Pension, Other Postretirement Benefits and Savings Plans

We provide employees with defined benefit pension or defined contribution savings plans. Our principal U.S. hourly pension plans are closed to new entrants and provide benefits based on length of service. The principal U.S. salaried pension plans are frozen and provide benefits based on final five-year average earnings formulas. Salaried employees who made voluntary contributions to these plans receive higher benefits.

During 2012, we recognized a settlement charge of $9 million related to the purchase of annuities from existing plan assets to settle obligations of one of our U.K. pension plans.

During 2011, we recognized settlement charges of $15 million related to one of our U.S. pension plans. These settlement charges resulted from total lump sum payments exceeding annual service and interest cost for the plan.

During 2010, we recognized curtailment and termination benefit charges for pensions of $76 million in connection with the closure of Union City. Also in 2010, we recognized a settlement charge of $15 million related to the purchase of annuities from existing plan assets to settle obligations of certain Canadian pension plans.

In addition, we provide certain U.S. employees and employees at certain non-U.S. subsidiaries with health care benefits or life insurance benefits upon retirement. Substantial portions of the health care benefits for U.S. salaried retirees are not insured and are funded from operations.

During the third quarter of 2012, we announced changes to our U.S. and Canadian salaried other postretirement benefit plans, effective January 1, 2013. The changes consist primarily of eliminating coverage for participants who are or become at least age 65 and eligible for government subsidized programs. As a result of these actions, we were required to remeasure the benefit obligations of the affected plans which resulted in the reduction of our U.S. other postretirement benefit obligation by $56 million and our Canadian other postretirement benefit obligation by $18 million. The discount rate used to measure the benefit obligation of our U.S. salaried other postretirement benefit plans at August 31, 2012 was 3.0%, compared to 4.0% at December 31, 2011. The discount rate used to measure the benefit obligation of our Canadian salaried other postretirement benefit plan at August 31, 2012 was 4.0%, compared to 4.25% at December 31, 2011.

Total benefits cost and amounts recognized in other comprehensive (income) loss follows:



	Pension Plans
	U.S.									Non-U.S.									Other Postretirement Benefits
(In millions)	2012			2011			2010			2012			2011			2010			2012			2011			2010
Benefits cost:
Service cost	$	39		$	41		$	39		$	31		$	32		$	25		$	6		$	6		$	5
Interest cost	261			283			296			143			150			145			24			30			33
Expected return on plan assets	(299		)	(306		)	(280		)	(117		)	(131		)	(126		)	(1		)	—			(1		)
Amortization of prior service cost (credit)	23			23			31			2			2			2			(40		)	(37		)	(37		)
Amortization of net losses	179			134			133			45			38			35			11			10			9
Net periodic cost	203			175			219			104			91			81			—			9			9
Curtailments/settlements	1			15			33			11			1			15			—			—			8
Termination benefits	—			—			43			1			1			—			—			—			—
Total benefits cost	$	204		$	190		$	295		$	116		$	93		$	96		$	—		$	9		$	17
Recognized in other comprehensive (income) loss before tax and minority:
Prior service cost (credit) from plan amendments	$	—		$	—		$	—		$	6		$	—		$	1		$	(82	)	$	—		$	—
Increase (decrease) in net actuarial losses	665			735			143			372			45			(12		)	(4		)	15			59
Amortization of prior service (cost) credit in net periodic cost	(23		)	(23		)	(31		)	(2		)	(2		)	(2		)	40			37			37
Amortization of net losses in net periodic cost	(179		)	(134		)	(133		)	(43		)	(38		)	(35		)	(11		)	(10		)	(9		)
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures	(1		)	(15		)	(40		)	(11		)	(4		)	(16		)	—			—			(8		)
Total recognized in other comprehensive (income) loss before tax and minority	462			563			(61		)	322			1			(64		)	(57		)	42			79
Total recognized in total benefits cost and other comprehensive (income) loss before tax and minority	$	666		$	753		$	234		$	438		$	94		$	32		$	(57	)	$	51		$	96

Total benefits (credit) cost for our other postretirement benefits was $(17) million, $(12) million and $(1) million for our U.S. plans in 2012, 2011 and 2010, respectively, and $17 million, $21 million and $18 million for our non-U.S. plans in 2012, 2011 and 2010, respectively. Total benefits cost for our other postretirement benefits includes a settlement charge of $7 million in 2010 for participant data for our U.S. plans related to prior periods.

We use the fair value of our pension assets in the calculation of pension expense for substantially all of our pension plans.

The estimated prior service cost and net actuarial loss for the defined benefit pension plans that will be amortized from AOCL into benefits cost in 2013 are $17 million and $211 million, respectively, for our U.S. plans and $1 million and $63 million, respectively, for our non-U.S. plans.

The estimated prior service credit and net actuarial loss for the other postretirement benefit plans that will be amortized from AOCL into benefits cost in 2013 are a benefit of $46 million and expense of $13 million, respectively.

The Medicare Prescription Drug Improvement and Modernization Act provides plan sponsors a federal subsidy for certain qualifying prescription drug benefits covered under the sponsor’s postretirement health care plans. Our other postretirement benefits cost is presented net of this subsidy.

The change in benefit obligation and plan assets for 2012 and 2011 and the amounts recognized in our Consolidated Balance Sheet at December 31, 2012 and 2011 are as follows:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2012			2011			2012			2011			2012			2011
Change in benefit obligation:
Beginning balance	$	(5,975	)	$	(5,641	)	$	(2,736	)	$	(2,696	)	$	(582	)	$	(604	)
Newly adopted plans	—			—			(24		)	—			—			—
Service cost — benefits earned	(39		)	(41		)	(31		)	(32		)	(6		)	(6		)
Interest cost	(261		)	(283		)	(143		)	(150		)	(24		)	(30		)
Plan amendments	—			—			—			—			82			—
Actuarial (loss) gain	(863		)	(452		)	(383		)	(84		)	6			(17		)
Participant contributions	—			—			(3		)	(2		)	(31		)	(34		)
Curtailments/settlements	1			27			39			16			—			—
Termination benefits	—			—			(1		)	(1		)	—			—
Divestitures	—			—			—			5			—			1
Foreign currency translation	—			—			(88		)	53			2			15
Benefit payments	381			415			150			155			79			93
Ending balance	$	(6,756	)	$	(5,975	)	$	(3,220	)	$	(2,736	)	$	(474	)	$	(582	)
Change in plan assets:
Beginning balance	$	3,523		$	3,714		$	2,091		$	2,074		$	6		$	7
Actual return on plan assets	497			23			158			155			—			1
Company contributions to plan assets	454			193			193			40			2			3
Cash funding of direct participant payments	8			35			29			26			46			56
Participant contributions	—			—			3			2			31			34
Settlements	(1		)	(27		)	(39		)	(15		)	—			—
Divestitures	—			—			—			(1		)	—			(1		)
Foreign currency translation	—			—			69			(35		)	—			(1		)
Benefit payments	(381		)	(415		)	(150		)	(155		)	(79		)	(93		)
Ending balance	$	4,100		$	3,523		$	2,354		$	2,091		$	6		$	6
Funded status at end of year	$	(2,656	)	$	(2,452	)	$	(866	)	$	(645	)	$	(468	)	$	(576	)

Other postretirement benefits funded status was $(246) million and $(322) million for our U.S. plans at December 31, 2012 and 2011, respectively, and $(222) million and $(254) million for our non-U.S. plans at December 31, 2012 and 2011, respectively.

Amounts recognized in the Consolidated Balance Sheets consist of:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2012			2011			2012			2011			2012			2011
Current assets	$	—		$	—		$	2		$	—		$	—		$	—
Noncurrent assets	—			—			33			33			—			—
Current liabilities	(8		)	(10		)	(23		)	(21		)	(39		)	(52		)
Noncurrent liabilities	(2,648		)	(2,442		)	(878		)	(657		)	(429		)	(524		)
Net amount recognized	$	(2,656	)	$	(2,452	)	$	(866	)	$	(645	)	$	(468	)	$	(576	)

Amounts recognized in AOCL, net of tax, consist of:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2012			2011			2012			2011			2012			2011
Prior service cost (credit)	$	78		$	101		$	12		$	8		$	(246	)	$	(204	)
Net actuarial loss	3,385			2,900			1,162			844			170			185
Gross amount recognized	3,463			3,001			1,174			852			(76		)	(19		)
Deferred income taxes	(125		)	(125		)	(157		)	(106		)	4			(6		)
Minority shareholders’ equity	(67		)	(59		)	(174		)	(111		)	2			3
Net amount recognized	$	3,271		$	2,817		$	843		$	635		$	(70	)	$	(22	)

The following table presents significant weighted average assumptions used to determine benefit obligations at December 31:



	Pension Plans				Other Postretirement Benefits
	2012		2011		2012		2011
Discount rate:
— U.S.	3.71	%	4.52	%	3.30	%	4.12	%
— Non-U.S.	4.12		5.07		5.64		5.88
Rate of compensation increase:
— U.S.	N/A		N/A		N/A		N/A
— Non-U.S.	3.23		3.36		4.12		3.71

The following table presents significant weighted average assumptions used to determine benefits cost for the years ended December 31:



	Pension Plans						Other Postretirement Benefits
	2012		2011		2010		2012		2011		2010
Discount rate:
— U.S.	4.52	%	5.20	%	5.75	%	3.98	%	4.62	%	5.45	%
— Non-U.S.	5.07		5.54		5.68		5.91		6.52		6.79
Expected long term return on plan assets:
— U.S.	8.50		8.50		8.50		N/A		N/A		N/A
— Non-U.S.	5.56		6.29		6.60		N/A		N/A		N/A
Rate of compensation increase:
— U.S.	N/A		N/A		N/A		N/A		N/A		N/A
— Non-U.S.	3.36		3.43		3.94		3.71		3.99		4.21

For 2012, an assumed weighted average discount rate of 4.52% was used for the U.S. pension plans. This rate was developed from a portfolio of bonds from issuers rated AA or higher by established rating agencies as of December 31, 2011, with cash flows similar to the timing of our expected benefit payment cash flows. For our non-U.S. locations, a weighted average discount rate of 5.07% was used. This rate was developed based on the nature of the liabilities and local environments, using available bond indices, yield curves, and long term inflation.

For 2012, an expected long term rate of return of 8.50% was used for the U.S. pension plans. In developing this rate, we evaluated the compound annualized returns of our U.S. pension fund over a period of 15 years or more through December 31, 2011. In addition, we evaluated input from our pension fund consultant on asset class return expectations and long term inflation. For our non-U.S. locations, a weighted average assumed long term rate of return of 5.56% was used. Input from local pension fund consultants concerning asset class return expectations and long term inflation form the basis of this assumption.

The following table presents estimated future benefit payments from the plans as of December 31, 2012. Benefit payments for other postretirement benefits are presented net of retiree contributions:



	Pension Plans				Other Postretirement Benefits
(In millions)	U.S.		Non-U.S.		Without Medicare Part D Subsidy		Medicare Part D Subsidy Receipts
2013	$	426	$	154	$	42	$	(1	)
2014	407		155		37		(1		)
2015	425		159		36		(1		)
2016	423		167		35		(1		)
2017	421		170		34		(1		)
2018-2022	2,100		930		162		(6		)

The following table presents selected information on our pension plans:



	U.S.				Non-U.S.
(In millions)	2012		2011		2012		2011
All plans:
Accumulated benefit obligation	$	6,738	$	5,961	$	3,094	$	2,659
Plans not fully-funded:
Projected benefit obligation	$	6,756	$	5,975	$	2,668	$	2,572
Accumulated benefit obligation	6,738		5,961		2,564		2,505
Fair value of plan assets	4,100		3,523		1,770		1,899

Certain non-U.S. subsidiaries maintain unfunded pension plans consistent with local practices and requirements. At December 31, 2012, these plans accounted for $318 million of our accumulated pension benefit obligation, $366 million of our projected pension benefit obligation, and $99 million of our AOCL adjustment. At December 31, 2011, these plans accounted for $249 million of our accumulated pension benefit obligation, $270 million of our projected pension benefit obligation, and $35 million of our AOCL adjustment.

We expect to contribute approximately $275 million to $325 million to our funded U.S. and non-U.S. pension plans in 2013.

Assumed health care cost trend rates at December 31 follow:



	2012		2011
Health care cost trend rate assumed for the next year	8.2	%	8.2	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.0		5.0
Year that the rate reaches the ultimate trend rate	2017		2017

A 1% change in the assumed health care cost trend would have increased (decreased) the accumulated other postretirement benefits obligation at December 31, 2012 and the aggregate service and interest cost for the year then ended as follows:



(In millions)	1% Increase		1% Decrease
Accumulated other postretirement benefits obligation	$	29	$	(27	)
Aggregate service and interest cost	3		(3		)

Our pension plan weighted average investment allocation at December 31, by asset category, follows:



	U.S.				Non-U.S.
	2012		2011		2012		2011
Cash and short term securities	5	%	1	%	2	%	2	%
Equity securities	62		63		27		26
Debt securities	32		35		58		59
Alternatives	1		1		13		13
Total	100	%	100	%	100	%	100	%

Our pension investment policy recognizes the long term nature of pension liabilities, the benefits of diversification across asset classes and the effects of inflation. The diversified portfolio is designed to maximize returns consistent with levels of liquidity and investment risk that are prudent and reasonable. All assets are managed externally according to target asset allocation guidelines we have established. Manager guidelines prohibit the use of any type of investment derivative without our prior approval. Portfolio risk is controlled by having managers comply with guidelines, establishing the maximum size of any single holding in their portfolios and by using managers with different investment styles. We periodically undertake asset and liability modeling studies to determine the appropriateness of the investments.

Subsequent to December 31, 2012, substantially all of our U.S. pension plans entered into short term zero cost equity and interest rate option strategies to reduce a significant portion of our U.S. pension funded status volatility that occurs due to equity and interest rate movements.

The portfolio of our U.S. pension plan assets includes holdings of U.S., non-U.S., and private equities, global high quality and high yield fixed income securities, and short term interest bearing deposits. The target asset allocation of the U.S. pension fund is 70% equities and 30% fixed income. Actual U.S. pension fund asset allocations are reviewed on a periodic basis and the pension fund is rebalanced to target ranges on an as needed basis.

The portfolios of our non-U.S. pension plans include holdings of U.S. and non-U.S. equities, global high quality and high yield fixed income securities, hedge funds, currency derivatives, insurance contracts, and short term interest bearing deposits. The weighted average target asset allocation of the non-U.S. pension funds is approximately 30% equities, 60% fixed income, and 10% alternative investments.

The fair values of our pension plan assets at December 31, 2012, by asset category are as follows:



	U.S.								Non-U.S.
(In millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Cash and Short Term Securities	$	218	$	207	$	11	$	—	$	56		$	32	$	24	$	—
Equity Securities
Common and Preferred Stock:
U.S. Companies	64		64		—		—		50			50		—		—
Non-U.S. Companies	721		715		6		—		119			119		—		—
Commingled Funds	1,487		—		1,487		—		376			21		355		—
Mutual Funds	—		—		—		—		101			13		88		—
Partnership Interests	254		—		63		191		—			—		—		—
Debt Securities
Corporate Bonds	519		—		518		1		130			15		115		—
Government Bonds	332		—		332		—		482			481		1		—
Asset Backed Securities	54		—		54		—		5			2		3		—
Commingled Funds	381		—		381		—		723			10		713		—
Mutual Funds	16		—		16		—		44			39		5		—
Alternatives
Commingled Funds	—		—		—		—		150			3		4		143
Real Estate	48		48		—		—		142			—		4		138
Other Investments	2		—		—		2		19			—		—		19
Total Investments	4,096		$	1,034	$	2,868	$	194	2,397			$	785	$	1,312	$	300
Other	4								(43		)
Total Plan Assets	$	4,100							$	2,354

The fair values of our pension plan assets at December 31, 2011, by asset category are as follows:



	U.S.								Non-U.S.
(In millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Cash and Short Term Securities	$	51	$	51	$	—	$	—	$	49		$	34	$	15	$	—
Equity Securities
Common and Preferred Stock:
U.S. Companies	58		58		—		—		47			47		—		—
Non-U.S. Companies	609		606		3		—		110			110		—		—
Commingled Funds	1,323		—		1,323		—		293			19		274		—
Mutual Funds	—		—		—		—		98			13		85		—
Partnership Interests	219		—		62		157		—			—		—		—
Debt Securities
Corporate Bonds	409		—		409		—		95			12		83		—
Government Bonds	329		—		328		1		382			364		18		—
Asset Backed Securities	55		—		55		—		3			—		3		—
Commingled Funds	415		—		415		—		703			8		695		—
Mutual Funds	7		—		7		—		50			42		8		—
Alternatives
Commingled Funds	—		—		—		—		128			2		4		122
Real Estate	36		36		—		—		126			—		4		122
Other Investments	1		—		—		1		20			—		1		19
Total Investments	3,512		$	751	$	2,602	$	159	2,104			$	651	$	1,190	$	263
Other	11								(13		)
Total Plan Assets	$	3,523							$	2,091

At December 31, 2012 and 2011, the Plans did not directly hold any of our common stock.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement. Valuation methodologies used for assets and liabilities measured at fair value are as follows:


•	Cash and Short Term Securities: Cash and cash equivalents consist of U.S. and foreign currencies. Foreign currencies are reported in U.S. dollars based on currency exchange rates readily available in active markets. Short term securities are valued at the net asset value of units held at year end, as determined by the investment manager.

•

Equity Securities: Common and preferred stock are valued at the closing price reported on the active market on which the individual securities are traded. Commingled funds are valued at the net asset value of units held at year end, as determined by a pricing vendor or the fund family. Mutual funds are valued at the net asset value of shares held at year end, as determined by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the fund family if an active market is not available. Partnership interests are priced based on valuations using the partnership’s available financial statements coinciding with our year end, adjusted for any cash transactions which occurred between the date of those financial statements and our year end.

•

Debt Securities: Corporate and government bonds, including asset backed securities, are valued at the closing price reported on the active market on which the individual securities are traded, or based on institutional bid evaluations using proprietary models if an active market is not available. Commingled funds are valued at the net asset value of units held at year end, as determined by a pricing vendor or the fund family. Mutual funds are valued at the net asset value of shares held at year end, as determined by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the fund family if an active market is not available.

•

Alternatives: Commingled funds are invested in hedge funds and currency derivatives, which are valued at the net asset value as determined by the fund manager based on the most recent financial information available, which typically represents significant unobservable data. Real estate held in real estate investment trusts are valued at the closing price reported on the active market on which the individual securities are traded. Participation in real estate funds are valued at the net asset value as determined by the fund manager based on the most recent financial information available, which typically represents significant unobservable data. Other investments include derivative financial instruments, which are primarily valued using independent pricing sources which utilize industry standard derivative valuation models and directed insurance contracts, which are valued as reported by the issuer.

The methods described above 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.

The following table sets forth a summary of changes in fair value of the pension plan investments classified as Level 3 for the year ended December 31, 2012:



	U.S.				Non-U.S.
(In millions)	Partnership Interests		Other		Commingled Funds		Real Estate		Other
Balance, beginning of year	$	157	$	2	$	122	$	122	$	19
Realized gains	4		—		—		—		—
Unrealized gains relating to instruments still held at the reporting date	—		—		5		—		—
Purchases, sales, issuances and settlements (net)	30		—		10		10		—
Transfers out of Level 3	—		1		—		—		—
Foreign currency translation	—		—		6		6		—
Balance, end of year	$	191	$	3	$	143	$	138	$	19

The following table sets forth a summary of changes in fair value of the pension plan investments classified as Level 3 for the year ended December 31, 2011:



	U.S.						Non-U.S.
(In millions)	Partnership Interests			Other			Commingled Funds			Real Estate			Other
Balance, beginning of year	$	138		$	3		$	118		$	100		$	23
Realized gains (losses)	9			—			(2		)	—			—
Unrealized (losses) gains relating to instruments still held at the reporting date	(2		)	(1		)	(2		)	5			—
Purchases, sales, issuances and settlements (net)	12			—			9			18			(3		)
Foreign currency translation	—			—			(1		)	(1		)	(1		)
Balance, end of year	$	157		$	2		$	122		$	122		$	19

Other postretirement benefits plan assets at December 31, 2012 and 2011, which relate to a non-U.S. plan, are invested primarily in mutual funds and are considered a Level 1 investment.

Savings Plans

Substantially all employees in the U.S. and employees of certain non-U.S. locations are eligible to participate in a defined contribution savings plan. Expenses recognized for contributions to these plans were $97 million, $98 million and $93 million for 2012, 2011 and 2010, respectively.