Pensions and Other Postretirement Benefits

We sponsor several defined benefit pension and other postretirement benefit (OPEB) plans for our employees, including non-qualified pension plans. The U.S. plans comprise the majority of our total benefit obligation and benefit cost. We maintain a separate defined benefit plan for eligible employees in our U.K. operation. The U.K. defined benefit pension plan was closed to new entrants on December 31, 2002.

The following tables provide the changes in the benefit obligation and fair value of plan assets and statements of the funded status of the plans.



	Pension Benefits
	U.S. Plans						Non U.S. Plans						OPEB
	2012			2011			2012			2011			2012			2011
	(in millions of dollars)
Change in Benefit Obligation
Benefit Obligation at Beginning of Year	$	1,579.8		$	1,352.7		$	170.4		$	152.9		$	190.9		$	185.1
Service Cost	48.8			42.7			4.2			4.8			1.6			1.9
Interest Cost	84.4			77.6			8.5			8.8			9.6			10.0
Plan Participant Contributions	—			—			—			—			3.5			3.4
Actuarial (Gain) Loss	291.4			138.4			9.4			9.3			19.1			5.6
Benefits and Expenses Paid	(36.5		)	(31.6		)	(3.9		)	(4.1		)	(16.7		)	(15.1		)
Plan Amendment	—			—			—			—			(5.0		)	—
Curtailment	—			—			—			—			(4.2		)	—
Change in Foreign Exchange Rates	—			—			8.8			(1.3		)	—			—
Benefit Obligation at End of Year	$	1,967.9		$	1,579.8		$	197.4		$	170.4		$	198.8		$	190.9

Accumulated Benefit Obligation at December 31	$	1,822.3		$	1,462.2		$	187.3		$	160.9		N/A			N/A

Change in Fair Value of Plan Assets
Fair Value of Plan Assets at Beginning of Year	$	1,170.8		$	1,179.6		$	188.0		$	176.0		$	11.7		$	11.9
Actual Return on Plan Assets	161.8			18.5			8.6			12.5			0.3			0.2
Employer Contributions	57.5			4.3			4.1			4.7			12.7			11.3
Plan Participant Contributions	—			—			—			—			3.5			3.4
Benefits and Expenses Paid	(36.5		)	(31.6		)	(3.9		)	(4.1		)	(16.7		)	(15.1		)
Change in Foreign Exchange Rates	—			—			8.8			(1.1		)	—			—
Fair Value of Plan Assets at End of Year	$	1,353.6		$	1,170.8		$	205.6		$	188.0		$	11.5		$	11.7

Underfunded (Overfunded) Status	$	614.3		$	409.0		$	(8.2	)	$	(17.6	)	$	187.3		$	179.2

Note 8 - Pensions and Other Postretirement Benefits - Continued

The amounts recognized in our consolidated balance sheets for our pension and OPEB plans at December 31, 2012 and 2011 are as follows:



	Pension Benefits
	U.S. Plans						Non U.S. Plans						OPEB
	2012			2011			2012			2011			2012			2011
	(in millions of dollars)
Current Liability	$	4.6		$	4.5		$	—		$	—		$	15.6		$	14.4
Noncurrent Liability	609.7			404.5			—			—			171.7			164.8
Noncurrent Asset	—			—			(8.2		)	(17.6		)	—			—
Underfunded (Overfunded) Status	$	614.3		$	409.0		$	(8.2	)	$	(17.6	)	$	187.3		$	179.2

Unrecognized Pension and Postretirement Benefit Costs
Net Actuarial Gain (Loss)	$	(845.4	)	$	(673.1	)	$	(37.9	)	$	(25.0	)	$	(19.3	)	$	(4.1	)
Prior Service Credit (Cost)	(0.6		)	(0.2		)	(0.2		)	(0.2		)	7.3			4.9
	(846.0		)	(673.3		)	(38.1		)	(25.2		)	(12.0		)	0.8
Deferred Income Tax Asset	306.3			235.7			11.1			8.0			4.2			9.9
Total Included in Accumulated Other Comprehensive Income (Loss)	$	(539.7	)	$	(437.6	)	$	(27.0	)	$	(17.2	)	$	(7.8	)	$	10.7

The following table provides the changes recognized in other comprehensive income for the years ended December 31, 2012 and 2011.



	Pension Benefits
	U.S. Plans						Non U.S. Plans						OPEB
	2012			2011			2012			2011			2012			2011
	(in millions of dollars)
Accumulated Other Comprehensive Income (Loss) at Beginning of Year	$	(437.6	)	$	(323.2	)	$	(17.2	)	$	(10.7	)	$	10.7		$	15.3
Net Actuarial Loss
Amortization	45.9			31.9			0.5			—			—			—
Curtailment	—			—			—			—			4.2			—
All Other Changes	(218.2		)	(207.5		)	(13.4		)	(8.7		)	(19.4		)	(5.5		)
Prior Service Credit
Amortization	(0.4		)	(0.5		)	—			—			(2.6		)	(2.6		)
Plan Amendment	—			—			—			—			5.0			—
Change in Deferred Income Tax Asset	70.6			61.7			3.1			2.2			(5.7		)	3.5
Accumulated Other Comprehensive Income (Loss) at End of Year	$	(539.7	)	$	(437.6	)	$	(27.0	)	$	(17.2	)	$	(7.8	)	$	10.7

We discontinued offering retiree life insurance to future retirees effective December 31, 2012 but continue to provide this benefit to employees who retired prior to that date. The curtailment gain of $4.2 million and the prior service credit of $5.0 million, both of which are included in the table above, reflect this OPEB plan amendment.

Note 8 - Pensions and Other Postretirement Benefits - Continued

Plan Assets

The objective of our pension and OPEB plans is to maximize long-term return, within acceptable risk levels, in a manner that is consistent with the fiduciary standards of the Employee Retirement Income Security Act (ERISA), while maintaining sufficient liquidity to pay current benefits and expenses.

Assets for our U.S. pension plans include a diversified blend of domestic and international large cap, mid cap, and small cap equity securities, U.S. government and agency fixed income securities, corporate fixed income securities, private equity funds of funds, hedge funds of funds, and cash equivalents. The large cap and mid cap equity securities are comprised of equity index funds that are designed to track the Standard & Poor's (S&P) 500 and S&P 400 Mid Cap indices, respectively. Small cap equity securities consist of individual equity securities as well as index funds that track the Russell 2000 index. International equity investments consist of equity funds that are benchmarked against either the Morgan Stanley Capital International (MSCI) Europe Australasia Far East Index or the MSCI All Country World Index Excluding U.S. These international funds may allocate a certain percentage of their assets to forward currency contracts. It is the policy of these funds to utilize the contracts solely for the purpose of mitigating exposure to foreign currency risk. Emerging market equity investments consist of index funds that are benchmarked against the MSCI Emerging Markets Index. U.S. government and agency fixed income securities are comprised of treasury bonds and U.S. agency asset-backed securities. Corporate fixed income securities consist of investment-grade and below-investment-grade corporate bonds as well as certain asset-backed securities. Alternative investments, which include private equity funds of funds and hedge funds of funds, utilize proprietary strategies that are intended to have a low correlation to the U.S. stock market. The target allocations for invested assets are 60 percent equity securities, 30 percent fixed income securities, and 10 percent alternative investments. Prohibited investments include, but are not limited to, unlisted securities, futures contracts, options, short sales, and investments in securities issued by the Company or its affiliates.

Assets for our U.K. pension plan are primarily invested in a pooled diversified growth fund. This fund invests in assets such as global equities, hedge funds, commodities, below-investment-grade fixed income securities, and currencies. The objectives of the fund are to generate capital appreciation over the course of a complete economic and market cycle and to deliver equity-like returns in the medium-to-long term while maintaining approximately two thirds of the volatility of equity markets. Performance of this fund is measured against the U.K. inflation rate plus four percent. The remaining assets in the U.K. plan are invested in leveraged interest rate and inflation swap funds of varying durations designed to broadly match the interest rate and inflation sensitivities of the plan's liabilities. The current target allocation for the assets is 75 percent diversified growth assets and 25 percent interest rate and inflation swap funds. There are no categories of investments that are specifically prohibited by the U.K. plan, but there are general guidelines that ensure prudent investment action is taken. Such guidelines include the prevention of the plan from using derivatives for speculative purposes and limiting the concentration of risk in any one type of investment.

Assets for life insurance benefits payable to certain former retirees covered under the OPEB plan are invested in life insurance contracts issued by one of our insurance subsidiaries. The terms of these contracts are consistent in all material respects with those the subsidiary offers to unaffiliated parties that are similarly situated. There are no categories of investments specifically prohibited by the OPEB plan.

We believe our investment portfolios are well diversified by asset class and sector, with no potential risk concentrations in any one category.

Note 8 - Pensions and Other Postretirement Benefits - Continued

The categorization of fair value measurements by input level for the invested assets in our U.S. pension plans is as follows:



	December 31, 2012
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Invested Assets
Equity Securities:
U.S. Large Cap	$	—	$	269.2	$	—	$	269.2
U.S. Mid Cap	—		111.6		—		111.6
U.S. Small Cap	83.9		120.1		—		204.0
International	106.4		102.9		—		209.3
Emerging Markets	—		73.9		—		73.9
Fixed Income Securities:
U.S. Government and Agencies	138.0		8.6		—		146.6
Corporate	84.1		154.4		—		238.5
Alternative Investments:
Private Equity Funds of Funds	—		—		28.7		28.7
Hedge Funds of Funds	—		—		56.1		56.1
Cash Equivalents	13.1		—		—		13.1
Total	$	425.5	$	840.7	$	84.8	$	1,351.0



	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Invested Assets
Equity Securities:
U.S. Large Cap	$	—	$	237.4	$	—	$	237.4
U.S. Mid Cap	—		96.4		—		96.4
U.S. Small Cap	131.1		45.0		—		176.1
International	80.3		85.1		—		165.4
Emerging Markets	—		51.6		—		51.6
Fixed Income Securities:
U.S. Government and Agencies	145.7		9.5		—		155.2
Corporate	71.8		139.4		—		211.2
Alternative Investments:
Private Equity Funds of Funds	—		—		23.7		23.7
Hedge Funds of Funds	—		—		44.3		44.3
Cash Equivalents	6.2		—		—		6.2
Total	$	435.1	$	664.4	$	68.0	$	1,167.5

Level 1 equity and fixed income securities consist of individual holdings and funds that are valued based on unadjusted quoted prices from active markets for identical securities. Level 2 equity securities consist of funds that are valued based on the net asset value (NAV) of the underlying holdings. These investments have no unfunded commitments and no specific redemption restrictions. Level 2 fixed income securities are valued using observable inputs through market corroborated pricing.

Note 8 - Pensions and Other Postretirement Benefits - Continued

Alternative investments, which include hedge funds of funds and private equity funds of funds, are valued based on the NAV of the underlying holdings in a period ranging from one month to one quarter in arrears. We evaluate the need for adjustments to the NAV based on market conditions and discussions with fund managers in the period subsequent to the valuation date and prior to issuance of the financial statements. We made no adjustments to the NAV for 2012 or 2011. Redemptions on the hedge funds of funds can be made on either a quarterly or bi-annual basis, depending on the fund, with prior notice of at least 90 calendar days. Because of these redemption restrictions, we have classified the hedge funds of funds as Level 3 because we do not have the unrestricted ability to redeem our investment at NAV at any given time. The private equity funds of funds cannot be redeemed by investors, and distributions are received following the maturity of the underlying assets. It is estimated that these underlying assets will begin to mature between five and eight years from the date of initial investment. Accordingly, we have assigned a Level 3 classification to the private equity funds of funds due to the redemption restrictions.

Changes in our U.S. pension plans' assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2012 and 2011 are as follows:



	Year Ended December 31, 2012
	Beginning of Year		Actual Return on Plan Assets				Purchases		Sales			Level 3 Transfers				End of Year
	Beginning of Year		Held at Year End		Sold During the Year		Purchases		Sales			Into		Out of		End of Year
	(in millions of dollars)
Private Equity Funds of Funds	$	23.7	$	0.5	$	1.0	$	6.0	$	(2.5	)	$	—	$	—	$	28.7
Hedge Funds of Funds	44.3		3.8		—		11.8		(3.8		)	—		—		56.1
Total	$	68.0	$	4.3	$	1.0	$	17.8	$	(6.3	)	$	—	$	—	$	84.8



	Year Ended December 31, 2011
	Beginning of Year		Actual Return on Plan Assets						Purchases		Sales			Level 3 Transfers				End of Year
	Beginning of Year		Held at Year End			Sold During the Year			Purchases		Sales			Into		Out of		End of Year
	(in millions of dollars)
Private Equity Funds of Funds	$	15.0	$	3.0		$	—		$	6.5	$	(0.8	)	$	—	$	—	$	23.7
Hedge Funds of Funds	46.0		(1.6		)	(0.1		)	6.9		(6.9		)	—		—		44.3
Total	$	61.0	$	1.4		$	(0.1	)	$	13.4	$	(7.7	)	$	—	$	—	$	68.0

The categorization of fair value measurements by input level for the assets in our U.K. pension plan is as follows:



	December 31, 2012
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Plan Assets
Diversified Growth Assets	$	—	$	154.7	$	—	$	154.7
Fixed Interest and Index-linked Securities	—		43.5		—		43.5
Cash Equivalents	7.4		—		—		7.4
Total Plan Assets	$	7.4	$	198.2	$	—	$	205.6

Note 8 - Pensions and Other Postretirement Benefits - Continued



	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Plan Assets
Diversified Growth Assets	$	—	$	123.7	$	—	$	123.7
Fixed Interest and Index-linked Securities	—		63.5		—		63.5
Cash Equivalents	0.8		—		—		0.8
Total Plan Assets	$	0.8	$	187.2	$	—	$	188.0

Level 2 assets consist of funds that are valued based on the NAV of the underlying holdings. These investments have no unfunded commitments and no specific redemption restrictions.

The categorization of fair value measurements by input level for the assets in our OPEB plan is as follows:



	December 31, 2012
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Assets
Life Insurance Contracts	$	—	$	—	$	11.5	$	11.5



	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions of dollars)
Assets
Life Insurance Contracts	$	—	$	—	$	11.7	$	11.7

The fair value is represented by the actuarial present value of future cash flows of the contracts.

Note 8 - Pensions and Other Postretirement Benefits - Continued

Changes in our OPEB plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2012 and 2011 are as follows:



	Year Ended December 31, 2012
	Beginning of Year		Actual Return on Plan Assets		Contributions		Net Benefits and Expenses Paid			End of Year
	Beginning of Year		Actual Return on Plan Assets		Contributions		Net Benefits and Expenses Paid			End of Year
	(in millions of dollars)
Life Insurance Contracts	$	11.7	$	0.3	$	16.2	$	(16.7	)	$	11.5



	Year Ended December 31, 2011
	Beginning of Year		Actual Return on Plan Assets		Contributions		Net Benefits and Expenses Paid			End of Year
	Beginning of Year		Actual Return on Plan Assets		Contributions		Net Benefits and Expenses Paid			End of Year
	(in millions of dollars)
Life Insurance Contracts	$	11.9	$	0.2	$	14.7	$	(15.1	)	$	11.7

For the years end December 31, 2012 and 2011, the actual return on plan assets relates solely to investments still held at the reporting date. There were no transfers into or out of level 3 during 2012 or 2011.

Measurement Assumptions

We use a December 31 measurement date for each of our plans. The weighted average assumptions used in the measurement of our benefit obligations as of December 31 and our net periodic benefit costs for the years ended December 31 are as follows:



	Pension Benefits
	U.S. Plans				Non U.S. Plans				OPEB
	2012		2011		2012		2011		2012		2011
Benefit Obligations
Discount Rate	4.50	%	5.40	%	4.50	%	4.90	%	4.20	%	5.20	%
Rate of Compensation Increase	4.00	%	4.00	%	3.75	%	3.85	%	—	%	—	%

Net Periodic Benefit Cost
Discount Rate	5.40	%	5.80	%	4.90	%	5.60	%	5.20	%	5.60	%
Expected Return on Plan Assets	7.50	%	7.50	%	5.80	%	6.70	%	5.75	%	5.75	%
Rate of Compensation Increase	4.00	%	4.00	%	3.85	%	4.50	%	—	%	—	%

We set the discount rate assumption annually for each of our retirement-related benefit plans at the measurement date to reflect the yield of a portfolio of high quality fixed income debt instruments matched against the projected cash flows for future benefits.

Our long-term rate of return on plan assets assumption is an estimate, based on statistical analysis, of the average annual assumed return that will be produced from the plan assets until current benefits are paid. The market-related value equals the fair value of assets, determined as of the measurement date. Our expectations for the future investment returns of the asset categories were based on a combination of historical market performance and evaluations of investment forecasts obtained from external consultants and economists.

The methodology underlying the return assumption included the various elements of the expected return for each asset class such as long-term rates of return, volatility of returns, and the correlation of returns between various asset classes. The expected return for the total portfolio was calculated based on the plan's strategic asset allocation. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews. Risk tolerance is established through consideration of plan liabilities, plan funded status, and corporate financial condition.

Note 8 - Pensions and Other Postretirement Benefits - Continued

The expected return assumption for the life insurance reserve for our OPEB plan at December 31, 2012 and 2011 was 5.75 percent, which was based on full investment in fixed income securities with an average book yield of 5.77 percent and 6.27 percent in 2012 and 2011, respectively.

Our rate of compensation increase assumption is generally based on periodic studies of compensation trends.

For measurement purposes at December 31, 2012 and 2011, the annual rate of increase in the per capita cost of covered postretirement health care benefits assumed for the next calendar year was 8.00 percent and 8.50 percent, respectively, for benefits payable to both retirees prior to Medicare eligibility as well as Medicare eligible retirees. The rate was assumed to change gradually to 5.00 percent by 2019 and remain at that level thereafter.

The medical and dental premium used to determine the per retiree employer subsidy are capped. If the cap is not reached by the year 2015, the caps are then set equal to the year 2015 premium. Certain of the current retirees and all future retirees are subject to the cap.

Net Periodic Benefit Cost

The following table provides the components of the net periodic benefit cost for the plans described above for the years ended December 31.



	Pension Benefits
	U.S. Plans									Non U.S. Plans									OPEB
	2012			2011			2010			2012			2011			2010			2012			2011			2010
	(in millions of dollars)
Service Cost	$	48.8		$	42.7		$	36.5		$	4.2		$	4.8		$	4.9		$	1.6		$	1.9		$	2.6
Interest Cost	84.4			77.6			71.1			8.5			8.8			9.5			9.6			10.0			10.8
Expected Return on Plan Assets	(88.8		)	(87.6		)	(70.5		)	(11.1		)	(12.2		)	(10.7		)	(0.7		)	(0.7		)	(0.6		)
Amortization of:
Net Actuarial Loss	45.9			31.9			29.8			0.5			—			2.4			—			—			—
Prior Service Credit	(0.4		)	(0.5		)	(0.5		)	—			—			—			(2.6		)	(2.6		)	(2.6		)
Total	$	89.9		$	64.1		$	66.4		$	2.1		$	1.4		$	6.1		$	7.9		$	8.6		$	10.2

A one percent increase or decrease in the assumed health care cost trend rate at December 31, 2012 would have increased (decreased) the service cost and interest cost by $0.2 million and $(0.2) million, respectively, and the postretirement benefit obligation by $3.9 million and $(2.9) million, respectively.

Our OPEB plan currently receives a subsidy from the federal government under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Act). This act allows an employer to choose whether to coordinate prescription drug benefits under a retiree medical plan with the Medicare prescription drug benefit or to keep the company plan design as it is and receive a subsidy from the federal government. When the Medicare Act became effective in 2006, we initially elected to receive the subsidy from the federal government with plans to defer our coordination with the new prescription drug benefit until a later date. This anticipated change was reflected in the net periodic benefit cost. In 2009, we amended the plan design to stop the deferral of coordination of benefits and elected to continue receiving the existing subsidy from the federal government. This election resulted in a $4.4 million prior service credit that began amortization in 2010. We received subsidy payments of $1.3 million in both 2012 and 2011. Our expected benefit payments in future years have been reduced by the amount of subsidy payments we expect to receive.

The unrecognized net actuarial loss and prior service credit included in accumulated other comprehensive income and expected to be amortized and included in net periodic pension cost during 2013 is $59.8 million before tax and $39.1 million after tax. The prior service credit expected to be amortized and included as a reduction to net periodic cost for our OPEB plan during 2013 is $5.0 million before tax and $3.2 million after tax.

Note 8 - Pensions and Other Postretirement Benefits - Continued

Benefit Payments

The following table provides expected benefit payments, which reflect expected future service, as appropriate.



	Pension Benefits
	U.S. Plans		Non U.S. Plans		OPEB
	(in millions of dollars)
Year					Gross		Subsidy Payments		Net
2013	$	38.5	$	5.0	$	17.3	$	1.7	$	15.6
2014	43.3		5.6		17.4		1.9		15.5
2015	47.8		5.8		17.4		2.1		15.3
2016	53.9		6.4		17.2		2.3		14.9
2017	59.4		6.7		16.8		2.4		14.4
2018-2022	408.5		39.8		77.8		14.6		63.2

Funding Policy

The funding policy for our U.S. qualified defined benefit plan is to contribute annually an amount at least equal to the minimum annual contribution required under ERISA and other applicable laws, but generally not greater than the maximum amount that can be deducted for federal income tax purposes. We had no regulatory contribution requirements for our U.S. qualified plan for 2012 and 2011; however, we elected to make a voluntary contribution of $53.0 million in 2012 and expect to make a voluntary contribution of approximately $50.0 million during 2013. The funding policy for our U.S. non-qualified defined benefit pension plan is to contribute the amount of the benefit payments made during the year. Our expected return on plan assets and discount rate will not affect the cash contributions we are required to make to our U.S. pension and OPEB plans because we have met all minimum funding requirements required under ERISA.

We contribute to our U.K. plan in accordance with a schedule of contributions which requires that we contribute to the plan at the rate of at least 24.8 percent of pensionable salaries for active members of the plan, plus 0.4 percent of pensionable salaries for all employees (including active members of the plan) who are entitled to lump sum death in service benefits under the plan, sufficient to meet the minimum funding requirement under U.K. legislation. We made contributions of $4.1 million and $4.7 million in 2012 and 2011, respectively, or approximately £2.6 million and £2.9 million. We expect to make contributions of approximately £2.6 million during 2013.

Our OPEB plan represents a non-vested, non-guaranteed obligation, and current regulations do not require specific funding levels for these benefits, which are comprised of retiree life, medical, and dental benefits. It is our practice to use general assets to pay medical and dental claims as they come due in lieu of utilizing plan assets for the medical and dental benefit portions of our OPEB plan.