.9

 
—

 
—

 
45.9

International
127.7

 
—

 
—

 
127.7

Fixed income
183.1

 
31.8

 
—

 
214.9

Hedge funds
—

 
—

 
41.5

 
41.5

Private equity
—

 
—

 
31.2

 
31.2

Structured credit
—

 
—

 
65.4

 
65.4

Real estate
—

 
—

 
50.0

 
50.0

Cash
4.8

 
—

 
—

 
4.8

Total
$
529.9

 
$
31.8

 
$
188.1

 
$
749.8


Following is a description of the inputs and valuation methodologies used to measure the fair value of our plan assets.
Equity Securities
Equity securities classified as Level 1 investments include U.S. large-, small- and mid-cap investments and international equity. These investments are comprised of securities listed on an exchange, market or automated quotation system for which quotations are readily available. The valuation of these securities is determined using a market approach, and is based upon unadjusted quoted prices for identical assets in active markets.
Fixed Income
Fixed income securities classified as Level 1 investments include bonds and government debt securities. These investments are comprised of securities listed on an exchange, market or automated quotation system for which quotations are readily available. The valuation of these securities is determined using a market approach, and is based upon unadjusted quoted prices for identical assets in active markets. Also included in Fixed Income is a portfolio of U.S. Treasury STRIPS, which are zero-coupon bearing fixed income securities backed by the full faith and credit of the U.S. government. The securities sell at a discount to par because there are no incremental coupon payments. STRIPS are not issued directly by the Treasury, but rather are created by a financial institution, government securities broker or government securities dealer. Liquidity on the issue varies depending on various market conditions; however, in general the STRIPS market is slightly less liquid than that of the U.S. Treasury Bond market. The STRIPS are priced daily through a bond pricing vendor and are classified as Level 2.
Hedge Funds
Hedge funds are alternative investments comprised of direct or indirect investment in offshore hedge funds with an investment objective to achieve an attractive risk-adjusted return with moderate volatility and moderate directional market exposure over a full market cycle. The valuation techniques used to measure fair value attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. Considerable judgment is required to interpret the factors used to develop estimates of fair value. Valuations of the underlying investment funds are obtained and reviewed. The securities that are valued by the funds are interests in the investment funds and not the underlying holdings of such investment funds. Thus, the inputs used to value the investments in each of the underlying funds may differ from the inputs used to value the underlying holdings of such funds.
In determining the fair value of a security, the fund managers may consider any information that is deemed relevant, which may include one or more of the following factors regarding the portfolio security, if appropriate: type of security or asset; cost at the date of purchase; size of holding; last trade price; most recent valuation; fundamental analytical data relating to the investment in the security; nature and duration of any restriction on the disposition of the security; evaluation of the factors that influence the market in which the security is purchased or sold; financial statements of the issuer; discount from market value of unrestricted securities of the same class at the time of purchase; special reports prepared by analysts; information as to any transactions or offers with respect to the security; existence of merger proposals or tender offers affecting the security; price and extent of public trading in similar securities of the issuer or compatible companies and other relevant matters; changes in interest rates; observations from financial institutions; domestic or foreign government actions or pronouncements; other recent events; existence of shelf registration for restricted securities; existence of any undertaking to register the security; and other acceptable methods of valuing portfolio securities.
Private Equity Funds
Private equity funds are alternative investments that represent direct or indirect investments in partnerships, venture funds or a diversified pool of private investment vehicles (fund of funds).
Investment commitments are made in private equity funds based on an asset allocation strategy, and capital calls are made over the life of the funds to fund the commitments. As of December 31, 2015, remaining commitments total $48.1 million for both our pension and other benefits. Committed amounts are funded from plan assets when capital calls are made. Investment commitments are not pre-funded in reserve accounts. Refer to the valuation methodologies for equity securities above for further information.
The valuation of investments in private equity funds initially is performed by the underlying fund managers. In determining the fair value, the fund managers may consider any information that is deemed relevant, which may include: type of security or asset; cost at the date of purchase; size of holding; last trade price; most recent valuation; fundamental analytical data relating to the investment in the security; nature and duration of any restriction on the disposition of the security; evaluation of the factors that influence the market in which the security is purchased or sold; financial statements of the issuer; discount from market value of unrestricted securities of the same class at the time of purchase; special reports prepared by analysts; information as to any transactions or offers with respect to the security; existence of merger proposals or tender offers affecting the security; price and extent of public trading in similar securities of the issuer or compatible companies and other relevant matters; changes in interest rates; observations from financial institutions; domestic or foreign government actions or pronouncements; other recent events; existence of shelf registration for restricted securities; existence of any undertaking to register the security; and other acceptable methods of valuing portfolio securities.
The valuations are obtained from the underlying fund managers, and the valuation methodology and process is reviewed for consistent application and adherence to policies. Considerable judgment is required to interpret the factors used to develop estimates of fair value.
Private equity investments are valued quarterly and recorded on a one-quarter lag. For alternative investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date. Capital distributions for the funds do not occur on a regular frequency. Liquidation of these investments would require sale of the partnership interest.
Structured Credit
Structured credit investments are alternative investments comprised of collateralized debt obligations and other structured credit investments that are priced based on valuations provided by independent, third-party pricing agents, if available. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value structured credit investments at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value of such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available are valued at the last quoted sale price on the primary exchange or market on which they are traded. Debt obligations with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.
Structured credit investments are valued monthly and recorded on a one-month lag. For alternative investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date. Historically, redemption requests have been considered quarterly, subject to notice of 90 days, although the advisor is currently only requiring notice of 65 days. During the fourth quarter of 2015, a redemption request for tender of $8 million was executed in order to bring the portfolio more in line with the target allocation for this asset category. The tender was effective as of December 31, 2015, with the funds targeted for distribution during the first quarter of 2016.
Real Estate
The real estate portfolio for the pension plans is an alternative investment primarily comprised of two funds with strategic categories of real estate investments. All real estate holdings are appraised externally at least annually, and appraisals are conducted by reputable, independent appraisal firms that are members of the Appraisal Institute. All external appraisals are performed in accordance with the Uniform Standards of Professional Appraisal Practices. The property valuations and assumptions of each property are reviewed quarterly by the investment advisor and values are adjusted if there has been a significant change in circumstances relating to the property since the last external appraisal. The valuation methodology utilized in determining the fair value is consistent with the best practices prevailing within the real estate appraisal and real estate investment management industries, including the Real Estate Information Standards, and standards promulgated by the National Council of Real Estate Investment Fiduciaries, the National Association of Real Estate Investment Fiduciaries, and the National Association of Real Estate Managers. In addition, the investment advisor may cause additional appraisals to be performed. Two of the funds’ fair values are updated monthly, and there is no lag in reported values. Redemption requests for these two funds are considered on a quarterly basis, subject to notice of 45 days.
During 2011, a new real estate fund of funds investment was added for the Empire, Tilden, Hibbing and United Taconite VEBA plans as a result of the asset allocation review process. This fund invests in pooled investment vehicles that in turn invest in commercial real estate properties. Valuations are performed quarterly and financial statements are prepared on a semi-annual basis, with annual audited statements. Asset values for this fund are reported with a one-quarter lag and current market information is reviewed for any material changes in values at the reporting date. In most cases, values are based on valuations reported by underlying fund managers or other independent third-party sources, but the fund has discretion to use other valuation methods, subject to compliance with ERISA. Valuations are typically estimates and subject to upward or downward revision based on each underlying fund’s annual audit. Withdrawals are permitted on the last business day of each quarter subject to a 65-day prior written notice.
The following represents the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the years ended December 31, 2015 and 2014:
 
(In Millions)
 
Year Ended December 31, 2015
 
Hedge Funds
 
Private Equity
Funds
 
Structured
Credit Fund
 
Real
Estate
 
Total
Beginning balance — January 1, 2015
$
41.5

 
$
31.2

 
$
65.4

 
$
50.0

 
$
188.1

Actual return on plan assets:

 

 

 

 
 
Relating to assets still held at
    the reporting date
(0.8
)
 
1.5

 
(3.3
)
 
8.1

 
5.5

Relating to assets sold during
    the period
—

 
2.5

 
—

 
—

 
2.5

Purchases
—

 
5.7

 
—

 
—

 
5.7

Sales
—

 
(7.8
)
 
—

 
(0.6
)
 
(8.4
)
Ending balance — December 31, 2015
$
40.7

 
$
33.1

 
$
62.1

 
$
57.5

 
$
193.4

 
(In Millions)
 
Year Ended December 31, 2014
 
Hedge Funds
 
Private Equity
Funds
 
Structured
Credit Fund
 
Real
Estate
 
Total
Beginning balance — January 1, 2014
$
38.8

 
$
29.1

 
$
61.0

 
$
40.9

 
$
169.8

Actual return on plan assets:

 

 

 

 
 
Relating to assets still held at
    the reporting date
2.7

 
3.2

 
4.4

 
5.2

 
15.5

Relating to assets sold during
    the period
—

 
3.0

 
—

 
—

 
3.0

Purchases
—

 
1.4

 
—

 
5.4

 
6.8

Sales
—

 
(5.5
)
 
—

 
(1.5
)
 
(7.0
)
Ending balance — December 31, 2014
$
41.5

 
$
31.2

 
$
65.4

 
$
50.0

 
$
188.1


VEBA
Assets for other benefits include VEBA trusts pursuant to bargaining agreements that are available to fund retired employees’ life insurance obligations and medical benefits. The fair values of our other benefit plan assets at December 31, 2015 and 2014 by asset category are as follows:
 
(In Millions)
 
December 31, 2015
Asset Category
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Equity securities:
 
 
 
 
 
 
 
U.S. large-cap
$
11.1

 
$
—

 
$
—

 
$
11.1

U.S. small/mid-cap
2.8

 
—

 
—

 
2.8

International
8.2

 
—

 
—

 
8.2

Fixed income
158.1

 
37.9

 
—

 
196.0

Hedge funds
—

 
—

 
11.2

 
11.2

Private equity
—

 
—

 
5.5

 
5.5

Structured credit
—

 
—

 
5.8

 
5.8

Real estate
—

 
—

 
10.0

 
10.0

Cash
—

 
—

 
—

 
—

Total
$
180.2

 
$
37.9

 
$
32.5

 
$
250.6

 
(In Millions)
 
December 31, 2014
Asset Category
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Equity securities:

 

 

 

U.S. large-cap
$
11.6

 
$
—

 
$
—

 
$
11.6

U.S. small/mid-cap
2.9

 
—

 
—

 
2.9

International
8.6

 
—

 
—

 
8.6

Fixed income
174.5

 
39.1

 
—

 
213.6

Hedge funds
—

 
—

 
11.5

 
11.5

Private equity
—

 
—

 
6.2

 
6.2

Structured credit
—

 
—

 
6.1

 
6.1

Real estate
—

 
—

 
8.7

 
8.7

Cash
0.1

 
—

 
—

 
0.1

Total
$
197.7

 
$
39.1

 
$
32.5

 
$
269.3


Refer to the pension asset discussion above for further information regarding the inputs and valuation methodologies used to measure the fair value of each respective category of plan assets.
The following represents the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the year ended December 31, 2015 and 2014:
 
(In Millions)
 
Year Ended December 31, 2015
 
Hedge 
Funds
 
Private Equity
Funds
 
Structured Credit Fund
 
Real
Estate
 
Total
Beginning balance — January 1, 2015
$
11.5

 
$
6.2

 
$
6.1

 
$
8.7

 
$
32.5

Actual return on plan assets:

 

 

 

 
 
Relating to assets still held at the reporting date
(0.3
)
 
0.3

 
(0.3
)
 
1.3

 
1.0

Relating to assets sold during the period
—

 
0.4

 
—

 
—

 
0.4

Purchases
—

 
0.1

 
—

 
—

 
0.1

Sales
—

 
(1.5
)
 
—

 
—

 
(1.5
)
Ending balance — December 31, 2015
$
11.2

 
$
5.5

 
$
5.8

 
$
10.0

 
$
32.5

 
(In Millions)
 
Year Ended December 31, 2014
 
Hedge 
Funds
 
Private Equity
Funds
 
Structured Credit Fund
 
Real
Estate
 
Total
Beginning balance — January 1, 2014
$
24.6

 
$
6.0

 
$
13.5

 
$
13.2

 
$
57.3

Actual return on plan assets:

 

 

 

 
 
Relating to assets still held at the reporting date
0.5

 
1.0

 
0.4

 
0.9

 
2.8

Relating to assets sold during the period
0.6

 
0.4

 
0.4

 
0.5

 
1.9

Purchases
—

 
0.1

 
—

 
—

 
0.1

Sales
(14.2
)
 
(1.3
)
 
(8.2
)
 
(5.9
)
 
(29.6
)
Ending balance — December 31, 2014
$
11.5

 
$
6.2

 
$
6.1

 
$
8.7

 
$
32.5


Contributions
Annual contributions to the pension plans are made within income tax deductibility restrictions in accordance with statutory regulations. In the event of plan termination, the plan sponsors could be required to fund additional shutdown and early retirement obligations that are not included in the pension obligations. The Company currently has no intention to shutdown, terminate or withdraw from any of its employee benefit plans.
 
 
(In Millions)
 
 
Pension
Benefits
 
Other Benefits
Company Contributions
 
VEBA
 
Direct
Payments
 
Total
2014
 
$
49.6

 
$
—

 
$
5.5

 
$
5.5

2015
 
35.7

 
—

 
3.5

 
3.5

2016 (Expected)(1)
 
1.2

 
—

 
4.1

 
4.1

                                         
(1) 
Pursuant to the bargaining agreement, benefits can be paid from VEBA trusts that are at least 70 percent funded (all VEBA trusts are over 70 percent funded at December 31, 2015). Funding obligations have been suspended as Hibbing's, UTAC's, Tilden's and Empire's share of the value of their respective trust assets have reached 90 percent of their obligation.
VEBA plans are not subject to minimum regulatory funding requirements. Amounts contributed are pursuant to bargaining agreements.
Contributions by participants to the other benefit plans were $4.0 million for the year ended December 31, 2015 and $4.8 million for the year ended December 31, 2014.
Estimated Cost for 2016
For 2016, we estimate net periodic benefit cost as follows:
 
(In Millions)
Defined benefit pension plans
$
16.3

Other postretirement benefits
(4.4
)
Total
$
11.9


Estimated Future Benefit Payments
 
(In Millions)
 
Pension
Benefits
 
Other Benefits
Gross
Company
Benefits
 
Less
Medicare
Subsidy
 
Net
Company
Payments
2016
$
74.6

 
$
18.2

 
$
0.8

 
$
17.4

2017
63.4

 
18.3

 
0.9

 
17.4

2018
63.0

 
18.3

 
1.0

 
17.3

2019
62.4

 
18.1

 
1.1

 
17.0

2020
62.4

 
17.7

 
1.2

 
16.5

2021-2025
306.8

 
84.7

 
6.9

 
77.8


Other Potential Benefit Obligations
While the foregoing reflects our obligation, our total exposure in the event of non-performance is potentially greater. Following is a summary comparison of the total obligation:
 
(In Millions)
 
December 31, 2015
 
Defined
Benefit
Pensions
 
Other
Benefits
Fair value of plan assets
$
700.6

 
$
250.6

Benefit obligation
(910.8
)
 
(266.0
)
Underfunded status of plan
$
(210.2
)
 
$
(15.4
)
Additional shutdown and early retirement benefits
$
(23.2
)
 
$
(3.2
)