8. EMPLOYEE BENEFIT PLANS

Pension, Postretirement and Postemployment Plans NCR sponsors defined benefit plans for many of its U.S. and international employees. For salaried employees, the defined benefit plans are based primarily upon compensation and years of service. For certain hourly employees in the U.S., the benefits are based on a fixed dollar amount per years of service. NCR’s U.S. pension plans ceased the accrual of additional benefits after December 31, 2006 and are closed to new participants. Certain international plans are also closed to new participants. NCR’s funding policy is to contribute annually not less than the minimum required by applicable laws and regulations. Assets of NCR’s defined benefit plans are primarily invested in publicly traded common stocks, corporate and government debt securities, real estate investments, and cash or cash equivalents.

NCR recognizes the funded status of each applicable plan on the Consolidated Balance Sheets. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. Changes in the fair value of plan assets and net actuarial gains or losses are recognized upon remeasurement, which is at least annually in the fourth quarter of each year.

Prior to September 1998, substantially all U.S. employees who reached retirement age while working for NCR were eligible to participate in a postretirement benefit plan. The plan provides medical care and life insurance benefits to retirees and their eligible dependents. In September 1998, the plan was amended whereby U.S. participants who had not reached a certain age and years of service with NCR were no longer eligible for such benefits. Non-U.S. employees are typically covered under government-sponsored programs, and NCR generally does not provide postretirement benefits other than pensions to non-U.S. retirees. NCR generally funds these benefits on a pay-as-you-go basis.

NCR offers various postemployment benefits to involuntarily terminated and certain inactive employees after employment but before retirement. These benefits are paid in accordance with NCR’s established postemployment benefit practices and policies. Postemployment benefits include mainly severance as well as disability benefits, supplemental unemployment benefits, workers’ compensation benefits, and continuation of healthcare benefits and life insurance coverage. NCR provides appropriate accruals for these postemployment benefits. These postemployment benefits are funded on a pay-as-you-go basis.

Amounts to be Recognized

The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost (income) during 2013 are as follows:



In millions	U.S. Pension Benefits		International Pension Benefits		Total Pension Benefits		Postretirement Benefits			Postemployment Benefits
Prior service cost (benefit)	$	—	$	5	$	5	$	(18	)	$	(6	)
Actuarial loss	$	—	$	—	$	—	$	3		$	9

Pension Plans

Reconciliation of the beginning and ending balances of the benefit obligations for NCR's pension plans are as follows:



	U.S. Pension Benefits						International Pension Benefits						Total Pension Benefits
In millions	2012			2011			2012			2011			2012			2011
Change in benefit obligation
Benefit obligation as of January 1	$	4,084		$	3,595		$	2,073		$	1,927		$	6,157		$	5,522
Net service cost	—			—			14			15			14			15
Interest cost	159			182			83			90			242			272
Amendment	—			—			9			(3		)	9			(3		)
Actuarial (gain) loss	(94		)	508			112			166			18			674
Benefits paid	(687		)	(201		)	(111		)	(121		)	(798		)	(322		)
Plan participant contributions	—			—			3			3			3			3
Settlement	—			—			(2		)	—			(2		)	—
Currency translation adjustments	—			—			68			(4		)	68			(4		)
Benefit obligation as of December 31	$	3,462		$	4,084		$	2,249		$	2,073		$	5,711		$	6,157
Accumulated benefit obligation as of December 31	$	3,462		$	4,084		$	2,166		$	2,038		$	5,628		$	6,122

A reconciliation of the beginning and ending balances of the fair value of the plan assets of NCR's pension plans are as follows:



	U.S. Pension Benefits						International Pension Benefits						Total Pension Benefits
In millions	2012			2011			2012			2011			2012			2011
Change in plan assets
Fair value of plan assets as of January 1	$	2,733		$	2,692		$	1,981		$	1,833		$	4,714		$	4,525
Actual return on plan assets	325			233			181			154			506			387
Company contributions	651			9			101			116			752			125
Benefits paid	(687		)	(201		)	(111		)	(121		)	(798		)	(322		)
Settlement	—			—			(2		)	—			(2		)	—
Currency translation adjustments	—			—			75			(4		)	75			(4		)
Plan participant contributions	—			—			3			3			3			3
Fair value of plan assets as of December 31	$	3,022		$	2,733		$	2,228		$	1,981		$	5,250		$	4,714

The following table presents the funded status and the reconciliation of the funded status to amounts recognized in the Consolidated Balance Sheets and in accumulated other comprehensive loss as of December 31:



	U.S. Pension Benefits						International Pension Benefits						Total Pension Benefits
In millions	2012			2011			2012			2011			2012			2011
Funded Status	$	(440	)	$	(1,352	)	$	(21	)	$	(91	)	$	(461	)	$	(1,443	)
Amounts recognized in the Consolidated Balance Sheets
Noncurrent assets	$	—		$	—		$	368		$	319		$	368		$	319
Current liabilities	(9		)	(8		)	(15		)	(15		)	(24		)	(23		)
Noncurrent liabilities	(431		)	(1,344		)	(374		)	(395		)	(805		)	(1,739		)
Net amounts recognized	$	(440	)	$	(1,352	)	$	(21	)	$	(91	)	$	(461	)	$	(1,443	)
Amounts recognized in accumulated other comprehensive loss for prior service cost	$	—		$	—		$	5		$	3		$	5		$	3

For pension plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of assets were $4,271 million, $4,243 million, and $3,457 million, respectively, as of December 31, 2012, and $4,877 million, $4,865 million and $3,148 million, respectively, as of December 31, 2011.

The net periodic benefit (income) cost of the pension plans for the years ended December 31 was as follows:



In millions	U.S. Pension Benefits									International Pension Benefits									Total Pension Benefits
In millions	2012			2011			2010			2012			2011			2010			2012			2011			2010
Net service cost	$	—		$	—		$	—		$	14		$	15		$	15		$	14		$	15		$	15
Interest cost	159			182			190			83			90			89			242			272			279
Expected return on plan assets	(127		)	(175		)	(185		)	(98		)	(106		)	(100		)	(225		)	(281		)	(285		)
Amortization of prior service cost	—			—			—			7			6			—			7			6			—
Actuarial (gain) loss	(293		)	450			85			31			120			(35		)	(262		)	570			50
Net benefit cost	$	(261	)	$	457		$	90		$	37		$	125		$	(31	)	$	(224	)	$	582		$	59

On September 17, 2012, the Company completed the offering of the 5.00% Notes, the proceeds of which were used to fund a $500 million discretionary contribution to the Company's U.S. qualified pension plan in the third quarter of 2012 and a subsequent $100 million discretionary contribution in the fourth quarter of 2012. In the third quarter of 2012, the Company also offered a voluntary lump sum payment option to certain former employees who were deferred vested participants of the Company's U.S. pension plan who had not yet started monthly payments of their pension benefit. The voluntary lump sum payment offer was completed during the fourth quarter of 2012, resulting in an actuarial gain from the remeasurement of the plan.

The weighted average rates and assumptions used to determine benefit obligations as of December 31 were as follows:



	U.S. Pension Benefits				International Pension Benefits				Total Pension Benefits
	2012		2011		2012		2011		2012		2011
Discount rate	3.8	%	4.0	%	3.7	%	4.1	%	3.7	%	4.0	%
Rate of compensation increase	N/A		N/A		2.5	%	3.0	%	2.5	%	3.0	%

The weighted average rates and assumptions used to determine net periodic benefit cost for the years ended December 31 were as follows:



	U.S. Pension Benefits						International Pension Benefits						Total Pension Benefits
	2012		2011		2010		2012		2011		2010		2012		2011		2010
Discount rate	4.0	%	5.3	%	5.8	%	4.1	%	4.6	%	4.9	%	4.0	%	5.0	%	5.4	%
Expected return on plan assets	4.8	%	6.8	%	7.5	%	4.8	%	5.5	%	6.0	%	4.8	%	6.3	%	6.9	%
Rate of compensation increase	N/A		N/A		N/A		3.0	%	3.5	%	3.7	%	3.0	%	3.5	%	3.7	%

The discount rate used to determine December 31, 2012 U.S. benefit obligations was derived by matching the plans’ expected future cash flows to the corresponding yields from the Aon Hewitt AA Bond Universe Curve. This yield curve has been constructed to represent the available yields on high-quality, fixed-income investments across a broad range of future maturities. International discount rates were determined by examining interest rate levels and trends within each country, particularly yields on high-quality, long-term corporate bonds, relative to our future expected cash flows.

NCR employs a building block approach as its primary approach in determining the long-term expected rate of return assumptions for plan assets. Historical market returns are studied and long-term relationships between equities and fixed income are preserved consistent with the widely accepted capital market principle that assets with higher volatilities generate higher returns over the long run. Current market factors, such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The expected long-term portfolio return is established for each plan via a building block approach with proper rebalancing consideration. The result is then adjusted to reflect additional expected return from active management net of plan expenses. Historical plan returns, the expectations of other capital market participants, and peer data are all used to review and assess the results for reasonableness and appropriateness.

Plan Assets The weighted average asset allocations as of December 31, 2012 and 2011 by asset category are as follows:



	U.S. Pension Fund					International Pension Fund
	Actual Allocation of Plan Assets as of December 31				Target Asset Allocation	Actual Allocation of Plan Assets as of December 31				Target Asset Allocation
	2012		2011		Target Asset Allocation	2012		2011		Target Asset Allocation
Equity securities	—	%	18	%	0 - 2%	24	%	24	%	24 - 31%
Debt securities	97	%	80	%	96 - 100%	65	%	65	%	61 - 68%
Real estate	1	%	2	%	0 - 2%	6	%	6	%	3 - 5%
Other	2	%	—	%	0 - 2%	5	%	5	%	3 - 6%
Total	100	%	100	%		100	%	100	%

The fair value of plan assets as of December 31, 2012 and 2011 by asset category is as follows:



		U.S.								International
In millions	Notes	Fair Value as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Equity securities:
Common stock	1	$	2	$	1	$	—	$	1	$	170	$	170	$	—	$	—
Fixed income securities:
Government securities	2	228		—		228		—		114		—		114		—
Corporate debt	3	1,221		—		1,221		—		199		—		199		—
Other types of investments:
Money market funds	4	33		—		33		—		46		—		46		—
Common and commingled trusts - Equities	4	—		—		—		—		246		105		141		—
Common and commingled trusts - Bonds	4	1,191		—		1,191		—		907		—		907		—
Common and commingled trusts - Short Term Investments	4	49		—		49		—		—		—		—		—
Common and commingled trusts - Balanced	4	1		—		1		—		36		—		36		—
Partnership/joint venture interests - Real estate	5	40		—		—		40		—		—		—		—
Partnership/joint venture interests - Other	5	22		—		—		22		62		—		—		62
Mutual funds	4	206		206		—		—		261		261		—		—
Insurance products	4	28		—		28		—		56		—		56		—
Real estate and other	5	1		—		1		—		131		—		—		131
Total		$	3,022	$	207	$	2,752	$	63	$	2,228	$	536	$	1,499	$	193



		U.S.								International
In millions	Notes	Fair Value as of December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Equity securities:
Preferred stock	1	$	—	$	—	$	—	$	—	$	1	$	1	$	—	$	—
Common stock	1	201		200		—		1		259		259		—		—
Fixed income securities:
Government securities	2	225		—		225		—		163		—		163		—
Corporate debt	3	781		—		781		—		88		—		88		—
Other types of investments:
Money market funds	4	32		—		32		—		40		—		40		—
Common and commingled trusts - Equities	4	209		—		209		—		123		—		123		—
Common and commingled trusts - Bonds	4	964		—		964		—		968		—		968		—
Common and commingled trusts - Short Term Investments	4	20		—		20		—		—		—		—		—
Common and commingled trusts - Balanced	4	1		—		1		—		31		—		31		—
Partnership/joint venture interests - Real estate	5	42		—		—		42		—		—		—		—
Partnership/joint venture interests - Other	5	53		—		—		53		55		—		—		55
Mutual funds	4	200		200		—		—		60		60		—		—
Insurance products	4	1		—		1		—		54		—		54		—
Real estate and other	5	4		4		—		—		139		7		—		132
Total		$	2,733	$	404	$	2,233	$	96	$	1,981	$	327	$	1,467	$	187

Notes:


1.	Common and preferred stocks are valued based on quoted market prices at the closing price as reported on the active market on which the individual securities are traded.

Government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar securities, the security is valued under a discounted cash flows approach that maximizes observable inputs, such as current yields on similar instruments but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks.


3.	Corporate debt is valued primarily based on observable market quotations for similar bonds at the closing price reported on the active market on which the individual securities are traded. When such quoted prices are not available, the bonds are valued using a discounted cash flows approach using current yields on similar instruments of issuers with similar credit ratings.

Common/collective trusts and registered investment companies (RICs) such as mutual funds are valued using a Net Asset Value (NAV) provided by the manager of each fund. The NAV is based on the underlying net assets owned by the fund, divided by the number of shares or units outstanding. The fair value of the underlying securities within the fund, which are generally traded on an active market, are valued at the closing price reported on the active market on which those individual securities are traded. For investments not traded on an active market, or for which a quoted price is not publicly available, a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches, are employed by the fund manager to value investments. This valuation approach is often used in valuing insurance products with underlying investments in mutual funds, commingled funds and pooled separate accounts.

Partnership/joint ventures and hedge funds are valued based on the fair value of the underlying securities within the fund, which include investments both traded on an active market and not traded on an active market. For those investments that are traded on an active market, the values are based on the closing price reported on the active market on which those individual securities are traded and in the case of hedge funds they are valued using a Net Asset Value (NAV) provided by the manager of each fund. For investments not traded on an active market, or for which a quoted price is not publicly available, a variety of unobservable valuation methodologies, including discounted cash flow, market multiples and cost valuation approaches, are employed by the fund manager to value investments.

The following table presents the reconciliation of the beginning and ending balances of those plan assets classified within Level 3 of the valuation hierarchy. When the determination is made to classify the plan assets within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.



In millions	U.S. Pension Plans			International Pension Plans
Balance, December 31, 2010	$	109		$	174
Realized and unrealized gains and losses, net	1			2
Purchases, sales and settlements, net	(15		)	11
Transfers, net	1			—
Balance, December 31, 2011	$	96		$	187
Realized and unrealized gains and losses, net	4			17
Purchases, sales and settlements, net	(37		)	(11		)
Transfers, net	—			—
Balance, December 31, 2012	$	63		$	193

Investment Strategy NCR has historically employed a total return investment approach, whereby a mix of fixed-income, equities and real estate investments are used to maximize the long-term return of plan assets subject to a prudent level of risk. The risk tolerance is established for each plan through a careful consideration of plan liabilities, plan funded status and corporate financial condition. During the first quarter of 2010, the Company completed a comprehensive analysis of its capital allocation strategy, with specific focus on its approach to pension management. As a result of this analysis, the Company implemented a plan to reduce future volatility in the value of assets held by the U.S. pension plan by rebalancing the asset allocation to a portfolio of entirely fixed income assets by the end of 2012. At the end of 2012, the Company had reallocated approximately 100% of pension assets to fixed income assets compared to 80% at the end of 2011. Similar investment strategy changes are under consideration or being implemented in a number of NCR’s international plans.

The investment portfolios contain a diversified blend of fixed-income and equity investments. Furthermore, fixed-income assets are also diversified across U.S. and non-U.S. issuers, type of fixed-income security (i.e., government bonds, corporate bonds, mortgage-backed securities) and credit quality. Equity investments are diversified across U.S. and non-U.S. stocks, small and large capitalization stocks, and growth and value stocks. Where applicable, real estate investments are made through real estate securities, partnership interests or direct investment and are diversified by property type and location. Other assets, such as cash or private equity are used judiciously to improve portfolio diversification and enhance risk-adjusted portfolio returns. Derivatives may be used to adjust market exposures in an efficient and timely manner. Due to the timing of security purchases and sales, cash held by fund managers is classified in the same asset category as the related investment. Rebalancing algorithms are applied to keep the asset mix of the plans from deviating excessively from their targets. Investment risk is measured and monitored on an ongoing basis through regular performance reporting, investment manager reviews, actuarial liability measurements and periodic investment strategy reviews.

Postretirement Plans

Reconciliation of the beginning and ending balances of the benefit obligation for NCR's U.S. postretirement plan is as follows:



	Postretirement Benefits
In millions	2012			2011
Change in benefit obligation
Benefit obligation as of January 1	$	44		$	55
Gross service cost	—			—
Interest cost	1			2
Amendment	(4		)	—
Actuarial loss (gain)	(1		)	(6		)
Plan participant contributions	3			4
Benefits paid	(8		)	(11		)
Benefit obligation as of December 31	$	35		$	44



	Postretirement Benefits
In millions	2012			2011
Benefit obligation	$	(35	)	$	(44	)
Amounts recognized in the Consolidated Balance Sheets
Current liabilities	$	(5	)	$	(8	)
Noncurrent liabilities	(30		)	(36		)
Net amounts recognized	$	(35	)	$	(44	)
Amounts recognized in accumulated other comprehensive loss
Net actuarial loss	$	29		$	33
Prior service benefit	(88		)	(102		)
Total	$	(59	)	$	(69	)

The net periodic benefit (income) cost of the postretirement plan for the years ended December 31 was:



In millions	Postretirement Benefits
In millions	2012			2011			2010
Interest cost	$	1		$	2		$	5
Net service cost	—			—			—
Amortization of:
Prior service benefit	(18		)	(18		)	(13		)
Actuarial loss	3			3			4
Net periodic benefit (income) cost	$	(14	)	$	(13	)	$	(4	)

The assumptions utilized in accounting for postretirement benefit obligations as of December 31 and for postretirement benefit income for the years ended December 31 were:



	Postretirement Benefit Obligations				Postretirement Benefit Costs
	2012		2011		2012		2011		2010
Discount rate	2.6	%	3.3	%	3.3	%	4.3	%	5.0	%

Assumed healthcare cost trend rates as of December 31 were:



	2012				2011
	Pre-65 Coverage		Post-65 Coverage		Pre-65 Coverage		Post-65 Coverage
Healthcare cost trend rate assumed for next year	8.0	%	6.5	%	9.0	%	7.0	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.0	%	5.0	%	5.0	%	5.0	%
Year that the rate reaches the ultimate rate	2018		2018		2018		2018

In addition, a one percentage point change in assumed healthcare cost trend rates would have the following effects on the postretirement benefit income and obligation:



In millions	1% Increase		1% Decrease
Service cost and interest cost for the year ended December 31, 2012	$	—	$	—
Postretirement benefit obligation as of December 31, 2012	$	1	$	(1	)

Postemployment Benefits

Reconciliation of the beginning and ending balances of the benefit obligation for NCR's postemployment plan was:



	Postemployment Benefits
In millions	2012			2011
Change in benefit obligation
Benefit obligation as of January 1	$	264		$	313
Restructuring program cost	(1		)	6
Service cost	24			25
Interest cost	9			10
Amendments	(3		)	(41		)
Benefits paid	(37		)	(31		)
Foreign currency exchange	1			2
Actuarial (gain) loss	1			(20		)
Benefit obligation as of December 31	$	258		$	264

During the fourth quarter of 2011, the Company approved changes in the benefits provided under its severance plan in Japan. With these changes, the plan's participants will receive a reduced benefit. This change reduced the Company’s postemployment plan liability and accumulated other comprehensive loss by $44 million.

The following tables present the funded status and the reconciliation of the unfunded status to amounts recognized in the Consolidated Balance Sheets and in accumulated other comprehensive loss at December 31:



	Postemployment Benefits
In millions	2012			2011
Benefit obligation	$	(258	)	$	(264	)
Amounts recognized in the Consolidated Balance Sheets
Current liabilities	$	(42	)	$	(44	)
Noncurrent liabilities	(216		)	(220		)
Net amounts recognized	$	(258	)	$	(264	)
Amounts recognized in accumulated other comprehensive loss
Net actuarial loss	$	87		$	97
Prior service benefit	(36		)	(40		)
Total	$	51		$	57

The net periodic benefit cost of the postemployment plan for the years ended December 31 was:



In millions	Postemployment Benefits
In millions	2012			2011			2010
Service cost	$	24		$	25		$	22
Interest cost	9			10			11
Amortization of:
Prior service benefit	(6		)	(9		)	(1		)
Actuarial loss	11			14			12
Net benefit cost	$	38		$	40		$	44
Restructuring severance cost	(1		)	6			(1		)
Net periodic benefit cost	$	37		$	46		$	43

During the third quarter of 2011, NCR recorded approximately $6 million of severance costs related to the acquisition of Radiant.

During the second quarter of 2011, NCR announced a change in the long term disability benefits provided to former employees, effective July 1, 2011. This action reduced the actuarial liability associated with this benefit by approximately $6 million in the second quarter of 2011.

The weighted average assumptions utilized in accounting for postemployment benefit obligations as of December 31 and for postemployment benefit costs for the years ended December 31 were:



	Postemployment Benefit Obligations				Postemployment Benefit Costs
	2012		2011		2012		2011		2010
Discount rate	2.9	%	3.5	%	3.5	%	3.9	%	4.3	%
Salary increase rate	2.6	%	3.2	%	3.2	%	3.4	%	3.6	%
Involuntary turnover rate	5.5	%	5.5	%	5.5	%	5.5	%	5.0	%

The below table presents each relevant component of other comprehensive income related to NCR's benefit plans as of December 31, 2012, including the tax effects of each component:



In millions	Before-Tax Amount			Tax Benefit (Expense)			Net-of-Tax Amount
Prior service cost during year	$	(2	)	$	(2	)	$	(4	)
Amortization of prior service benefit	(17		)	8			(9		)
Actuarial loss included in benefits expense	14			(5		)	9
Total benefit plans	$	(5	)	$	1		$	(4	)

Cash Flows Related to Employee Benefit Plans

Cash Contributions NCR does not plan to contribute to the U.S. qualified pension plan in 2013, and plans to contribute approximately $125 million to the international pension plans and $10 million to the executive pension plan in 2013. The Company also plans to make contributions of $5 million to the U.S. postretirement plan and $42 million to the postemployment plan in 2013.

Estimated Future Benefit Payments NCR expects to make the following benefit payments reflecting past and future service from its pension, postretirement and postemployment plans:



In millions	U.S. Pension Benefits		International Pension Benefits		Total Pension Benefits		Postretirement Benefits		Postemployment Benefits
Year
2013	$	223	$	102	$	325	$	5	$	42
2014	$	221	$	101	$	322	$	5	$	39
2015	$	220	$	100	$	320	$	4	$	37
2016	$	218	$	104	$	322	$	3	$	36
2017	$	217	$	102	$	319	$	3	$	34
2018 - 2022	$	1,071	$	528	$	1,599	$	10	$	144

Savings Plans U.S. employees and many international employees participate in defined contribution savings plans. These plans generally provide either a specified percent of pay or a matching contribution on participating employees’ voluntary elections. NCR’s matching contributions typically are subject to a maximum percentage or level of compensation. Employee contributions can be made pre-tax, after-tax or a combination thereof. The expense under the U.S. plan was approximately $10 million in 2012, $8 million in 2011, and $8 million in 2010. The expense under international and subsidiary savings plans was $17 million in 2012, $16 million in 2011, and $14 million in 2010.