7.	Employee Benefit Plans

The Company’s defined benefit pension plans cover employees in the U.S. and Canada who meet eligibility requirements. The plan covering U.S. employees is noncontributory and benefits are based on the employees’ compensation during the highest five of their last ten years of credited service. The Canadian plan is contributory and benefits are based on career average compensation. The Company’s funding policy is to contribute an amount equal to the minimum required contribution under applicable pension legislation. The Company may increase its contribution above the minimum if appropriate to its tax and cash position and the plans’ funded position.

In December 2012, the U.S. defined benefit plan was amended to reflect a hard freeze as of December 31, 2013. Therefore, no further benefit accruals will be provided after that date for additional credited service or earnings. In addition, all participants will become fully vested as of December 31, 2013. The Company recorded a one-time noncash curtailment gain of $23,507,000 in connection with this amendment.

The Company also sponsors supplemental retirement plans covering employees in the U.S. and Canada and other postretirement benefit plans in the U.S. The Company uses a measurement date of December 31 for its pension and other postretirement benefit plans.


	Pension Benefits						Other Postretirement Benefits
	2012			2011			2012			2011
	(In thousands)
Changes in benefit obligation
Benefit obligation at beginning of year	$	1,958,399		$	1,689,011		$	7,514		$	12,329
Service cost		15,254			13,039			—			—
Interest cost		100,338			97,293			267			474
Plan participants’ contributions		3,962			3,887			3,074			3,412
Plan amendments		(4,217	)		—			—			362
Actuarial loss (gain)		330,028			219,804			(370	)		(3,911	)
Exchange rate changes		5,489			(4,656	)		—			—
Gross benefits paid		(67,767	)		(59,979	)		(5,112	)		(5,326	)
Less Federal subsidy		N/A			N/A			105			174
Curtailments		(175,794	)		—			—			—

Benefit obligation at end of year	$	2,165,692		$	1,958,399		$	5,478		$	7,514

The benefit obligations for the Company’s U.S. pension plans included in the above were $1,955,414,000 and $1,775,994,000 at December 31, 2012 and 2011, respectively. The total accumulated benefit obligation for the Company’s defined benefit pension plans was approximately $2,112,134,000 and $1,756,546,000 at December 31, 2012 and 2011, respectively.

The assumptions used to measure the pension and other postretirement plan benefit obligations for the plans at December 31, 2012 and 2011, were:


	Pension Benefits						Other Postretirement Benefits
	2012			2011			2012			2011
Weighted-average discount rate		4.17	%		5.17	%		3.05	%		4.00	%
Rate of increase in future compensation levels		3.30	%		3.30	%		—			—

A 7.60% annual rate of increase in the per capita cost of covered health care benefits was assumed on December 31, 2012. The rate was assumed to decrease ratably to 4.80% at December 31, 2019, and thereafter.


	Pension Benefits						Other Postretirement Benefits
	2012			2011			2012			2011
	(In thousands)
Changes in plan assets
Fair value of plan assets at beginning of year	$	1,470,030		$	1,439,711		$	—		$	—
Actual return on plan assets		168,491			31,528			—			—
Exchange rate changes		4,498			(3,598	)		—			—
Employer contributions		16,465			58,481			2,038			1,914
Plan participants’ contributions		3,962			3,887			3,074			3,412
Benefits paid		(67,767	)		(59,979	)		(5,112	)		(5,326	)

Fair value of plan assets at end of year	$	1,595,679		$	1,470,030		$	—		$	—

The fair values of plan assets for the Company’s U.S. pension plans included in the above were $1,425,047,000 and $1,320,036,000 at December 31, 2012 and 2011, respectively.

The asset allocations for the Company’s funded pension plans at December 31, 2012 and 2011, and the target allocation for 2013, by asset category were:


	Target Allocation			Percentage of Plan Assets at December 31
	2013			2012			2011
Asset Category
Equity securities		71	%		68	%		69	%
Debt securities		29	%		32	%		31	%

		100	%		100	%		100	%

The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the funds. The pension plan strategy implemented by the Company’s management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada, as well as fiduciary standards. The long-term primary objectives for the pension plans are to provide for a reasonable amount of long-term growth of capital, without undue exposure to risk, protect the assets from erosion of purchasing power, and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’s investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (49% S&P 500 Index, 5% Russell Mid Cap Index, 8% Russell 2000 Index, 5% MSCI EAFE Index, 5% DJ Global Moderate Index, and 28% BarCap U.S. Govt/Credit).

The fair values of the plan assets as of December 31, 2012 and 2011, by asset category, are shown in the tables below. Various inputs are considered when determining the value of the Company’s pension plan assets. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Level 1 represents observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 represents other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). Level 3 represents significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

The valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded on the last day of the calendar plan year. Debt securities including corporate bonds, U.S. Government securities, and asset-backed securities are valued using price evaluations reflecting the bid and/or ask sides of the market for an investment as of the last day of the calendar plan year.


	2012
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Equity Securities
Common stocks — mutual funds — equity	$	342,846	$	342,846	$	—	$	—
Genuine Parts Company		128,236		128,236		—		—
Other stocks		608,017		608,017		—		—
Debt Securities
Short-term investments		37,626		37,626		—		—
Cash and equivalents		45,719		45,719		—		—
Government bonds		166,413		74,707		91,706		—
Corporate bonds		127,824		—		127,824		—
Asset-backed and mortgage-backed securities		24,077		—		24,077		—
Other-international		10,188		10,188		—		—
Municipal bonds		532		—		532		—
Municipal funds-fixed income		101,578		—		101,578		—
Cash surrender value of life insurance policies		2,623		—		—		2,623

Total	$	1,595,679	$	1,247,339	$	345,717	$	2,623


	2011
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Equity Securities
Common stocks — mutual funds — equity	$	348,909	$	348,909	$	—	$	—
Genuine Parts Company		123,436		123,436		—		—
Other stocks		546,995		546,995		—		—
Debt Securities
Short-term investments		38,968		38,968		—		—
Cash and equivalents		16,888		16,888		—		—
Government bonds		145,966		66,334		79,632		—
Corporate bonds		127,698		—		127,698		—
Asset-backed and mortgage-backed securities		21,441		—		21,441		—
Other-international		12,084		12,084		—		—
Municipal bonds		593		—		593		—
Mutual funds-fixed income		87,052		—		87,052		—

Total	$	1,470,030	$	1,153,614	$	316,416	$	—

Equity securities include Genuine Parts Company common stock in the amounts of $128,236,000 (8.0% of total plan assets) and $123,436,000 (8.4% of total plan assets) at December 31, 2012 and 2011, respectively. Dividend payments received by the plan on Company stock totaled approximately $3,994,000 and $3,630,000 in 2012 and 2011, respectively. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.

The changes in the fair value measurement of plan assets using significant unobservable inputs (Level 3) during 2012 and the 2011 changes were not material.

Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2013 pension cost or income is 7.83% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit obligations, using capital market data and historical relationships.

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets at December 31:

Amounts recognized in the consolidated balance sheets consist of:


	Pension Benefits						Other Postretirement Benefits
	2012			2011			2012			2011
	(In thousands)
Other long-term asset	$	4,021		$	4,374		$	—		$	—
Other current liability		(5,402	)		(4,918	)		(1,122	)		(1,618	)
Pension and other post-retirement liabilities		(568,632	)		(487,825	)		(4,356	)		(5,896	)

	$	(570,013	)	$	(488,369	)	$	(5,478	)	$	(7,514	)

Amounts recognized in accumulated other comprehensive loss consist of:


	Pension Benefits						Other Postretirement Benefits
	2012			2011			2012			2011
	(In thousands)
Net actuarial loss	$	1,043,089		$	999,189		$	12,963		$	14,588
Prior service credit		(10,612	)		(37,172	)		(8,515	)		(9,445	)

	$	1,032,477		$	962,017		$	4,448		$	5,143

For the pension benefits, the following table reflects the total benefits expected to be paid from the plans’ or the Company’s assets. Of the pension benefits expected to be paid in 2013, approximately $5,471,000 is expected to be paid from employer assets. For pension benefits, expected employer contributions reflect amounts expected to be contributed to funded plans. For other postretirement benefits, the employer contributions in the table below reflect only the Company’s share of the benefit cost. Information about the expected cash flows for the pension plans and other postretirement benefit plans follows:


	Pension Benefits		Other Postretirement Benefits
	(In thousands)
Employer contribution
2013 (expected)	$	70,099	$	1,122
Expected benefit payments
2013	$	76,390	$	1,122
2014		86,670		965
2015		91,697		824
2016		97,333		644
2017		103,708		451
2018 through 2022		612,723		1,232

Net periodic benefit cost included the following components:


	Pension Benefits									Other Postretirement Benefits
	2012			2011			2010			2012			2011			2010
	(In thousands)
Service cost	$	15,254		$	13,039		$	12,312		$	—		$	—		$	—
Interest cost		100,338			97,293			95,453			267			474			605
Expected return on plan assets		(128,208	)		(124,150	)		(114,166	)		—			—			—
Amortization of prior service credit		(7,270	)		(6,970	)		(6,979	)		(930	)		(930	)		(1,059	)
Amortization of actuarial loss		70,161			53,039			35,264			1,254			1,708			1,759
Curtailment gain		(23,507	)		—			—			—			—			—

Net periodic benefit cost	$	26,768		$	32,251		$	21,884		$	591		$	1,252		$	1,305

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:


	Pension Benefits									Other Postretirement Benefits
	2012			2011			2010			2012			2011			2010
	(In thousands)
Current year actuarial loss (gain)	$	114,061		$	311,038		$	60,777		$	(371	)	$	(3,911	)	$	340
Recognition of actuarial loss		(70,161	)		(53,039	)		(35,264	)		(1,254	)		(1,708	)		(1,759	)
Current year prior service (credit) cost		(4,217	)		—			1,148			—			362			—
Recognition of prior service credit		30,777			6,970			6,979			930			930			1,059

Total recognized in other comprehensive income (loss)	$	70,460		$	264,969		$	33,640		$	(695	)	$	(4,327	)	$	(360	)

Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	97,228		$	297,220		$	55,524		$	(104	)	$	(3,075	)	$	945

The estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2013 are as follows:


	Pension Benefits			Other Post- retirement Benefits
	(In thousands)
Actuarial loss	$	84,572		$	1,124
Prior service credit		(7,598	)		(956	)

Total	$	76,974		$	168

The assumptions used in measuring the net periodic benefit costs for the plans follow:


	Pension Benefits									Other Postretirement Benefits
	2012			2011			2010			2012			2011			2010
Weighted average discount rate		5.17	%		5.74	%		6.54	%		4.00	%		4.25	%		5.20	%
Rate of increase in future compensation levels		3.30	%		3.39	%		3.75	%		—			—			—
Expected long-term rate of return on plan assets		7.84	%		7.87	%		8.00	%		—			—			—

An 8.00% annual rate of increase in the per capita cost of covered health care benefits was assumed on December 31, 2011. The rate was assumed to decrease ratably to 4.80% at December 31, 2019, and thereafter. The effect of a one-percentage-point change in the assumed health care cost trend rate is not significant.

The Company has two defined contribution plans that cover substantially all of its domestic employees. The Company’s matching contributions are determined based on the employee’s participation in the U.S. pension plan. Pension plan participants who continue earning credited service after 2008 receive a matching contribution of 20% of the first 6% of the employee’s salary. Other employees receive a matching contribution of 100% of the first 5% of the employee’s salary. In December 2012, the Company approved an amendment to merge the two plans effective January 1, 2014. Beginning in 2014, all employees will receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense for both plans was approximately $43,155,000 in 2012, $38,773,000 in 2011, and $33,476,000 in 2010.