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Pension and Other Post-Retirement Benefits
 12 Months Ended
Dec. 31, 2012
Pension and Other Post-Retirement Benefits [Abstract]  
Pension and Other Post-Retirement Benefits

16. Pension and Other Post-Retirement Benefits

 

Multi-employer Pension Plan

 

In connection with the collective bargaining agreement signed with the International Association of Machinists and Aerospace Workers (IAM), the Company contributes to a multi-employer defined benefit pension plan (IAM National Pension Fund). The level of contribution, as specified in the bargaining agreement was $1.35 per hour of employee service for a maximum of 80 hours per bi-weekly pay period through June 30, 2010. Effective July 1, 2010 the contribution per the collective bargaining agreement is $1.50 per hour of employee service for a maximum of 80 hours per bi-weekly pay period. The IAM bargaining agreement provides for a $0.05 increase per hour in the contribution rate beginning on July 1, 2011, with an additional $0.05 increase effective July 1 of each year through 2019.

 

The collective bargaining agreement with the UAW requires the Company to contribute a specified amount per hour of service to a multi-employer defined benefit pension plan (IAM National Pension Fund). The specified amount was $1.35 in 2010. Per the negotiated UAW collective bargaining agreement, the pension contributions will be as follows:

 

Effective 1/1/2011 — $1.45

Effective 1/1/2012 — $1.50

Effective 1/1/2014 — $1.55

Effective 1/1/2016 — $1.60

Effective 1/1/2018 — $1.65

Effective 1/1/2019 — $1.70

Effective 1/1/2020 — $1.75

 

The risk of this multi-employer plan is different from single-employer plans in the following aspects:

 

  • Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
  • If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
  • If the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

 

The following table summarizes the multi-employer plan to which the Company contributes:

 

  Pension Protection Act Zone StatusFIP/RP Status Pending/ ImplementedContributions of the Company Expiration Date of Collective- Bargaining Agreement
Pension FundEIN/Pension Plan Number20112012201020112012Surcharge Imposed 
IAM National Pension Fund51-60321295GreenGreenNo$ 19.9$ 22.8$ 25.9NoIAMJune 27, 2020
UAWNovember 30, 2020
           
 Year Company Contributions to Plan Exceeded More Than 5 Percent of Total Contributions (as of December 31 of the Plan's Year-End)
Pension Fund         
IAM National Pension Fund   2010, 2011, 2012 

Defined Contribution Plans

 

The Company contributes to a defined contribution plan available to all U.S. employees, excluding IAM and UAW represented employees. Under the plan, the Company makes a matching contribution of 75% of the employee contribution to a maximum 8% of eligible individual employee compensation. In addition, non-matching contributions based on an employee's age and service are paid at the end of each calendar year for certain employee groups.

 

The Company recorded $39.5, $38.4 and $37.0 in contributions to these plans for the twelve months ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively.

 

On April 1, 2006, as part of the acquisition of BAE Aerostructures, the Company established a defined contribution pension plan for those employees who are hired after the date of acquisition. Under the plan, the Company contributes 8% of basic salary while participating employees are required to contribute 4% of basic salary. The Company recorded $0.8 in contributions to this plan for the period ended December 31, 2012, and $0.7 in contributions for the period ended December 31, 2011 and $0.6 in contributions for the period ended December 31, 2010.

 

Defined Benefit Pension Plans

 

Effective June 17, 2005, pension assets and liabilities were spun-off from three Boeing qualified plans into four qualified Spirit AeroSystems plans for each Spirit employee who did not retire from Boeing by August 1, 2005. Effective December 31, 2005, all four qualified plans were merged together. In addition, Spirit has one nonqualified plan providing supplemental benefits to executives (SERP) who transferred from a Boeing nonqualified plan to a Spirit AeroSystems plan and elected to keep their benefits in this plan. Both plans are frozen as of the date of the Boeing Acquisition (i.e., no future service benefits are being earned in these plans). We intend to fund our qualified pension plan through a trust. Pension assets are placed in trust solely for the benefit of the pension plans' participants and are structured to maintain liquidity that is sufficient to pay benefit obligations.

 

On April 1, 2006, as part of the acquisition of BAE Aerostructures, the Company established a defined benefit pension plan for those employees that had pension benefits remaining in BAE Systems' pension plan. The plan is not open to new participants. The liability to the Company represents the cost of providing benefits in line with salary increases to the extent that future salary increases exceed the inflation adjustments applied to the benefits within the BAE Systems plan. BAE Systems will provide increases to past service benefits in line with inflation, subject to a maximum of 5% per annum compounded, and the Company's plan is responsible for funding the difference between the BAE Systems increases and actual salary increases. In addition, this plan provides future service benefit accruals for covered employees.

 

Other Post-Retirement Benefit Plans

 

We also have post-retirement health care coverage for eligible U.S. retirees and qualifying dependents prior to age 65. Eligibility for employer-provided benefits is limited to those employees who were employed at the date of acquisition (Spirit) and retire on or after attainment of age 62 and 10 years of service. Employees who do not satisfy these eligibility requirements can retire with post-retirement medical benefits at age 55 and 10 years of service, but they must pay the full cost of medical benefits provided.

 

Obligations and Funded Status

 

The following tables reconcile the funded status of both pension and post-retirement medical benefits to the balance on the consolidated balance sheets for the fiscal years 2012 and 2011. Benefit obligation balances presented in the tables reflect the projected benefit obligation (PBO) and accumulated benefit obligation (ABO) for our pension plans, and accumulated post-retirement benefit obligations (APBO) for our post-retirement medical plan. We use an end of fiscal year measurement date of December 31 for our U.S. pension and post-retirement medical plans as required by FASB authoritative guidance.

 

        Other 
        Post-Retirement 
  Pension Benefits Benefits 
  Periods Ended December 31, Periods Ended December 31, 
  2012 2011 2012 2011 
U.S. Plans             
Change in projected benefit obligation:             
Beginning balance  $ 909.9 $ 746.4 $ 83.8 $ 72.0 
Service cost    -   -   3.3   3.0 
Employee contributions   -   -   -   - 
Interest cost    42.5   41.9   3.5   3.7 
Actuarial (gains) and losses    135.0   127.2   (14.7)   5.3 
Benefits paid    (7.1)   (5.6)   (0.2)   (0.2) 
Projected benefit obligation at the end of the period  $ 1,080.3 $ 909.9 $ 75.7 $ 83.8 
Assumptions used to determine benefit obligation:             
Discount rate   4.69%  4.69%  2.94%  4.23% 
Rate of compensation increase   N/A  N/A  N/A  N/A 
Medical assumptions:             
Trend assumed for the year   N/A  N/A  8.50%  8.97% 
Ultimate trend rate   N/A  N/A  4.50%  4.50% 
Year that ultimate trend rate is reached   N/A  N/A  2030  2030 
Change in fair value of plan assets:             
Beginning balance  $ 1,027.2 $ 915.0 $ - $ - 
Actual return on assets    130.9   120.1   -   - 
Employer contributions to plan   -   -   0.2   0.2 
Benefits paid    (7.1)   (5.5)   (0.2)   (0.2) 
Expenses paid    (2.0)   (2.4)   -   - 
Ending balance  $ 1,149.0 $ 1,027.2 $ - $ - 
Reconciliation of funded status to net amounts recognized:             
Funded status (deficit)  $ 68.7 $ 117.3 $ 75.7 $ (83.8) 
Employer contributions between measurement date and fiscal year end    -   -   -   - 
Net amounts recognized  $ 68.7 $ 117.3 $ 75.7 $ (83.8) 
Amounts recognized in the balance sheet:             
Noncurrent assets  $ 69.9 $ 118.3 $ - $ - 
Current liabilities    -   -   (1.3)   (0.6) 
Noncurrent liabilities    (1.2)   (1.0)   (74.4)   (83.2) 
Net amounts recognized  $ 68.7 $ 117.3 $ (75.7) $ (83.8) 
Amounts not yet reflected in net periodic benefit cost and included in AOCI:             
Accumulated gain (loss)    (221.5)   (149.5)   (4.4)   (20.4) 
Accumulated other comprehensive income (AOCI)  $ (221.5) $ (149.5) $ (4.4) $ (20.4) 
Cumulative employer contributions in excess of net periodic benefit cost    290.2   266.8   (71.2)   (63.4) 
Net amount recognized in the balance sheet  $ 68.7 $ 117.3 $ (75.6) $ (83.8) 
Information for pension plans with benefit obligations in excess of plan assets:             
Projected benefit obligation/APBO  $ 1.2 $ 1.0 $ 75.7 $ 83.8 
Accumulated benefit obligation    1.2   1.0   -   - 
              
        Pension Benefits 
        Periods Ended December 31, 
U.K. Plans       2012 2011 
Change in projected benefit obligation:             
Beginning balance  $ 57.2 $ 46.4 
Service cost    7.4   6.0 
Interest cost    2.8   2.5 
Employee contributions    0.1   0.1 
Actuarial (gains) and losses    (0.2)   2.0 
Benefits paid    (0.3)   (0.3) 
Rebates from U.K. Government    0.2   1.0 
Exchange rate changes    3.1   (0.5) 
Projected benefit obligation at the end of the period  $ 70.3 $ 57.2 
Assumptions used to determine benefit obligation:       
Discount rate  4.70%  4.80% 
Rate of compensation increase   3.10%  3.20% 
Change in fair value of plan assets:             
Beginning balance  $ 57.7 $ 49.4 
Actual return on assets    8.1   (0.4) 
Company contributions    9.0   7.6 
Employee contributions    0.1   0.1 
Rebates from U.K. Government    0.9   1.7 
Benefits paid    (0.3)   (0.3) 
Exchange rate changes    3.3   (0.4) 
Ending balance  $ 78.8 $ 57.7 
Reconciliation of funded status to net amounts recognized:             
Funded status (deficit)    8.5   0.5 
Net amounts recognized  $ 8.5 $ 0.5 
Amounts recognized in the balance sheet:             
Noncurrent assets  $ 8.5 $ 0.5 
Noncurrent liabilities    -   - 
Net amounts recognized  $ 8.5 $ 0.5 
Amounts not yet reflected in net periodic benefit cost and included in AOCI:             
Accumulated gain (loss)    8.9   3.3 
Accumulated other comprehensive income (AOCI)    8.9   3.3 
Prepaid (unfunded accrued) pension cost    (0.4)   (2.8) 
Net amount recognized in the balance sheet  $ 8.5 $ 0.5 
Information for pension plans with benefit obligations in excess of plan assets:             
Projected benefit obligation/APBO  $ - $ -0
Accumulated benefit obligation    -   - 
Fair value of assets  $ - $ - 

Annual Expense

 

The components of pension and other post-retirement benefit plans expense for the U.S. plans and the assumptions used to determine benefit obligations for 2012, 2011 and 2010 are as follows:

 

     Other
     Post-Retirement
  Pension Benefits  Benefits
  Periods Ended Periods Ended
  December 31,  December 31,
U.S. Plans 2012 2011 2010 2012 2011 2010
Components of net periodic benefit cost (income):                  
Service cost  $ - $ - $ - $ 3.3 $ 3.0 $ 2.9
Interest cost    42.5   41.9  39.5   3.5   3.7  3.9
Expected return on plan assets    (71.6)   (63.8)  (61.0)   -   -   -
Amortization of net (gain) loss    5.7   -   -   1.2   0.7  0.9
Net periodic benefit cost (income)   (23.4)  (21.9)  (21.5)  8.0  7.4  7.7
Other changes recognized in OCI:                  
Total recognized in OCI (income) loss  $ 72.0 $ 73.3 $ 23.3 $ (15.9) $ 4.6 $ 2.4
Total recognized in net periodic benefit cost and OCI  $ 48.6 $ 51.4 $ 1.8 $ (7.9) $ 12.0 $ 10.1
Assumptions used to determine net periodic benefit costs:                  
Discount rate   4.69%  5.67%  6.15%  4.23%  5.33%  5.89%
Expected return on plan assets   7.00%  7.00%  7.50%  N/A  N/A  N/A
Salary increases   N/A  N/A  N/A  N/A  N/A  N/A
Medical Assumptions:                  
Trend assumed for the year   N/A  N/A  N/A  8.97%  9.47%  10.00%
Ultimate trend rate   N/A  N/A  N/A  4.50%  4.50%  4.50%
Year that ultimate trend rate is reached   N/A  N/A  N/A  2030  2030  2030

The estimated net (gain) loss that will be amortized from other comprehensive income into net periodic benefit cost over the next fiscal year for Pension Benefits is $12.2 and for Other Post-Retirement Benefits plans is zero.

 

The components of the pension benefit plan expense for the U.K. plans and the assumptions used to determine benefit obligations for 2012, 2011 and 2010 are as follows:

 

  Pension Benefits
  Periods Ended
  December 31,
U.K. Plans 2012 2011 2010
Components of net periodic benefit cost (income):         
Service cost  $ 7.4 $ 6.0 $ 5.8
Interest cost    2.8   2.5  2.1
Expected return on plan assets    (3.7)   (3.3)  (2.7)
Amortization of net gain    -   (0.3)  (0.3)
Net periodic benefit cost  $6.5 $4.9 $4.9
Other changes recognized in OCI:         
Total income recognized in OCI  $ (4.9) $ 5.9 $ (1.1)
Total recognized in net periodic benefit cost and OCI  $ 1.6 $ 10.8 $ 3.8
Assumptions used to determine net periodic benefit costs:         
Discount rate   4.80%  5.30%  5.70%
Expected return on plan assets   5.80%  6.10%  6.50%
Salary increases   3.20%  3.55%  4.20%

The estimated net (gain) loss that will be amortized from other comprehensive income into net periodic benefit cost over the next fiscal year for the U.K. plan is ($0.1).

 

Assumptions

 

The Company sets the discount rate assumption annually for each of its retirement-related benefit plans as of the measurement date, based on a review of projected cash flow and a long-term high-quality corporate bond yield curve. The discount rate determined on each measurement date is used to calculate the benefit obligation as of that date, and is also used to calculate the net periodic benefit (income)/cost for the upcoming plan year.

 

The pension expected return on assets assumption is derived from the long-term expected returns based on the investment allocation by class specified in the Company's investment policy. The expected return on plan assets determined on each measurement date is used to calculate the net periodic benefit (income)/cost of the upcoming plan year.

 

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. To determine the health care cost trend rates the Company considers national health trends and adjusts for its specific plan design and locations.

 

A one-percentage point increase in the initial through ultimate assumed health care trend rates would have increased the accumulated post-retirement benefit obligation by $6.9 at December 31, 2012 and the aggregate service and interest cost components of non-pension post-retirement benefit expense for 2012 by $0.6. A one-percentage point decrease would have decreased the obligation by $6.2 and the aggregate service and interest cost components of non-pension post-retirement benefit expense for 2012 by $0.6.

 

U.S. Plans

 

The Company's investment objective is to achieve long-term growth of capital, with exposure to risk set at an appropriate level. This objective shall be accomplished through the utilization of a diversified asset mix consisting of equities (domestic and international) and taxable fixed income securities. The allowable asset allocation range is:

 

Equities20%-50%
Fixed income50%-80%
Real estate0%-7%

Investment guidelines include that no security, except issues of the U.S. Government, shall comprise more than 5% of total Plan assets and further, no individual portfolio shall hold more than 7% of its assets in the securities of any single entity, except issues of the U.S. Government. The following derivative transactions are prohibited — leverage, unrelated speculation and “exotic” collateralized mortgage obligations or CMOs. Investments in hedge funds, private placements, oil and gas and venture capital must be specifically approved by the Company in advance of their purchase.

 

The Company's plans have asset allocations for the U.S., as of December 31, 2012 and December 31, 2011, as follows:

 

  2012 2011
Asset Category - U.S.    
Equity securities - U.S. 29% 29%
Equity securities - International 4% 4%
Debt securities 65% 65%
Real estate 2% 2%
Total 100% 100%

U.K. Plans

 

The Trustee's investment objective is to ensure that they can meet their obligation to the beneficiaries of the Plan. An additional objective is to achieve a return on the total Plan, which is compatible with the level of risk considered appropriate. The overall benchmark allocation of the Plan's assets is:

 

Equity securities55%
Debt securities40%
Property5%

The Company's plans have asset allocations for the U.K., as of December 31, 2012 and December 31, 2011, as follows:

  2012 2011
Asset Category - U.K.    
Equity securities 56% 54%
Debt securities 39% 41%
Other 5% 5%
Total 100% 100%

Projected contributions and benefit payments

 

Required pension contributions under Employee Retirement Income Security Act (ERISA) regulations are expected to be zero in 2013 and discretionary contributions are not expected in 2013. SERP and post-retirement medical plan contributions in 2013 are not expected to exceed $1.4. Expected contributions to the U.K. plan for 2013 are $9.2.

 

We monitor our defined benefit pension plan asset investments on a quarterly basis and we believe that we are not exposed to any significant credit risk in these investments.

 

The total benefits expected to be paid over the next ten years from the plans' assets or the assets of the Company, by country, are as follows:

 

  Pension Plans Other Post-Retirement Benefit Plans
U.S.    
2013 $ 12.0 $ 1.4
2014 $ 15.7 $ 3.0
2015 $ 20.0 $ 5.4
2016 $ 24.9 $ 6.2
2017 $ 30.0 $ 6.9
2018-2022 $ 229.0 $ 42.7
     
    Pension Plans
U.K.    
2013 $ 0.3
2014 $ 0.4
2015 $ 0.4
2016 $ 0.4
2017 $ 0.4
2018-2022 $ 2.1

Fair Value Measurements

 

The pension plan assets are valued at fair value. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

 

Temporary Cash Investments — These investments consist of U.S. dollars and foreign currencies held in master trust accounts. Foreign currencies held are reported in terms of U.S. dollars based on currency exchange rates readily available in active markets. These temporary cash investments are classified as level 1 investments.

 

Collective Investment Trusts — These investments are public investment vehicles valued using middle market prices and performance of the fund. The trust allocates notional units to the policy holder based on the underlying notional unit buy (offer) price using the middle market price plus transaction costs. These investments are classified within level 2 of the valuation hierarchy. In addition, the collective investment trust includes a real estate fund which is classified within level 3 of the valuation hierarchy.

 

Commingled Equity and Bond Funds — These investments are valued at the closing price reported by the Plan Trustee. These investments are not being traded in an active market, but are backed by various investment securities managed by the Bank of New York. Fair value is being calculated using unobservable inputs that rely on the Bank of New York's own assumptions and are therefore classified within level 2 of the valuation hierarchy, although these assumptions are based on underlying investments which are traded on an active market.

 

 

As of December 31, 2012 and December 31, 2011, the pension plan assets measured at fair value on a recurring basis were as follows:

 

    At December 31, 2012 Using
Description December 31, 2012 Total Quoted Prices in Active Markets for Identical Assets (Level 1)  Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
Temporary cash investments $ 0.8 $ 0.8  $ - $ -
Collective Investment Trusts $ 78.0 $ -  $ 74.1 $ 3.9
Commingled Equity and Bond Funds $ 1,149.0 $ -  $ 1,149.0 $ -
  $ 1,227.8 $ 0.8  $ 1,223.1 $ 3.9
              
     At December 31, 2011 Using
Description December 31, 2011 Total Quoted Prices in Active Markets for Identical Assets (Level 1)  Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
Temporary cash investments $ 0.2 $ 0.2  $ - $ -
Collective Investment Trusts $ 57.5 $ -  $ 54.4 $ 3.1
Commingled Equity and Bond Funds $ 1,027.2 $ -  $ 1,027.2 $ -
  $ 1,084.9 $ 0.2  $ 1,081.6 $ 3.1

The table below sets forth a summary of changes in the fair value of the Plan's level 3 investment assets and liabilities for the years ended December 31, 2012 and December 31, 2011:

 

  December 31, 2012
Description Beginning Fair Value Purchases Gain (Loss)  Sales, Maturities, Settlements, Net Exchange rate Ending Fair Value
Collective Investment Trusts $ 3.1 $ 0.6 $ 0.2  $ - $ - $ 3.9
Commingled Equity and Bond Funds $ - $ - $ -  $ - $ - $ -
  $ 3.1 $ 0.6 $ 0.2  $ - $ - $ 3.9
                    
  December 31, 2011
Description Beginning Fair Value Purchases Gain (Loss)  Sales, Maturities, Settlements, Net Exchange rate Ending Fair Value
Collective Investment Trusts $ 2.7 $ 0.9 $ (0.5)  $ - $ - $ 3.1
Commingled Equity and Bond Funds $ - $ - $ -  $ - $ - $ -
  $ 2.7 $ 0.9 $ (0.5)  $ - $ - $ 3.1