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Pension and Postretirement Benefits
 12 Months Ended
Dec. 01, 2012
Pension And Postretirement Benefits [Abstract]  
Pension and Postretirement Benefits Disclosure

Note 11: Pension and Postretirement Benefits

Defined Contribution Plan

All U.S. employees have the option of contributing up to 75 percent of their pre-tax earnings to a 401(k) plan, subject to IRS limitations. We match up to the first 4 percent of each employee's pre-tax earnings, based on the employee's contributions. All employees are eligible for a separate annual retirement contribution to the 401(k) plan of 3 percent of pay, that is invested based on the election of the individual participant. The 3 percent contribution is in addition to our 4 percent matching contribution described above and is in lieu of participation in our defined benefit pension plan. The total contribution to the 401(k) plan for 2012 was $6,606 which included the cost of the 4 percent company match of $3,535 and the additional 3 percent contribution of $3,071. The total contributions to the 401(k) plan were $5,211 and $3,602 in 2011 and 2010, respectively.

 

The defined contribution pension plan liability recorded in the Consolidated Balance Sheets was $6,702 and $4,084 in 2012 and 2011, respectively for the U.S. Plan and several statutorily required non-U.S. Plans.

 

 

Defined Benefit Plan

 

Noncontributory defined benefit pension plans cover all U.S. employees employed prior to January 1, 2007. Benefits for these plans are based primarily on each employee's years of service and average compensation. During 2011, we announced significant changes to our U.S. Pension Plan (the Plan). The changes included: benefits under the Plan were locked-in using service and salary as of May 31, 2011, participants no longer earn benefits for future service and salary as they had in the past, affected participants receive a three percent increase to the locked-in benefit for every year they continue to work for us and we are making a retirement contribution of three percent of eligible compensation to the 401(k) Plan for those participants. These changes to the Plan represented a plan curtailment as there is no longer a service cost component in the net periodic pension cost as all participants are considered inactive in the Plan. The funding policy is consistent with the funding requirements of federal law and regulations. Plan assets consist principally of listed equity securities and bonds. Other U.S. postretirement benefits are funded through a Voluntary Employees' Beneficiaries Association Trust.

 

Health care and life insurance benefits are provided for eligible retired employees and their eligible dependents. These benefits are provided through various insurance companies and health care providers. Costs are accrued during the years the employee renders the necessary service.

Certain non-U.S. subsidiaries provide pension benefits for their employees consistent with local practices and regulations. These plans are primarily defined benefit plans covering substantially all employees upon completion of a specified period of service. Benefits for these plans are generally based on years of service and annual compensation.

Following is a reconciliation of the beginning and ending balances of the benefit obligation and the fair
value of plan assets as of December 1, 2012 and December 3, 2011:      
  Pension Benefits Other Postretirement
  U.S. Plans Non-U.S. Plans Benefits
  2012 2011 2012 2011 2012 2011
Change in projected benefit obligation:          
Benefit obligation at beginning of year$ 326,627$ 315,645$ 137,439$ 138,046$ 53,749$ 55,639
Acquisition  -  -  32,162  -  -  -
Service cost  90  2,304  1,457  1,364  541  514
Interest cost  16,098  16,736  8,222  7,449  2,469  2,676
Participant contributions  -  -  -  -  665  620
Plan amendments  -  404  -  -  -  -
Actuarial (gain)/loss  67,827  18,362  34,527  (7,383)  10,157  (1,271)
Other   -  -  (139)  3,584  -  -
Curtailments  -  (11,815)  (228)  -  -  -
Settlement  -  -  (203)  (538)  -  -
Divestitures  -  -  (1,237)  -  -  -
Benefits paid  (16,019)  (15,009)  (7,640)  (6,280)  (4,375)  (4,429)
Currency change effect  -  -  (180)  1,194  -  -
Benefit obligation at end of year  394,623  326,627  204,180  137,439  63,206  53,749
             
Change in plan assets:            
Fair value of plan assets at beginning of year  304,540  301,728  124,303  119,561  37,289  35,278
Acquisition  -  -  18,839  -  -  -
Actual return on plan assets  42,282  16,307  19,272  (1,014)  5,367  1,998
Employer contributions  1,505  1,514  4,635  6,515  3,623  3,822
Participant contributions  -  -  -  -  665  620
Other  -  -  (139)  -  -  -
Benefits paid¹  (16,019)  (15,009)  (2,764)  (1,664)  (4,375)  (4,429)
Currency change effect  -  -  (60)  905  -  -
Fair value of plan assets at end of year  332,308  304,540  164,086  124,303  42,569  37,289
Plan assets in excess of (less than) benefit obligation as of year end$ (62,315)$ (22,087)$ (40,094)$ (13,136)$ (20,637)$ (16,460)
             
1 Amount excludes benefit payments made from sources other than plan assets.     

             
Amounts in accumulated other comprehensive income that have not been recognized as components of net periodic benefit cost: Pension Benefits  Other Postretirement
 U.S. Plans Non-U.S. Plans Benefits
 2012 2011 2012 2011 2012 2011
Unrecognized actuarial loss$ 170,813$ 125,367$ 77,905$ 60,910$ 51,469$ 48,761
Unrecognized prior service cost (benefit)  298  346  (24)  (30)  (10,452)  (15,145)
Ending balance$ 171,111$ 125,713$ 77,881$ 60,880$ 41,017$ 33,616

             
  Pension Benefits Other Postretirement
  U.S. Plans Non-U.S. Plans Benefits
  2012 2011 2012 2011 2012 2011
Statement of financial position as of fiscal year-end:            
Non-current assets$ -$ -$ 384$ 4,147$ -$ -
Accrued benefit cost            
Current liabilities  (1,495)  (1,500)  (3,291)  (733)  (311)  (313)
Non-current liabilities  (60,820)  (20,587)  (37,187)  (16,549)  (20,326)  (16,147)
Ending balance$ (62,315)$ (22,087)$ (40,094)$ (13,135)$ (20,637)$ (16,460)

The accumulated benefit obligation of the U.S. pension and other postretirement plans was $439,974 at December 1, 2012 and $365,117 at December 3, 2011. The accumulated benefit obligation of the non-U.S. pension plans was $194,292 at December 1, 2012 and $129,166 at December 3, 2011.

The following amounts relate to pension plans with accumulated benefit obligations in excess of plan assets as of December 1, 2012 and December 3, 2011:
         
  Pension Benefits and Other Postretirement Benefits
  U.S. Plans Non-U.S. Plans
  2012 2011 2012 2011
Accumulated benefit obligation$ 439,974$ 72,775$ 138,318$ 19,773
Fair value of plan assets  374,877  37,289  107,727  7,424
         
The following amounts relate to pension plans with projected benefit obligations in excess of plan assets as of December 1, 2012 and December 3, 2011:
         
  Pension Benefits and Other Postretirement Benefits
  U.S. Plans Non-U.S. Plans
  2012 2011 2012 2011
Projected benefit obligation$ 457,829$ 380,377$ 148,206$ 32,070
Fair value of plan assets  374,877  341,830  107,727  14,787

Information about the expected cash flows follows:   
        
  Pension Benefits Other 
  U.S. Plans Non-U.S. Plans Postretirement Benefits 
Employer contributions       
2013$ 1,495$ 2,099$ 4,237 
Expected benefit payments       
2013$ 16,666$ 10,181$ 4,237 
2014  17,210  8,171  4,234 
2015  17,757  8,571  4,212 
2016  18,369  8,616  4,200 
2017  19,076  8,905  4,186 
2018-2022  103,836  47,776  20,593 

Components of net periodic benefit cost and other supplemental information for the years ended December 1, 2012, December 3, 2011, and November 27, 2010 follow:
                   
  Pension Benefits Other
  U.S. Plans Non-U.S. Plans Postretirement Benefits
Net periodic cost (benefit): 2012 2011 2010 2012 2011 2010 2012 2011 2010
Service cost$ 90$ 2,304$ 5,496$ 1,457$ 1,364$ 1,030$ 541$ 514$ 542
Interest cost  16,098  16,736  17,104  8,222  7,449  6,990  2,469  2,676  2,923
Expected return on assets  (23,758)  (25,438)  (26,231)  (8,021)  (7,881)  (7,833)  (3,263)  (3,087)  (2,734)
Amortization:                  
Prior service cost  49  24  66  (4)  (4)  (4)  (4,693)  (4,693)  (4,636)
Actuarial (gain)/ loss  3,858  3,689  2,467  2,487  2,723  2,525  5,155  5,932  6,332
Divestitures  -  -  -  7  -  -  -  -  -
Curtailment (gain)/loss  -  101  -  46  -  -  -  -  -
Settlement charge/(credit)  -  -  -  65  -  928  -  -  -
Net periodic benefit cost (benefit)$ (3,663)$ (2,584)$ (1,098)$ 4,259$ 3,651$ 3,636$ 209$ 1,342$ 2,427

  Pension Benefits
  U.S. Plans Non-U.S. Plans  Postretirement benefits
Amounts expected to be amortized from accumulated other comprehensive income into net periodic benefit costs over next fiscal year as of December 1, 2012      
Amortization of prior service cost (benefit)$ 49$ (4)$ (4,134)
Amortization of net actuarial (gain) loss  6,742  3,706  5,717
 $ 6,791$ 3,702$ 1,583

 Pension BenefitsOther
Weighted-average assumptions used toU.S. PlansNon-U.S. PlansPostretirement Benefits
Determine benefit obligations201220112010201220112010201220112010
Discount rate 3.81%5.05%5.46%3.79%5.36%5.09%3.46%4.73%4.96%
Rate of compensation increase14.50%5.00%4.17%1.87%2.14%2.15%N/AN/AN/A
          
Weighted-average assumptions used to         
Determine net costs for years ended201220112010201220112010201220112010
Discount rate 5.05%5.46%5.69%5.26%5.10%5.18%4.73%4.96%5.30%
Expected return on plan assets8.00%8.00%7.90%6.08%6.18%6.68%8.75%8.75%8.75%
Rate of compensation increase5.00%4.17%4.19%1.86%2.13%2.15%N/AN/AN/A

1 Benefits under the U.S. Pension Plan were locked-in as of May 31, 2011 and no longer include compensation increases. The 4.5 percent rate and 5.00 percent rate for 2012 and 2011 respectively, is for the supplemental executive retirement plan only.

 

The discount rate assumption is determined using an actuarial yield curve approach, which enables us to select a discount rate that reflects the characteristics of the plan. The approach identifies a broad universe of corporate bonds that meet the quality and size criteria for the particular plan. We use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan. A lower discount rate increases the present value of the pension obligations. The discount rate for the U.S. pension plan was 3.83 percent at December 1, 2012, as compared to 5.07 percent at December 3, 2011 and 5.49 percent at November 27, 2010. Net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year. A discount rate reduction of 0.5 percentage points at December 1, 2012 would increase pension and other postretirement plan expense approximately $280 (pre-tax) in fiscal 2013. Discount rates for non-U.S. plans are determined in a manner consistent with the U.S. plan.

 

The expected long-term rate of return on plan assets assumption for the U.S. pension plan was 8.00 percent in 2012 compared to 8.00 percent for 2011 and 7.90 for 2010.  Our expected long-term rate of return on U.S. plan assets was based on our target asset allocation assumption of 60 percent equities and 40 percent fixed-income. Management, in conjunction with our external financial advisors, determines the expected long-term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward-looking observations. For 2012 the expected long-term rate of return on the target equities allocation was 9.0 percent and the expected long-term rate of return on the target fixed-income allocation was 5.5 percent. The total plan rate of return assumption included an estimate of the impact of diversification and the plan expense. A change of 0.5 percentage points for the expected return on assets assumption would impact U.S. net pension and other postretirement plan expense by approximately $1,874 (pre-tax).

 

Management, in conjunction with our external financial advisors, uses the actual historical rates of return of the asset categories to assess the reasonableness of the expected long-term rate of return on plan assets.

 

The expected long-term rate of return on plan assets assumption for non-U.S. pension plans was a weighted-average of 6.08 percent in 2012. The expected long-term rate of return on plan assets assumption used in each non-U.S. plan is determined on a plan-by-plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan.  Management, in conjunction with our external financial advisors, develops expected rates of return for each plan, considers expected long-term returns for each asset category in the plan, reviews expectations for inflation for each local jurisdiction, and estimates the impact of active management of the plan's assets. Our largest non-U.S. pension plans are in Germany and the United Kingdom respectively. The expected long-term rate of return on plan assets for Germany was 5.8 percent and the expected long-term rate of return on plan assets for the United Kingdom was 6.6 percent. Management, in conjunction with our external financial advisors, uses actual historical returns of the asset portfolio to assess the reasonableness of the expected rate of return for each plan.

 

Assumed health care trend rates201220112010
Health care cost trend rate assumed for next year7.25%7.25%7.00%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)5.00%5.00%5.00%
Fiscal year that the rate reaches the ultimate trend rate201820182015

Sensitivity Information: A one-percentage point change in the health care cost trend rate would have the following effects on the December 1, 2012 service and interest cost and the accumulated postretirement benefit obligation at December 1, 2012:

 One-Percentage Point
  Increase Decrease
Effect on service and interest cost components – annual$ 3$ (3)
Effect on accumulated postretirement benefit obligation$ 49$ (46)

The asset allocation for the company’s U.S. and non-U.S. pension plans at the end of 2011 and 2010 follows.
                  
 U.S. Pension Plans Non-U.S. Pension Plans Other Postretirement Plans
 Target  Percentage of Plan Assets at Year-End Target  Percentage of Plan Assets at Year-End Target  Percentage of Plan Assets at Year-End
Asset Category2012 2012 2011 2012 2012 2011 2012 2012 2011
Equities60.0% 60.4% 56.4% 48.6% 48.0% 44.8% 0.0% 0.0% 0.0%
Fixed income40.0% 38.8% 42.6% 48.5% 48.6% 52.6% 0.0% 0.0% 0.0%
Real Estate0.0% 0.0% 0.0% 1.1% 1.1% 0.0% 0.0% 0.0% 0.0%
Insurance0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 98.7% 98.5%
Cash0.0% 0.8% 1.0% 1.8% 2.3% 2.6% 0.0% 1.3% 1.5%
Total100% 100% 100% 100% 100% 100% 100% 100% 100%

Plan Asset Management

 

Plan assets are held in trust and invested in mutual funds, separately managed accounts and other commingled investment vehicles holding U.S. and non-U.S. equity securities, fixed income securities and other investment classes. We employ a total return approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Futures and options may also be used to enhance risk-adjusted long-term returns while improving portfolio diversification and duration. Risk management is accomplished through diversification across asset classes, utilization of multiple investment managers and general plan-specific investment policies. Risk tolerance is established through careful consideration of the plan liabilities, plan funded status and our assessment of our overall liquidity position. This asset allocation policy mix is reviewed annually and actual versus target allocations are monitored regularly and rebalanced on an as-needed basis. Plan assets are invested using a combination of active and passive investment strategies. Passive, or “indexed” strategies, attempt to mimic rather than exceed the investment performance of a market benchmark. The plans' active investment strategies employ multiple investment management firms which in aggregate cover a range of investment styles and approaches. Performance is monitored and compared to relevant benchmarks on a regular basis.

 

The U.S. pension plans consist of two plans: a pension plan and a supplemental executive retirement plan (SERP). There were no assets in the SERP in 2012 and 2011. Consequently, all of the data disclosed in the asset allocation table for the U.S. pension plans pertain to our U.S. pension plan.

 

During 2012 we maintained our assets within the allowed ranges of the target asset allocation mix of 60 percent equities and 40 percent fixed income plus or minus 5 percent and continued our focus to reduce volatility of plan assets in future periods and to more closely match the duration of the assets with the duration of the liabilities of the plan. We plan to maintain the portfolio at this target allocation in 2013.

 

The non-U.S. pension plans consist of all the pension plans administered by us outside the U.S., principally consisting of plans in Germany, the United Kingdom and Canada. During 2012 we acquired plans in the United Kingdom, Germany and France. During 2012 we maintained our assets for the non-U.S. pension plans at the specific target asset allocation mix determined for each plan plus or minus the allowed rate to reduce volatility of plan assets in future periods and to more closely match the duration of the assets with the duration of the liabilities of the individual plans. We plan to maintain the portfolios at their respective target asset allocations in 2013. For plans acquired in 2012, we plan to review the portfolios and adjust target asset allocations as needed.

 

Other postretirement benefits plans consist of two U.S. plans: a retiree medical health care plan and a group term life insurance plan. There were no assets in the group term life insurance plan for 2012 and 2011. Consequently, all of the data disclosed in the asset allocation table for other postretirement plans pertain to our retiree medical health care plan. Our investment strategy for other postretirement benefit plans is to own insurance policies that maintain an asset allocation nearly completely in equities. These equities are invested in a passive portfolio indexed to the S&P 500. Our large weighting to equities in these plans is driven by the investment options available and the relative underfunded status of the plans.

 

Fair Value of Plan Assets

 

The following table presents plan assets categorized within a three-level fair value hierarchy as described in Note 14 to the Consolidated Financial Statements.

U.S. Pension Plans  Level 1    Level 2    Level 3   Total Assets
Equities$ 121,792 $ 78,920 $ - $ 200,712
Fixed income  51,994   76,445   516   128,955
Cash  2,641   -   -   2,641
Total$ 176,427 $ 155,365 $ 516 $ 332,308
            
Non-U.S. Pension Plans  Level 1    Level 2    Level 3   Total Assets
Equities$ 30,086 $ 48,651 $ - $ 78,737
Fixed income  46,340   32,937   514   79,791
Real Estate  -   -   1,768   1,768
Cash  3,790   -   -   3,790
Total$ 80,216 $ 81,588 $ 2,282 $ 164,086
            
Other Postretirement Benefits  Level 1    Level 2    Level 3   Total Assets
Insurance$ - $ - $ 42,001 $ 42,001
Cash  568   -   -   568
Total$ 568 $ - $ 42,001 $ 42,569

The definitions of fair values of our pension and other postretirement benefit plan assets at December 1, 2012 by asset category are as follows:

 

Equities—Primarily publicly traded common stock for purposes of total return and to maintain equity exposure consistent with policy allocations. Investments include: (i) U.S. and non-U.S. equity securities and mutual funds valued at closing prices from national exchanges; and (ii) commingled funds valued at unit values or net asset values provided by the investment managers, which are based on the fair value of the underlying investments.

 

Fixed income—Primarily corporate and government debt securities for purposes of total return and managing fixed income exposure to policy allocations. Investments include (i) mutual funds valued at closing prices from national exchanges, (ii) corporate and government debt securities valued at closing prices from national exchanges, (iii) commingled funds valued at unit values or net asset value provided by the investment managers, which are based on the fair value of the underlying investments, and (iv) an annuity contract, the value of which is determined by the provider and represents the amount the plan would receive if the contract were cashed out at year-end.

 

Real Estate—Property fund for purposes of total return. Investment is a comingled property fund valued at unit value provided by the investment manager, which is based on a valuation performed by a third party provider retained by the investment manager.

 

Insurance—Insurance contracts for purposes of funding postretirement medical benefits. Fair values are the cash surrender values as determined by the providers which are the amounts the plans would receive if the contracts were cashed out at year end.

 

Cash–Cash balances on hand, accrued income and pending settlements of transactions for purposes of handling plan payments. Fair values are the cash balances as reported by the Trustees of the plans.

 

The following is a roll forward of the Level 3 investments of our pension and postretirement benefit plan assets during the year ended December 1, 2012:

U.S. Pension Plans Fixed Income  Total   
Level 3 balance at beginning of year$ 591 $ 591   
Purchases, sales, issuances and settlements, net  (75)   (75)   
Level 3 balance at end of year$ 516 $ 516   
         
         
Non-U.S. Pension Plans Fixed Income  Real Estate  Total
Acquisitions  471   1,726   2,197
Net transfers into / (out of) level 3  24   (8)   16
Net gains  25   30   55
Currency change effect  (6)   20   14
Level 3 balance at end of year$ 514 $ 1,768 $ 2,282
         
         
Other Postretirement Benefits Insurance  Total   
Level 3 balance at beginning of year$ 36,715 $ 36,715   
Net transfers into / (out of) level 3  (193)   (193)   
Purchases, sales, issuances and settlements, net  (294)   (294)   
Net gains  5,773   5,773   
Level 3 balance at end of year$ 42,001 $ 42,001