Retirement and Post-Retirement Benefit Plans

9 Months Ended

Jul. 31, 2012

Retirement and Post-Retirement Benefit Plans

Retirement and Post-Retirement Benefit Plans

Note 14: Retirement and Post-Retirement Benefit Plans

        HP's net pension and post-retirement benefit costs were as follows:

	Three months ended July 31
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post- Retirement Benefit Plans
	2012			2011			2012			2011			2012			2011
	In millions
Service cost	$	—		$	—		$	72		$	90		$	2		$	2
Interest cost		141			148			170			178			9			9
Expected return on plan assets		(198	)		(186	)		(201	)		(227	)		(9	)		(9	)
Amortization and deferrals:
Actuarial loss (benefit)		11			9			57			57			(1	)		—
Prior service benefit		—			—			(6	)		(3	)		(20	)		(20	)
Net periodic benefit (gain) cost		(46	)		(29	)		92			95			(19	)		(18	)
Settlement loss		5			—			—			—			—			—
Curtailment gain		—			—			—			—			(4	)		—
Special termination benefits		833			—			—			4			227			—
Net benefit cost (gain)	$	792		$	(29	)	$	92		$	99		$	204		$	(18	)

	Nine months ended July 31
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post- Retirement Benefit Plans
	2012			2011			2012			2011			2012			2011
	In millions
Service cost	$	1		$	1		$	219		$	264		$	6		$	7
Interest cost		424			445			519			524			26			26
Expected return on plan assets		(594	)		(558	)		(614	)		(665	)		(28	)		(27	)
Amortization and deferrals:
Actuarial loss (benefit)		32			25			177			180			(3	)		1
Prior service benefit		—			—			(18	)		(10	)		(63	)		(62	)
Net periodic benefit (gain) cost		(137	)		(87	)		283			293			(62	)		(55	)
Settlement loss (gain)		5			—			(20	)		2			—			—
Curtailment gain		—			—			—			—			(4	)		—
Special termination benefits		833			—			2			12			227			—
Net benefit cost (gain)	$	701		$	(87	)	$	265		$	307		$	161		$	(55	)

Settlements

        During the first quarter of fiscal 2012, HP completed the transfer of the substitutional portion of its Japan pension liability and obligation to the Japanese government. This transfer resulted in recognizing a net gain of $28 million, which is comprised of a net settlement loss of $150 million and a gain on government subsidy of $178 million. The government subsidy consisted of the elimination of $344 million of pension obligations and the transfer of $166 million of pension assets to the Japanese government.

Retirement Incentive Program

        As part of the 2012 restructuring plan, the company announced a voluntary enhanced early retirement program for its U.S employees. Participation in the EER program was limited to those employees whose combined age and years of service equaled 65 or more. Approximately 8,500 employees elected to participate in the EER program and will leave the company on dates designated by the company with the majority of the EER participants leaving the company on August 31, 2012 and others exiting through August 31, 2013. The U.S. defined benefit pension plan was amended to provide that the EER benefit will be paid from the plan for electing EER participants who are current participants in the pension plan. The retirement incentive benefit is calculated as a lump sum and ranges between five and fourteen months of pay depending on years of service at the time of retirement under the program. As a result of this retirement incentive, HP recognized a STB expense of $833 million, which reflected the present value of all additional benefits that HP will distribute from the pension plan assets. HP recorded these expenses as a restructuring charge. In addition, a U.S. defined benefit plan re-measurement was also required, which resulted in no material change to the 2012 net periodic pension expense.

        HP extended to all employees participating in the EER program the opportunity to continue health care coverage at active employee contribution rates for up to 24 months following retirement. In addition, for employees not grandfathered into certain employer-subsidized retiree medical plans, HP is providing up to $12,000 in employer credits under the HP Retirement Medical Savings Account (RMSA) program. These items resulted in an additional STB expense of $227 million, which was offset by net curtailment gains in those programs of $37 million, due primarily to the resulting accelerated recognition of existing prior service cost/credits. The entire STB and approximately $4 million in curtailment gains were recognized in the third quarter of fiscal 2012. HP reported this net expense as a restructuring charge.

Employer Contributions and Funding Policy

        HP previously disclosed in its Consolidated Financial Statements for the fiscal year ended October 31, 2011 that it expected to contribute approximately $597 million to its pension plans and approximately $31 million to cover benefit payments to U.S. non-qualified plan participants. HP expects to pay approximately $30 million to cover benefit claims for HP's post-retirement benefit plans. HP's funding policy is to contribute cash to its pension plans so that it makes at least the minimum contribution required by local government, funding and taxing authorities.

        During the nine months ended July 31, 2012, HP made $475 million of contributions to its pension plans, paid $29 million to cover benefit payments to U.S. non-qualified plan participants, and paid $19 million to cover benefit claims under post-retirement benefit plans. During the remainder of fiscal 2012, HP anticipates making additional contributions of approximately $130 million to its pension plans and approximately $8 million to its U.S. non-qualified plan participants and expects to pay up to $20 million to cover benefit claims under post-retirement benefit plans. HP's pension and other post-retirement benefit costs and obligations are dependent on various assumptions. Differences between expected and actual returns on investments will be reflected as unrecognized gains or losses, and such gains or losses will be amortized and recorded in future periods. Poor financial performance of invested assets in any year could lead to increased contributions in certain countries and increased future pension plan expense. Asset gains or losses are determined at the measurement date and amortized over the remaining service life or life expectancy of plan participants. HP's next measurement date is October 31, 2012.