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, we recognized a $37 million other postretirement benefits curtailment gain in the first quarter. 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. As a result, a net gain of $6 million related to the facility closure was recognized in Other operating (income) expenses in the Consolidated Statement of Results of Operations. See Note 20 for additional information.

In August 2012, we announced changes to our U.S. hourly pension plan, which impacted certain hourly employees. For impacted employees, pension benefit accruals will freeze on January 1, 2013 or January 1, 2016, at which time employees will become eligible for various provisions of company sponsored 401(k) plans including a matching contribution and an annual employer contribution. The plan changes resulted in a curtailment and required a remeasurement as of August 31, 2012. The curtailment and the remeasurement resulted in a net increase in our Liability for postemployment benefits of $243 million and a net loss of $153 million, net of tax, recognized in Accumulated other comprehensive income (loss). The increase in the liability was primarily due to a decline in the discount rate. Also, the curtailment resulted in expense of $7 million which was recognized in Other operating (income) expenses in the Consolidated Statement of Results of Operations.



(Millions of dollars)	U.S. Pension Benefits						Non-U.S. Pension Benefits						Other Postretirement Benefits
	September 30,						September 30,						September 30,
	2012			2011			2012			2011			2012			2011
For the three months ended:
Components of net periodic benefit cost:
Service cost	$	46		$	41		$	26		$	28		$	23		$	21
Interest cost	152			164			44			45			55			64
Expected return on plan assets	(204		)	(200		)	(53		)	(50		)	(15		)	(18		)
Amortization of:
Transition obligation (asset)	—			—			—			—			1			1
Prior service cost (credit) ¹	5			5			1			1			(18		)	(14		)
Net actuarial loss (gain) ¹	126			112			24			18			25			27
Net periodic benefit cost	125			122			42			42			71			81
Curtailments, settlements and special termination benefits ²	7			—			6			—			—			—
Total cost included in operating profit	$	132		$	122		$	48		$	42		$	71		$	81

For the nine months ended:
Components of net periodic benefit cost:
Service cost	$	138		$	118		$	82		$	83		$	69		$	62
Interest cost	460			488			135			132			166			190
Expected return on plan assets	(610		)	(598		)	(160		)	(150		)	(47		)	(53		)
Amortization of:
Transition obligation (asset)	—			—			—			—			2			2
Prior service cost (credit) ¹	15			15			1			2			(51		)	(41		)
Net actuarial loss (gain) ¹	374			338			72			54			75			81
Net periodic benefit cost	377			361			130			121			214			241
Curtailments, settlements and special termination benefits ²	7			—			28			9			(40		)	—
Total cost included in operating profit	$	384		$	361		$	158		$	130		$	174		$	241

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 cost (credit) and net actuarial loss (gain) 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 cost (credit) and net actuarial loss (gain) 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 $195 million and $488 million of contributions to our pension plans during the three and nine months ended September 30, 2012, respectively. We currently anticipate full-year 2012 contributions of approximately $1 billion, of which $625 million are required contributions. We made $105 million and $340 million of contributions to our pension plans during the three and nine months ended September 30, 2011, respectively.

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 percent of employee contributions to the plan up to six percent of their compensation to 50 percent 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 our defined contribution plans were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(Millions of dollars)	2012		2011		2012		2011
U.S. Plans	$	62	$	3	$	196	$	135
Non-U.S. Plans	15		14		46		40
	$	77	$	17	$	242	$	175