Employee Benefit Plans

The Company sponsors defined benefit pension plans principally for salaried, management personnel. For employees hired on or before December 31, 2002, the plans provide eligible employees with retirement benefits based predominantly on years of service and compensation rates near retirement. For employees hired in 2003 or thereafter, benefits are determined based on a cash balance formula, which provides benefits by utilizing interest and pay credits based upon age, service and compensation. In addition to these plans, the Company sponsors a self-insured, post-retirement medical plan and a life insurance plan that provide benefits to full-time, salaried, management employees, hired prior to January 1, 2003, upon their retirement if certain eligibility requirements are met. Prior to 2011, the post-retirement medical plan was partially funded by all participating retirees, with retiree contributions adjusted annually. Beginning in 2011, Medicare-eligible retirees are covered by a health reimbursement arrangement, which is an employer-funded account that can be used for reimbursement of eligible medical expenses. Non-Medicare eligible retirees continue to be covered by the existing self-insured program. The life insurance plan is non-contributory.

The Company engages independent, external actuaries to compute the amounts of liabilities and expenses related to these plans subject to the assumptions that the Company selects. In order to perform this valuation, the actuaries are provided with the details of the population covered at the beginning of the year, summarized in the table below, and projects that population forward to the end of the year.



	Summary of Participants as of
	January 1, 2011
	Pension Plans	Post-retirement Medical Plan
Active Employees	4,879	2,827
Retirees and Beneficiaries	11,360	12,234
Other^(a)	6,340	62
Total	22,579	15,123

(a) For pension plans, the other category consists mostly of terminated but vested former employees. For post-retirement plans, the other category consists of employees on long-term disability that have not yet retired.

The benefit obligation for these plans represents the liability of the Company for current and retired employees and is affected primarily by the following:


•	service cost (benefits attributed to employee service during the period);


•	interest cost (interest on the liability due to the passage of time);


•	actuarial gains/losses (experience during the year different from that assumed and changes in plan assumptions); and


•	benefits paid to participants.

NOTE 8. Employee Benefit Plans, continued

Cash Flows

Plan assets are amounts that have been segregated and restricted to provide qualified pension plan benefits and include amounts contributed by the Company and amounts earned from invested contributions, net of benefits paid. Qualified pension plan obligations are funded in accordance with prescribed regulatory requirements and with an objective of meeting minimum funding requirements necessary to avoid restrictions on flexibility of plan operation and benefit payments. At the current time, the Company estimates making a required minimum contribution of approximately $25 million and expects to make an additional discretionary contribution to its qualified pension plans in 2012. The Company funds the cost of the post-retirement medical and life insurance benefits as well as nonqualified pension benefits on a pay-as-you go basis.

Future expected benefit payments are as follows:



	Expected Cash Flows
(Dollars in Millions)	Pension Benefits		Post-retirement Benefits
2012	$	170	$	42
2013	174		40
2014	175		38
2015	177		36
2016	181		35
2017-2020	917		146
Total	$	1,794	$	337

Plan Assets

The CSX Investment Committee (the “Investment Committee”), whose members were selected by the Chief Financial Officer and approved by the Chief Executive Officer, is responsible for oversight and investment of plan assets. The Investment Committee utilizes an investment asset allocation strategy that is monitored on an ongoing basis and that is updated periodically in consideration of plan or employee changes, or changing market conditions. These studies provide an extensive modeling of asset investment return in conjunction with projected plan liabilities and seek to evaluate how to maximize return within the constraints of acceptable risk. The current asset allocation targets 60% equity investments and 40% fixed income investments. Within equity, a further target is currently established for 40% of total plan assets in domestic equity and 20% in international equity. These allocations are managed to be within 3% of the planned allocation, with reallocations occurring quarterly.

At December 2011, both the accumulated benefit obligation and the projected benefit obligation exceeded the plan assets of each pension plan. The distribution of pension plan assets as of the measurement date is shown in the table below, and these assets are netted against the pension liabilities on the balance sheet. The funded status, or amount by which the benefit obligation exceeds the fair value of plan assets, represents a liability.

NOTE 8. Employee Benefit Plans, continued



	December 2011				December 2010
			Percent of				Percent of
(Dollars in Millions)	Amount		Total Assets		Amount		Total Assets
Equity	$	1,064	57	%	$	1,126	61	%
Fixed Income	755		41		717		39
Cash and Cash Equivalents	31		2		8		—
Total	$	1,850	100	%	$	1,851	100	%

Under the supervision of the Investment Committee, individual investments or fund managers are selected in accordance with standards of prudence applicable to asset diversification and investment suitability. The Company also selects fund managers with differing investment styles and benchmarks their investment returns against appropriate indices. Fund investment performance is continuously monitored. Acceptable performance is determined in the context of the long-term return objectives of the fund and appropriate asset class benchmarks.

Within the Company's equity funds, the U.S. stock segment includes diversification among large and small capitalization stocks. Guidelines established with individual managers limit investment by industry sectors, individual stock issuer concentration and the use of derivatives and CSX securities.

Fixed income securities guidelines established with individual managers specify the types of allowable investments, such as government, corporate and asset-backed bonds, and limit diversification between domestic and foreign investments and the use of derivatives. Additionally, guidelines stipulate minimum credit quality constraints and any prohibited securities.

For detailed information regarding the fair value of pension assets, see Note 15, Fair Value Measurements.

NOTE 8. Employee Benefit Plans, continued

Benefit Obligation, Plan Assets and Funded Status

Changes in benefit obligation and the fair value of plan assets for the 2011 and 2010 calendar plan years are as follows:



	Pension Benefits						Post-retirement Benefits
	Plan Year			Plan Year			Plan Year			Plan Year
(Dollars in Millions)	2011			2010			2011			2010
Actuarial Present Value of Benefit Obligation
Accumulated Benefit Obligation	$	2,516		$	2,354		N/A			N/A
Projected Benefit Obligation	2,668			2,487			$	388		$	383
Change in Projected Benefit Obligation:
Projected Benefit Obligation at Beginning of Plan Year	$	2,487		$	2,395		$	383		$	406
Service Cost	40			41			2			5
Interest Cost	121			122			11			20
Plan Participants' Contributions	—			—			7			16
Plan Amendments	—			(9		)	—			(6		)
Actuarial (Gain)/Loss	175			91			32			(11		)
Benefits Paid	(155		)	(153		)	(47		)	(47		)
Benefit Obligation at End of Plan Year	$	2,668		$	2,487		$	388		$	383
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Plan Year	$	1,851		$	1,781		$	—		$	—
Actual Return on Plan Assets	141			210			—			—
Non-qualified Employer Contributions	13			13			40			31
Plan Participants' Contributions	—			—			7			16
Benefits Paid	(155		)	(153		)	(47		)	(47		)
Fair Value of Plan Assets at End of Plan Year	$	1,850		$	1,851		—			—
Funded Status at End of Plan Year	$	(818	)	$	(636	)	$	(388	)	$	(383	)

NOTE 8. Employee Benefit Plans, continued

For qualified plan funding purposes, assets and discounted liabilities are measured in accordance with ERISA, as well as other related provisions of the Internal Revenue Code and related regulations. Under these funding provisions and the alternative measurements available thereunder, the Company estimates its unfunded obligation for qualified plans on an annual basis.

In accordance with Compensation-Retirement Benefits Topic in the ASC, an employer must recognize the funded status of a pension or other post-retirement benefit plan by recording a liability (underfunded plan) or asset (overfunded plan) for the difference between the projected benefit obligation (or the accumulated post-retirement benefit obligation for a postretirement benefit plan) and the fair value of plan assets at the plan measurement date. Amounts related to pension and post-retirement benefits recorded in labor and fringe benefits payable and other long-term liabilities on the balance sheet are as follows:



	Pension Benefits						Post-retirement Benefits
	December			December			December			December
(Dollars in Millions)	2011			2010			2011			2010
Amounts Recorded in Consolidated
Balance Sheets:
Current Liabilities	$	(15	)	$	(13	)	$	(42	)	$	(41	)
Long-term Liabilities	(803		)	(623		)	(346		)	(342		)
Net Amount Recognized in
Consolidated Balance Sheet	$	(818	)	$	(636	)	$	(388	)	$	(383	)

CSX has a liability for the amount by which the benefit obligation exceeds the fair value of plan assets. As of December 30, 2011, both the accumulated benefit obligation and the projected benefit obligation exceeded the plan assets of each pension plan.

Net Benefit Expense

The following table describes the components of expense/(income) related to net benefit expense recorded in labor and fringe on the income statement.



	Pension Benefits Fiscal Years									Post-retirement Benefits Fiscal Years
(Dollars in Millions)	2011			2010			2009			2011			2010		2009
Service Cost	$	40		$	41		$	32		$	2		$	5	$	5
Interest Cost	121			122			129			11			20		25
Expected Return on Plan Assets	(157		)	(165		)	(154		)	—			—		—
Amortization of Net Loss	71			58			26			7			7		4
Amortization of Prior Service Cost	—			—			2			(1		)	—		—
Net Periodic Benefit Expense	$	75		$	56		$	35		$	19		$	32	$	34
Settlement Gain^(a)	(2		)	(2		)	—			—			—		—
Total Expense	$	73		$	54		$	35		$	19		$	32	$	34


(a)	In 2011 and 2010, in one of the company's pension plans, the lump-sum payments exceeded the sum of the service cost and interest cost recognized. As such, the company was required to recognize a portion of its accumulated other comprehensive income related to that plan into earnings.

NOTE 8. Employee Benefit Plans, continued

Pension and Other Post-Employment Benefits Adjustments

The following table shows the pre-tax change in other comprehensive loss (income) attributable to the components of net expense and the change in benefit obligation for CSX for pension and other post-employment benefits.



(Dollars in Millions)	Pension Benefits						Post-retirement Benefits
Components of Other Comprehensive	December			December			December			December
Loss (Income)	2011			2010			2011			2010
Recognized in the balance sheet
Losses (Gains)	$	191		$	48		$	25		$	(9	)
Prior service credits	$	—		$	(9	)	$	—		$	(6	)
Expense (Income) recognized in the income statement
Amortization of net losses ^(a)	$	71		$	58		$	7		$	7
Settlement gain	$	(2	)	$	(2	)	$	—		$	—
Amortization of prior service costs ^(b)	$	—		$	—		$	(1	)	$	—


(a)	The estimated amount to be expensed for 2012 is $82 million and $9 million for pension benefits and post-retirement benefits, respectively. The increase in the pension expense is largely related to additional amortization of the losses incurred by the pension plan assets during 2011.


(b)	Remaining prior service costs to be expensed in 2012 are less than $1 million. The estimated post-retirement benefits amount to be credited to expense for 2012 is $1 million.

As of December 30, 2011, the balances of pre-tax amounts to be amortized that are included in accumulated other comprehensive loss (a component of shareholders’ equity) are as follows:



	Pension Benefits		Post-retirement Benefits
Losses	$	1,169	$	102
Prior Service Costs (Credits)	1		(5		)
Total	$	1,170	$	97

Assumptions

Weighted-average assumptions used in accounting for the plans were as follows:



	Pension Benefits				Post-retirement Benefits
	2011		2010		2011		2010
Expected Long-term Return on Plan Assets:
Benefit Cost for Plan Year	8.25	%	8.50	%	N/A		N/A
Benefit Obligation at End of Plan Year	8.00	%	8.25	%	N/A		N/A
Discount Rates:
Benefit Cost for Plan Year	5.00	%	5.25	%	4.50	%	4.75	%
Benefit Obligation at End of Plan Year	4.75	%	5.00	%	4.25	%	4.50	%
Salary Scale Inflation	4.00	%	4.00	%	N/A		N/A

NOTE 8. Employee Benefit Plans, continued

The net post-retirement benefit obligation for salaried, management personnel was determined using the following assumptions for the health care cost trend rate for medical plans. While it is expected that rates will decrease to 5% by 2018, there may be yearly fluctuations. Additionally, there are cost differentials between Medicare and Non-Medicare eligible individuals which are reflected below.



	Post-retirement Benefits
	2011	2010
Health Care Cost Trend Rate:
Components of Benefit Cost: Non-Medicare Eligible	8.5%	8.5%
Components of Benefit Cost: Medicare Eligible	8.0%	8.0%
Benefit Obligations: Non-Medicare Eligible	8.5%	8.5%
Benefit Obligations: Medicare Eligible	8.0%	8.0%

For every 1% change in the assumed health care cost trend rate, service and interest cost will change by less than $1 million on a pre-tax basis on the consolidated income statements. For every 1% change in the health care cost trend rate, the Company’s benefit obligation will change by $1 million on the consolidated balance sheets.

Medicare Prescription Drug, Improvement and Modernization Act of 2003

As required by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), the Company previously determined that its medical plan’s prescription drug benefit qualified for tax free federal reimbursements that would be paid under the Act. In 2011, the Company implemented a health reimbursement arrangement in lieu of the prescription drug plan. As a result, the Company is no longer eligible for tax free federal reimbursement benefits for prescription drug claims. However, in 2011, the Company received $2 million in tax free federal reimbursements for prescription drug claims primarily related to the 2010 plan year, as well as $5 million and $3 million in 2010 and 2009, respectively.

Other Plans

Under collective bargaining agreements, the Company participates in a multi-employer benefit plan, which provides certain post-retirement health care and life insurance benefits to eligible contract employees. Premiums under this plan are expensed as incurred and amounted to $48 million, $45 million and $35 million in 2011, 2010 and 2009, respectively.

The Company maintains savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements. Expense associated with these plans was $28 million, $28 million and $24 million for 2011, 2010 and 2009, respectively.