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Pension plans

Several of our subsidiaries individually sponsor defined benefit pension plans covering certain employees. Benefits under the plans are generally based on years of service and compensation, although benefits under certain plans are based on years of service and fixed benefit rates. Contributions to the plans are made, generally, to meet regulatory requirements. Additional amounts may be contributed as determined by management based on actuarial valuations.

The components of net periodic pension expense for each of the three years ending December 31, 2011 are as follows (in millions).


	2011			2010			2009
Service cost	$	191		$	165		$	162
Interest cost		568			543			455
Expected return on plan assets		(579	)		(528	)		(417	)
Other		102			69			35

Net pension expense	$	282		$	249		$	235

The accumulated benefit obligation is the actuarial present value of benefits earned based on service and compensation prior to the valuation date. As of December 31, 2011 and 2010, the accumulated benefit obligation was $11,947 million and $9,954 million, respectively. The projected benefit obligation (“PBO”) is the actuarial present value of benefits earned based upon service and compensation prior to the valuation date and, if applicable, includes assumptions regarding future compensation levels. In 2011, actuarial losses and other of $1,197 million were primarily attributable to the impact of lower discount rates used in determining the PBOs. Information regarding PBOs is shown in the table that follows (in millions).


	December 31,
	2011			2010
Projected benefit obligation, beginning of year	$	10,598		$	8,136
Service cost		191			165
Interest cost		568			543
Benefits paid		(579	)		(528	)
Business acquisitions		1,017			1,986
Actuarial (gains) or losses and other		1,197			296

Projected benefit obligation, end of year	$	12,992		$	10,598

Benefit obligations under qualified U.S. defined benefit pension plans are funded through assets held in trusts and are not included as assets in our Consolidated Financial Statements. Pension obligations under certain non-U.S. plans and non-qualified U.S. plans are unfunded. As of December 31, 2011, PBOs of non-qualified U.S. plans and non-U.S. plans which are not funded through assets held in trusts were $890 million. A reconciliation of the changes in plan assets and a summary of plan assets held as of December 31, 2011 and 2010 is presented in the table that follows (in millions).


	December 31,
	2011			2010
Plan assets at beginning of year	$	8,246		$	5,926
Employer contributions		523			776
Benefits paid		(579	)		(528	)
Actual return on plan assets		361			795
Business acquisitions		632			1,342
Other		(33	)		(65	)

Plan assets at end of year	$	9,150		$	8,246

Fair value measurements for pension assets as of December 31, 2011 and 2010 follow (in millions).


	Total Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2011
Cash and equivalents	$	830	$	797	$	33	$	—
Government obligations		915		534		380		1
Investment funds		1,872		402		1,465		5
Corporate debt obligations		1,180		95		1,085		—
Equity securities		3,618		3,432		186		—
Other		735		37		314		384

	$	9,150	$	5,297	$	3,463	$	390

December 31, 2010
Cash and equivalents	$	474	$	423	$	51	$	—
Government obligations		895		609		285		1
Investment funds		2,020		597		1,423		—
Corporate debt obligations		1,015		147		868		—
Equity securities		3,069		3,069		—		—
Other		773		54		349		370

	$	8,246	$	4,899	$	2,976	$	371

Refer to Note 17 for a discussion of the three levels in the hierarchy of fair values. Pension assets measured at fair value with significant unobservable inputs (Level 3) for the years ending December 31, 2011 and 2010 consisted primarily of real estate and limited partnership interests. Pension plan assets are generally invested with the long-term objective of earning sufficient amounts to cover expected benefit obligations, while assuming a prudent level of risk. Allocations may change as a result of changing market conditions and investment opportunities. The expected rates of return on plan assets reflect subjective assessments of expected invested asset returns over a period of several years. Generally, past investment returns are not given significant consideration when establishing assumptions for expected long-term rates of returns on plan assets. Actual experience will differ from the assumed rates.

The defined benefit pension plans expect to pay benefits to participants over the next ten years, reflecting expected future service as appropriate, as follows (in millions): 2012 – $686; 2013 – $685; 2014 – $700; 2015 – $715; 2016 – $734; and 2017 to 2021 – $3,852. Sponsoring subsidiaries expect to contribute $545 million to defined benefit pension plans in 2012.

The net funded status of the defined benefit pension plans is summarized in the table that follows (in millions).


	December 31,
	2011			2010
Amounts recognized in the Consolidated Balance Sheets:
Accounts payable, accruals and other liabilities	$	3,900		$	2,425
Other assets		(58	)		(73	)

	$	3,842		$	2,352

A reconciliation of amounts included in accumulated other comprehensive income (“AOCI”) related to defined benefit pension plans for each of the two years ending December 31, 2011 follows (in millions). We estimate that $177 million of the balance in AOCI at December 31, 2011 will be included in pension expense in 2012.


	2011			2010
Accumulated other comprehensive income (loss), beginning of year	$	(1,395	)	$	(1,368	)
Amount included in net periodic pension expense		76			53
Gains (losses) current period and other		(1,202	)		(80	)

Accumulated other comprehensive income (loss), end of year	$	(2,521	)	$	(1,395	)

Weighted average interest rate assumptions used in determining projected benefit obligations and net periodic pension expense were as follows.


	2011			2010
Applicable to pension benefit obligations:
Discount rate		4.6	%		5.4	%
Expected long-term rate of return on plan assets		6.9			7.1
Rate of compensation increase		3.7			3.7
Discount rate applicable to pension expense		5.3			5.8

Several of our subsidiaries also sponsor defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions to the plans are subject to regulatory limitations and the specific plan provisions. Several of the plans provide that the subsidiary match these contributions up to levels specified in the plans and provide for additional discretionary contributions as determined by management. Employer contributions expensed with respect to these plans were $572 million, $567 million and $540 million for the years ending December 31, 2011, 2010 and 2009, respectively.