Retirement Benefits

Pension Benefit Plans

The Company’s noncontributory pension plan (the “Regular Pension Plan”) covers U.S. employees who became eligible after one year of service. The benefit formula is dependent upon employee earnings and years of service. Effective January 1, 2005, newly-hired employees were not eligible to participate in the Regular Pension Plan. The Company also provides defined benefit plans which cover non-U.S. employees in certain jurisdictions, principally the United Kingdom, Germany, and Japan (the “Non-U.S. plans”). Other pension plans are not material to the Company either individually or in the aggregate.

The Company has a noncontributory supplemental retirement benefit plan (the “Officers’ Plan”) for its officers elected prior to December 31, 1999. The Officers’ Plan contains provisions for vesting and funding the participants’ expected retirement benefits when the participants meet the minimum age and years of service requirements. Elected officers who were not yet vested in the Officers’ Plan as of December 31, 1999 had the option to remain in the Officers’ Plan or elect to have their benefit bought out in restricted stock units. Effective December 31, 1999, newly elected officers were not eligible to participate in the Officers’ Plan. Effective June 30, 2005, salaries were frozen for this plan.

The Company has an additional noncontributory supplemental retirement benefit plan, the Motorola Supplemental Pension Plan (“MSPP”), which provides supplemental benefits to individuals by replacing the Regular Pension Plan benefits that are lost by such individuals under the retirement formula due to application of the limitations imposed by the Internal Revenue Code. However, elected officers who are covered under the Officers’ Plan or who participated in the restricted stock buy-out are not eligible to participate in MSPP. Effective January 1, 2007, eligible compensation was capped at the IRS limit plus $175,000 (the “Cap”) or, for those already in excess of the Cap as of January 1, 2007, the eligible compensation used to compute such employee’s MSPP benefit for all future years will be the greater of: (i) such employee’s eligible compensation as of January 1, 2007 (frozen at that amount), or (ii) the relevant Cap for the given year. Additionally, effective January 1, 2009, the MSPP was closed to new participants unless such participation was required under a prior contractual entitlement.

In February 2007, the Company amended the Regular Pension Plan and the MSPP, modifying the definition of average earnings. For the years ended prior to December 31, 2007, benefits were calculated using the rolling average of the highest annual earnings in any five years within the previous ten calendar year period. Beginning in January 2008, the benefit calculation was based on the set of the five highest years of earnings within the ten calendar years prior to December 31, 2007, averaged with earnings from each year after 2007. In addition, effective January 2008, the Company amended the Regular Pension Plan, modifying the vesting period from five years to three years.

In December 2008, the Company amended the Regular Pension Plan, the Officers’ Plan and the MSPP. Effective March 1, 2009: (i) no participant shall accrue any benefit or additional benefit on and after March 1, 2009, and (ii) no compensation increases earned by a participant on and after March 1, 2009 shall be used to compute any accrued benefit.

Beginning in 2012, for disclosure purposes, the Company has changed its presentation to include the Regular Pension Plan, the Officers' Plan and the MSPP as "U.S. plans."

The net periodic pension cost for U.S. and Non-U.S. plans was as follows:

U.S. plans



Years ended December 31	2012			2011			2010
Interest cost	$	349		$	344		$	344
Expected return on plan assets	(421		)	(390		)	(378		)
Amortization of unrecognized net loss	260			189			151
Settlement/curtailment loss	—			8			2
Net periodic pension cost	$	188		$	151		$	119

Non-U.S. plans



Years ended December 31	2012			2011			2010
Service cost	$	10		$	17		$	24
Interest cost	75			72			84
Expected return on plan assets	(78		)	(77		)	(81		)
Amortization of:
Unrecognized net loss	22			17			19
Unrecognized prior service cost	(3		)	(9		)	(4		)
Settlement/curtailment gain	—			(9		)	(4		)
Net periodic pension cost	$	26		$	11		$	38

The status of the Company’s plans are as follows:



	2012						2011
	U.S			Non U.S.			U.S.			Non U.S.
Change in benefit obligation:
Benefit obligation at January 1	$	6,986		$	1,588		$	6,173		$	1,423
Service cost	—			10			—			17
Interest cost	349			75			344			72
Plan amendments	—			—			—			20
Settlement/curtailment	—			—			—			(19		)
Actuarial loss	1,277			103			714			123
Foreign exchange valuation adjustment	—			48			—			(10		)
Employee contributions	—			2			—			—
Tax payments	—			—			(5		)	—
Benefit payments	(324		)	(39		)	(240		)	(38		)
Benefit obligation at December 31	8,288			1,787			6,986			1,588
Change in plan assets:
Fair value at January 1	4,747			1,219			4,320			1,214
Return on plan assets	660			111			178			23
Company contributions	340			31			489			38
Settlements/curtailments	—			—			—			(19		)
Employee contributions	—			2			—			—
Foreign exchange valuation adjustment	—			38			—			1
Benefit payments from plan assets	(321		)	(39		)	(240		)	(38		)
Fair value at December 31	5,426			1,362			4,747			1,219
Funded status of the plan	(2,862		)	(425		)	(2,238		)	(369		)
Unrecognized net loss	4,313			520			3,536			462
Unrecognized prior service cost	—			(51		)	—			(55		)
Prepaid pension cost	$	1,451		$	44		$	1,298		$	38
Components of prepaid (accrued) pension cost:
Non-current benefit liability	$	(2,862	)	$	(425	)	$	(2,238	)	$	(369	)
Deferred income taxes	1,592			41			1,295			26
Accumulated other comprehensive income	2,721			428			2,241			381
Prepaid pension cost	$	1,451		$	44		$	1,298		$	38

It is estimated that the net periodic cost for 2013 will include amortization of the unrecognized net loss and prior service costs for the U.S. and Non-U.S. plans, currently included in Accumulated other comprehensive loss, of $131 million, and $8 million, respectively. For 2013, it was determined that the majority of the Company's plan participants in its Regular and United Kingdom pension plans are no longer actively employed by the Company due to significant employee exits as a result of the Company's recent divestitures. Under relevant accounting rules, when almost all of the plan participants are considered inactive, the amortization period for unrecognized losses changes from the average remaining service period to the average remaining lifetime of the participant.

The Company has utilized a five-year, market-related asset value method of recognizing asset-related gains and losses. Unrecognized gains and losses have been amortized over periods ranging from three to thirteen years. For 2013, depending on the plan, the Company will amortize gains and losses over periods ranging from five to 28 years. Prior service costs are being amortized over periods ranging from ten to twelve years. Benefits under all pension plans are valued based on the projected unit credit cost method.

In April 2011, the Company recognized a curtailment gain in its United Kingdom defined benefit plan, and a settlement loss in its Japanese defined benefit plan, due to the sale of certain assets of the Networks business. As a result, the Company recorded a net gain to its consolidated statement of operations of $9 million.

Certain actuarial assumptions such as the discount rate and the long-term rate of return on plan assets have a significant effect on the amounts reported for net periodic cost and benefit obligation. The assumed discount rates reflect the prevailing market rates of a universe of high-quality, non-callable, corporate bonds currently available that, if the obligation were settled at the measurement date, would provide the necessary future cash flows to pay the benefit obligation when due. The long-term rates of return on plan assets represents an estimate of long-term returns on an investment portfolio consisting of a mixture of equities, fixed income, cash and other investments similar to the actual investment mix. In determining the long-term return on plan assets, the Company considers long-term rates of return on the asset classes (both historical and forecasted) in which the Company expects the plan funds to be invested.

Weighted average actuarial assumptions used to determine costs for the plans were as follows:



	2012				2011
December 31	U.S.		Non U.S.		U.S.		Non U.S.
Discount rate	5.10	%	4.61	%	5.75	%	5.01	%
Investment return assumption	8.25	%	6.24	%	8.25	%	6.50	%

Weighted average actuarial assumptions used to determine benefit obligations for the plans were as follows:



	2012				2011
December 31	U.S.		Non U.S.		U.S.		Non U.S.
Discount rate	4.35	%	4.11	%	5.10	%	4.58	%
Future compensation increase rate	0.00	%	2.58	%	0.00	%	2.56	%

The accumulated benefit obligations for the plans were as follows:



	2012				2011
December 31	U.S.		Non U.S.		U.S.		Non U.S.
Accumulated benefit obligation	$	8,288	$	1,770	$	6,986	$	1,588

The Company has adopted a pension investment policy designed to meet or exceed the expected rate of return on plan assets assumption. To achieve this, the pension plans retain professional investment managers that invest plan assets in equity, fixed income securities, and cash. In addition, some plans invest in insurance contracts. The Company’s measurement date of its plan assets and obligations is December 31. The Company has the following target mixes for these asset classes for all plans, which are readjusted periodically, when an asset class weighting deviates from the target mix, with the goal of achieving the required return at a reasonable risk level:



	Target Mix
Asset Category	2012		2011
Equity securities	64	%	63	%
Fixed income securities	35	%	35	%
Cash and other investments	1	%	2	%

The weighted-average pension plan asset allocation by asset categories:



	Actual Mix
December 31	2012		2011
Equity securities	64	%	60	%
Fixed income securities	34	%	35	%
Cash and other investments	2	%	5	%

Within the equity securities asset class, the investment policy provides for investments in a broad range of publicly-traded securities including both domestic and foreign stocks. Within the fixed income securities asset class, the investment policy provides for investments in a broad range of publicly-traded debt securities including U.S. Treasury issues, corporate debt securities, mortgage and asset-backed securities, as well as foreign debt securities. In the cash and other investments asset class, investments may be in cash, cash equivalents or insurance contracts.

The Company contributed $340 million to its U.S. pension plans during 2012, compared to $489 million contributed in 2011. In January 2011, the Pension Benefit Guaranty Corporation (“PBGC”) announced an agreement with the Company under which it would contribute $100 million above and beyond its legal requirement to its U.S. pension plans over the next five years. The Company and the PBGC entered into the agreement as the Company was in the process of separating Motorola Mobility and pursuing the sale of certain assets of the Networks business. The Company made a $250 million pension contribution to its U.S. pension plans over the amounts required in the fourth quarter 2011, of which $100 million fulfilled the PBGC financial obligation. As a result, the Company has no further financial obligations under this agreement with the PBGC.

The Company currently expects to make cash contributions of approximately $300 million to its U.S. pension plans and approximately $30 million to its non-U.S. pension plans in 2013.

The following benefit payments are expected to be paid:



Year	U.S.		Non U.S.
2013	$	276	$	39
2014	284		40
2015	297		41
2016	313		42
2017	333		43
2018-2022	2,008		233

Postretirement Health Care Benefits Plan

Certain health care benefits are available to eligible domestic employees meeting certain age and service requirements upon termination of employment (the “Postretirement Health Care Benefits Plan”). For eligible employees hired prior to January 1, 2002, the Company offsets a portion of the postretirement medical costs to the retired participant. As of January 1, 2005, the Postretirement Health Care Benefits Plan was closed to new participants. The benefit obligation and plan assets for the Postretirement Health Care Benefits Plan have been measured as of December 31, 2012.

The assumptions used were as follows:



December 31	2012		2011
Discount rate for obligations	3.80	%	4.75	%
Investment return assumptions	8.25	%	8.25	%

Net Postretirement Health Care Benefits Plan expenses were as follows:



Years ended December 31	2012			2011			2010
Service cost	$	3		$	4		$	6
Interest cost	16			22			23
Expected return on plan assets	(12		)	(16		)	(16		)
Amortization of:
Unrecognized net loss	12			10			7
Unrecognized prior service cost	(16		)	—			(2		)
Net Postretirement Health Care Benefit Plan expenses	$	3		$	20		$	18

During the year ended December 31, 2012, the Company announced an amendment to the Postretirement Health Care Benefits Plan. Starting January 1, 2013, benefits under the plan to participants over age 65 will be paid to a retiree health reimbursement account instead of directly providing health insurance coverage to the participants. Covered retirees will be able to use the annual subsidy they receive through this account toward the purchase of their own health care coverage from private insurance companies and for reimbursement of eligible health care expenses. This change has resulted in a remeasurement of the plan where $139 million of the net liability was reduced through a decrease in accumulated other comprehensive loss of $87 million, net of taxes. The majority of the reduced liability will be recognized over approximately three years, which is the period in which the remaining employees eligible for the plan will qualify for benefits under the plan.

It is estimated that the 2013 net periodic expense for the Postretirement Health Care Benefits Plan will include amortization of a net credit of $28 million, comprised of the unrecognized prior service gain and unrecognized actuarial loss, currently included in Accumulated other comprehensive loss.

The funded status of the plan is as follows:



	2012			2011
Change in benefit obligation:
Benefit obligation at January 1	$	450		$	447
Service cost	3			4
Interest cost	16			22
Plan amendments	(151		)	—
Actuarial gain	24			—
Benefit payments	(20		)	(23		)
Benefit obligation at December 31	322			450
Change in plan assets:
Fair value at January 1	155			170
Return on plan assets	20			7
Benefit payments made with plan assets	(20		)	(22		)
Fair value at December 31	155			155
Funded status of the plan	(167		)	(295		)
Unrecognized net loss	206			202
Unrecognized prior service cost	(135		)	—
Accrued postretirement health care costs	$	(96	)	$	(93	)

Components of accrued postretirement health care cost:



Years ended December 31	2012			2011
Non-current liability	$	(167	)	$	(295	)
Deferred income taxes	26			92
Accumulated other comprehensive income	45			110
Accrued postretirement health care cost	$	(96	)	$	(93	)

During the first quarter of 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law, which eliminated the favorable income tax treatment of Medicare Part D Subsidy receipts effective for tax years starting in 2013. As a result of the tax law change, the Company recorded an $18 million non-cash tax charge in 2010 to reduce its deferred tax asset associated with Medicare Part D subsidies estimated to be received after 2012.

The Company has adopted an investment policy for plan assets designed to meet or exceed the expected rate of return on plan assets assumption. To achieve this, the plan retains professional investment managers that invest plan assets in equity and fixed income securities and cash. The Company uses long-term historical actual return experience with consideration of the expected investment mix of the plans’ assets, as well as future estimates of long-term investment returns, to develop its expected rate of return assumption used in calculating the net periodic cost and the net retirement healthcare expense. The Company has the following target mixes for these asset classes, which are readjusted periodically, when an asset class weighting deviates from the target mix, with the goal of achieving the required return at a reasonable risk level:



	Target Mix
Asset Category	2012		2011
Equity securities	65	%	65	%
Fixed income securities	34	%	34	%
Cash and other investments	1	%	1	%

The weighted-average asset allocation for plan assets by asset categories:



	Actual Mix
December 31	2012		2011
Equity securities	64	%	59	%
Fixed income securities	32	%	36	%
Cash and other investments	4	%	5	%

Within the equity securities asset class, the investment policy provides for investments in a broad range of publicly-traded securities including both domestic and foreign stocks. Within the fixed income securities asset class, the investment policy provides for investments in a broad range of publicly-traded debt securities including U.S. Treasury issues, corporate debt securities, mortgages and asset-backed issues, as well as foreign debt securities. In the cash asset class, investments may be in cash and cash equivalents.

The Company expects to make no cash contributions to the Postretirement Health Care Benefits Plan in 2013. The following benefit payments are expected to be paid:



Year
2013	$	28
2014	26
2015	25
2016	24
2017	23
2018-2022	101

The health care cost trend rate used to determine the December 31, 2012 accumulated postretirement benefit obligation is 8.50% for 2013, then grading down to a rate of 5% in 2020. The health care cost trend rate used to determine the December 31, 2011 accumulated postretirement benefit obligation was 7.25% for 2012, remaining flat at 7.25% through 2015, then grading down to a rate of 5% in 2019.

Changing the health care trend rate by one percentage point would change the accumulated postretirement benefit obligation and the net Postretirement Health Care Benefits Plan expenses as follows:



	1% Point Increase		1% Point Decrease
Increase (decrease) in:
Accumulated postretirement benefit obligation	$	2	$	(2	)
Net Postretirement Health Care Benefit Plan expenses	—		—

The Company maintains a lifetime cap on postretirement health care costs, which reduces the liability duration of the plan. A result of this lower duration is a decreased sensitivity to a change in the discount rate trend assumption with respect to the liability and related expense.

The Company has no significant Postretirement Health Care Benefit Plans outside the United States.

Other Benefit Plans

The Company maintains a number of endorsement split-dollar life insurance policies that were taken out on now-retired officers under a plan that was frozen prior to December 31, 2004. The Company had purchased the life insurance policies to insure the lives of employees and then entered into a separate agreement with the employees that split the policy benefits between the Company and the employee. Motorola Solutions owns the policies, controls all rights of ownership, and may terminate the insurance policies. To effect the split-dollar arrangement, Motorola Solutions endorsed a portion of the death benefits to the employee and upon the death of the employee, the employee’s beneficiary typically receives the designated portion of the death benefits directly from the insurance company and the Company receives the remainder of the death benefits. It is currently expected that minimal cash payments will be required to fund these policies.

The net periodic pension cost for these split-dollar life insurance arrangements was $5 million for the years ended December 31, 2012, 2011, and 2010. The Company has recorded a liability representing the actuarial present value of the future death benefits as of the employees’ expected retirement date of $58 million and $56 million as of December 31, 2012 and December 31, 2011, respectively.

Defined Contribution Plan

The Company and certain subsidiaries have various defined contribution plans, in which all eligible employees may participate. In the U.S., the 401(k) plan is a contributory plan. Matching contributions are based upon the amount of the employees’ contributions. After temporarily suspending all matching contributions, effective July 1, 2010, the Company reinstated matching contributions and provides a dollar for dollar (100%) match on the first 4% of employee contributions. The maximum matching contribution for 2010 was pro-rated to account for the number of months remaining after the reinstatement. The Company’s expenses for material defined contribution plans for the years ended December 31, 2012, 2011 and 2010 were $42 million, $48 million and $23 million, respectively.

Beginning January 1, 2012, the Company may make an additional discretionary 401(k) plan matching contribution to eligible employees. For the year ended December 31, 2012, the Company made no discretionary matching contributions.