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Postretirement Benefits

3 Months Ended

Mar. 31, 2012

9. Postretirement Benefits

A. Pension and postretirement benefit costs

In February 2012, we announced the closure of the Electro-Motive Diesel facility located in London, Ontario. As a result of the closure, a $37 million other postretirement benefits curtailment gain was recognized. This excludes a $21 million loss of a third party receivable for other postretirement benefits that was eliminated due to the closure. In addition, a $10 million special termination benefit expense was recognized related to statutory pension benefits required to be paid to certain affected employees.

	U.S. Pension Benefits						Non-U.S. Pension Benefits						Other Postretirement Benefits
	March 31,						March 31,						March 31,
(Millions of dollars)	2012			2011			2012			2011			2012			2011
For the three months ended:
Components of net periodic benefit cost:
Service cost	$	46		$	39		$	28		$	27		$	24		$	21
Interest cost	154			162			45			43			55			63
Expected return on plan assets	(203		)	(199		)	(54		)	(50		)	(16		)	(18		)
Amortization of:
Transition obligation (asset)	—			—			—			—			1			1
Prior service cost (credit) (1)	5			5			—			1			(17		)	(14		)
Net actuarial loss (gain) (1)	124			113			24			18			25			27
Net periodic benefit cost	126			120			43			39			72			80
Curtailments, settlements and special termination benefits (2)	—			—			10			—			(40		)	—
Total cost included in operating profit	$	126		$	120		$	53		$	39		$	32		$	80

Weighted-average assumptions used to determine net cost:

Discount rate	4.3	%	5.1	%	4.3	%	4.6	%	4.3	%	5.0	%
Expected return on plan assets	8.0	%	8.5	%	7.1	%	7.1	%	8.0	%	8.5	%
Rate of compensation increase	4.5	%	4.5	%	3.9	%	4.2	%	4.4	%	4.4	%

(1)	Prior service costs and net actuarial losses for both pension and other postretirement benefits are generally amortized using the straight-line method over the average remaining service period to the full retirement eligibility date of employees expected to receive benefits from the plan. For other postretirement benefit plans in which all or almost all of the plan’s participants are fully eligible for benefits under the plan, prior service costs and net actuarial losses are amortized using the straight-line method over the remaining life expectancy of those participants.

(2)	Curtailments, settlements and special termination benefits were recognized in Other operating (income) expenses in the Consolidated Statement of Results of Operations.

We made $174 million of contributions to our U.S. and non-U.S. pension plans during the three months ended March 31, 2012. We currently anticipate full-year 2012 contributions of approximately $1 billion, of which $570 million are required contributions. We made $131 million of contributions to our U.S. and non-U.S. pension plans during the three months ended March 31, 2011.

B. Defined contribution benefit costs

On January 1, 2011, matching contributions to our U.S. 401(k) plan changed for certain employees that are still accruing benefits under a defined benefit pension plan. Matching contributions changed from 100% of employee contributions to the plan up to six percent of their compensation to 50% of employee contributions up to six percent of compensation. For U.S. employees whose defined benefit pension accruals were frozen as of December 31, 2010, we began providing a new annual employer contribution in 2011, which ranges from three to five percent of compensation, depending on years of service and age.

Total company costs related to U.S. and non-U.S. defined contribution plans were as follows:

	Three Months Ended March 31,
(Millions of dollars)	2012		2011
U.S. Plans	$	101	$	82
Non-U.S. Plans	14		12
	$	115	$	94