Employee Benefits

Qualified and Nonqualified Defined Benefit Pension Plans

With the exception of Regional Transportation, YRC Reimer and certain of our other foreign subsidiaries, YRC Worldwide and its operating subsidiaries sponsor qualified and nonqualified defined benefit pension plans for certain employees not covered by collective bargaining agreements (approximately 14,000 current, former and retired employees). Qualified and nonqualified pension benefits are based on years of service and the employees' covered earnings. Employees covered by collective bargaining agreements participate in various multi-employer pension plans to which YRC Worldwide contributes, as discussed below. Regional Transportation does not offer a defined benefit pension plan and instead offers retirement benefits through either contributory 401(k) savings plans or profit sharing plans, as discussed below. The existing YRC Worldwide defined benefit pension plans closed to new participants effective January 1, 2004 and the benefit accrual for active employees was frozen effective July 1, 2008, except with respects to subsequent service related to early retirement benefits, as discussed below. Our actuarial valuation measurement date for our pension plans is December 31.

Funded Status

The reconciliation of the beginning and ending balances of the projected benefit obligation and the fair value of plan assets for the years ended December 31, 2012 and 2011, and the funded status at December 31, 2012 and 2011, is as follows:



(in millions)	2012			2011
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,166.2		$	1,077.1
Service cost	3.9			3.6
Interest cost	59.3			61.2
Benefits paid	(63.1		)	(57.7		)
Actuarial loss	192.1			91.5
Expenses paid from assets	(12.7		)	(9.5		)
Benefit obligation at year end	$	1,345.7		$	1,166.2
Change in plan assets:
Fair value of plan assets at prior year end	$	727.7		$	633.7
Actual return on plan assets	72.2			130.9
Employer contributions	75.3			30.3
Benefits paid	(63.1		)	(57.7		)
Expenses paid from assets	(12.7		)	(9.5		)
Fair value of plan assets at year end	$	799.4		$	727.7
Funded status at year end	$	(546.3	)	$	(438.5	)

The underfunded status of the plans of $546.3 million and $438.5 million at December 31, 2012 and 2011, respectively, is recognized in the accompanying consolidated balance sheets as shown in the table below. No plan assets are expected to be returned to the Company during the year ended December 31, 2013.

Benefit Plan Obligations

Amounts recognized in the consolidated balance sheets for pension benefits at December 31 are as follows:



(in millions)	2012		2011
Noncurrent assets	$	—	$	1.4
Current liabilities	0.6		3.0
Noncurrent liabilities	545.7		436.9

Amounts recognized in accumulated other comprehensive loss at December 31 consist of:



(in millions)	2012		2011
Net actuarial loss	$	511.8	$	350.3
Prior service cost	—		—
Total	$	511.8	$	350.3

As shown above, included in accumulated other comprehensive loss at December 31, 2012, are unrecognized actuarial losses of $511.8 million ($418.4 million, net of tax). The actuarial loss included in accumulated other comprehensive income and expected to be recognized in net periodic cost during the year ended December 31, 2013, is $14.9 million.

The total accumulated benefit obligation for all plans was $1,345.7 million and $1,165.3 million at December 31, 2012 and 2011, respectively.

As of December 31, 2012, all of our pension plans accumulated benefit obligation (“ABO”) equal projected benefit obligation and exceed their plan assets. Information for pension plans with an ABO in excess of plan assets at December 31, 2011 is as follows:



(in millions)	ABO Exceeds Assets		Assets Exceed ABO		Total
Projected benefit obligation	$	1,160.8	$	5.4	$	1,166.2
Accumulated benefit obligation	1,160.8		4.5		1,165.3
Fair value of plan assets	720.9		6.8		727.7

Assumptions

Weighted average actuarial assumptions used to determine benefit obligations at December 31:



	2012		2011
Discount rate	4.28	%	5.23	%

Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:



	2012		2011		2010
Discount rate	5.23	%	5.79	%	6.15	%
Expected rate of return on assets	7.0	%	7.0	%	8.25	%
Mortality table	RP-2000 Projected to 2012		RP-2000 Projected to 2011		RP-2000

The discount rate refers to the interest rate used to discount the estimated future benefit payments to their present value, also referred to as the benefit obligation. The discount rate allows us to estimate what it would cost to settle the pension obligations as of the measurement date, December 31, and is used as the interest rate factor in the following year's pension cost. We determine the discount rate by selecting a portfolio of high quality noncallable bonds such that the coupons and maturities exceed our expected benefit payments.

In determining the expected rate of return on assets, we consider our historical experience in the plans' investment portfolio, historical market data and long-term historical relationships as well as a review of other objective indices including current market factors such as inflation and interest rates. Although plan investments are subject to short-term market volatility, we believe they are well diversified and closely managed. Our asset allocation as of December 31, 2012, consisted of 27% equities, 50% in debt securities and 23% in absolute return investments and as of December 31, 2011 consisted of 25% equities, 50% in debt securities, 22% in absolute return investments, and 3% in interest bearing accounts. The 2012 allocations are consistent with the targeted long-term asset allocation for the plans which is 25% equities, 48% debt securities and 27% absolute return investments. Based on various market factors, we selected an expected rate of return on assets of 7.0% effective for the 2012 valuation. We will continue to review our expected long-term rate of return on an annual basis and revise appropriately. The pension trust holds no YRC Worldwide securities.

Future Contributions and Benefit Payments

We expect to contribute approximately $62.6 million to our single employer pension plans in 2013.

Expected benefit payments from our qualified and non-qualified defined benefit pension plans for each of the next five years and the total payments for the following five years ended December 31 are as follows:



(in millions)	2013		2014		2015		2016		2017		2018-2022
Expected benefit payments	$	69.4	$	69.0	$	70.5	$	70.5	$	71.3	$	378.0

Pension and Other Post-retirement Costs

The components of our net periodic pension cost, other post-retirement costs and other amounts recognized in other comprehensive loss for the years ended December 31, 2012, 2011 and 2010 were as follows:



(in millions)	2012			2011			2010
Net periodic benefit cost:
Service cost	$	3.9		$	3.6		$	3.6
Interest cost	59.3			61.2			60.1
Expected return on plan assets	(51.1		)	(43.0		)	(52.4		)
Amortization of prior net loss	9.0			9.6			6.2
Curtailment and settlement loss, net	—			—			1.3
Net periodic pension cost	$	21.1		$	31.4		$	18.8
Other changes in plan assets and benefit obligations recognized in other comprehensive loss:
Net actuarial loss (gain) and other adjustments	$	170.4		$	3.6		$	105.3
Less amortization of prior losses	(9.0		)	(9.6		)	(6.2		)
Total recognized in other comprehensive loss (income)	161.4			(6.0		)	99.1
Total recognized in net periodic benefit cost and other comprehensive loss	$	182.5		$	25.4		$	117.9

During the year ended December 31, 2012 and 2010, the income tax provision (benefit) related to amounts in other comprehensive income was $(1.3) million and $2.5 million. There was no corresponding amount in 2011.

Fair Value Measurement

Our pension assets are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The majority of our assets are invested in Level 2 assets of fixed income funds and absolute return investments. These funds are valued at quoted redemption values that represent the net asset values of units held at year-end which we have determined approximates fair value. This process of using the net asset value (NAV) to approximate fair value is permitted under ASU 2009-12, “Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent)” which we adopted as of December 31, 2009.

Investments in private equities and absolute return funds do not have readily available market values. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differences could be material. Investments in hedge funds that do not have an established market are valued at net asset values as determined by the investment managers, which we have determined approximates fair value.

The table below details by level, within the fair value hierarchy, the pension assets at fair value as of December 31, 2012:



	Pension Assets at Fair Value as of December 31, 2012
(in millions)	Level 1		Level 2		Level 3		Total
Equities	$	79.9	$	92.5	$	—	$	172.4
Private equities	—		—		38.8		38.8
Fixed income:
Corporate	15.3		89.9		35.5		140.7
Government	109.1		145.2		—		254.3
Absolute return	0.6		157.1		—		157.7
Interest bearing	34.0		—		—		34.0
Total investments	$	238.9	$	484.7	$	74.3	$	797.9
Other assets, net							1.5
Total plan assets	$	238.9	$	484.7	$	74.3	$	799.4

The table below details by level, within the fair value hierarchy, the pension assets at fair value as of December 31, 2011:



	Pension Assets at Fair Value as of December 31, 2011
(in millions)	Level 1		Level 2		Level 3		Total
Equities	$	66.5	$	85.9	—		$	152.4
Private equities	—		—		29.0		29.0
Fixed income:
Corporate	9.9		74.5		14.6		99.0
Government	115.8		148.0		—		263.8
Absolute return	0.3		153.0		—		153.3
Interest bearing	23.6		—		—		23.6
Total investments	$	216.1	$	461.4	$	43.6	$	721.1
Other assets, net							6.6
Total plan assets	$	216.1	$	461.4	$	43.6	$	727.7

The table below presents the activity of our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):



(in millions)	Private Equities			Fixed income			Absolute return			Total Level 3
Balance at December 31, 2010	$	11.0		$	18.2		$	22.5		$	51.7
Purchases	17.2			4.4			—			21.6
Sales	—			(8.6		)	(21.6		)	(30.2		)
Unrealized gain (loss)	0.8			0.6			(0.9		)	0.5
Balance at December 31, 2011	$	29.0		$	14.6		$	—		$	43.6
Purchases	8.4			25.6			—			34.0
Sales	(2.0		)	(5.2		)	—			(7.2		)
Unrealized gain (loss)	3.4			0.5			—			3.9
Balance at December 31, 2012	$	38.8		$	35.5		$	—		$	74.3

The following table sets forth a summary of the Level 3 assets for which the fair value is not readily determinable but a reported NAV is used to estimate the fair value as of December 31, 2012:



	Fair value estimated using Net Asset Value per Share
(in millions)	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Private equities ^(a)	$	38.8	$	14.2	Redemptions not permitted
Fixed income ^(b)	35.5		3.0		Varies ^(c)	Varies ^(c)
Total	$	74.3


(a)	The private equities consist of four private equity funds investing in renewable solar energy, acquisition of pharmaceutical company interest and Chinese technology and healthcare companies.


(b)	Consists of three fixed income funds, two of which invest in debt securities secured by royalty payments from top-tier marketers of pharmaceutical products, and one which invests in Indian mezzanine debt.


(c)	Redemptions are not permitted for two of the Level 3 fixed income funds. The third fund has redemption terms of quarterly after the second anniversary and a 90 day redemption notice period.

The following table sets forth a summary of the Level 3 assets for which the fair value is not readily determinable but a reported NAV is used to estimate the fair value as of December 31, 2011:



	Fair value estimated using Net Asset Value per Share
(in millions)	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Private equities ^(a)	$	29.0	$	18.3	Redemptions not permitted
Fixed income ^(b)	14.6		18.6		Redemptions not permitted
Total	$	43.6


(a)	The private equities consist of four private equity funds investing in renewable solar energy, acquisition of pharmaceutical company interest and Chinese technology and healthcare companies.


(b)	The fixed income funds consist of funds which invest in debt securities by royalty payments from top-tier marketers of pharmaceutical products.

The assets presented above in the December 31, 2012 and 2011 fair value hierarchy tables classified as Level 1 and Level 2, which fair value is estimated using NAV per share, have redemption frequencies ranging from daily to annually, have redemption notice periods from approximately 1 day to 90 days and have no unfunded commitments. These assets consist of equity, fixed income, and absolute return funds. Generally, the investment strategies of the fixed income and equity funds is based on fundamental and quantitative analysis and consists of long and hedged strategies. The general strategy of the absolute return funds consists of alternative investment techniques, including derivative instruments and other unconventional assets, to achieve a stated return rate.

Multi-Employer Pension Plans

YRC Freight, New Penn, Holland and Reddaway contribute to various separate multi-employer health, welfare and pension plans for employees that are covered by our collective bargaining agreements (approximately 76% of total YRC Worldwide employees). The collective bargaining agreements determine the amounts of these contributions. The 65 health and welfare plans provide medical related benefits to active employees and retirees. The 37 pension plans provide defined benefits to retired participants. We recognize as net pension cost within 'salaries, wages and employee benefits' the contractually required contributions for the period and recognize as a liability any contributions due and unpaid at period end. We do not directly manage multi-employer plans. The trusts covering these plans are generally managed by trustees, half of whom the unions appoint and half of whom various contributing employers appoint.

We expensed the following amounts related to these plans for the years ended December 31:



(in millions)	2012		2011		2010
Health and welfare	$	387.5	$	378.2	$	345.9
Pension	85.6		48.7		3.3
Total	$	473.1	$	426.9	$	349.2

Pension

Through the third quarter of 2009, we deferred payment of certain of our contributions to multi-employer pension funds. These deferred payments have been recognized as an operating expense and the liability was recorded as deferred contribution obligations. Beginning in the third quarter of 2009 through May 2011, most of our collective bargaining agreements provided for a temporary cessation of pension contributions so no expense or liability was required to be recognized for that period. In accordance with modifications to our collective bargaining agreements, we agreed to resume making pension contributions effective June 1, 2011 at 25.0% of the contribution rate in effect as of July 1, 2009.

The following table provides additional information related to our participation in individually significant multi-employer pension plans for the year ended December 31, 2012:



		Pension Protection Zone Status ^(b)		Funding Improvement or Rehabilitation Plan	Employer Surcharge Imposed	Expiration Date of Collective-Bargaining Agreement
Pension Fund ^(a)	EIN Number	2012	2011	Funding Improvement or Rehabilitation Plan	Employer Surcharge Imposed	Expiration Date of Collective-Bargaining Agreement
Central States, Southwest and Southwest Areas Pension Fund	36-6044243	Red	Red	Yes	No	3/31/2015
Teamsters National 401K Savings Plan ^(c)	52-1967784	N/A	N/A	N/A	No	3/31/2015
I.B. of T. Union Local No 710 Pension Fund	36-2377656	Green	Yellow	No	No	3/31/2015
Central Pennsylvania Teamsters Defined Benefit Plan	23-6262789	Green	Green	No	No	3/31/2015
Road Carriers Local 707 Pension Fund	51-6106510	Red	Red	Yes	No	3/31/2015

^(a)The determination of individually significant multi-employer plans is based on the relative contributions to the plans over the periods presented as well as other factors.

^(b)The Pension Protection Zone Status is based on information that the Company obtained from the plans' Forms 5500. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available for 2012 and 2011 is for the plan's year-end during calendar years 2011 and 2010, respectively. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded.

^(c)The policies of the Western Conference of Teamsters Pension Trust precluded the Company from reentering the plan on June 1, 2011. The failure to reenter did not constitute a withdrawal subject to certain conditions. Contributions related to the employees previously covered by this plan are now being made to the Teamsters National 401(k) Plan.

YRC Worldwide was listed in the Road Carriers Local 707 Pension Fund's Forms 5500 as providing more than 5 percent of the total contributions for 2011 and 2010.

We contributed a total of $84.9 million, $45.6 million and $3.3 million to the multi-employer pension funds for the years ended December 31, 2012, 2011 and 2010. The following table provides the pension amounts contributed by fund for those funds that are considered to be individually significant:



(in millions)	2012		2011		2010
Central States, Southeast and Southwest Areas Pension Plan	$	51.9	$	27.6	$	—
Teamsters National 401K Savings Plan	11.0		5.8		—
I.B. of T. Union Local No 710 Pension Fund	4.1		2.2		—
Central Pennsylvania Teamsters Defined Benefit Plan	4.5		2.3		—
Road Carriers Local 707 Pension Fund	2.5		1.2		—

The comparability of annual contributions for 2010 through 2012 is impacted by the temporary cessation of contributions for the period from the third quarter of 2009 through May 2011 and the reduction in the Company's workforce.

In 2006, the Pension Protection Act became law and modified both the Internal Revenue Code (as amended, the “Code”) as it applies to multi-employer pension plans and the Employment Retirement Income Security Act of 1974 (as amended, “ERISA”). The Code and ERISA (in each case, as so modified) and related regulations establish minimum funding requirements for multi-employer pension plans.

If any of our multi-employer pension plans fails to meet minimum funding requirements, meet a required funding improvement or rehabilitation plan that the Pension Protection Act may require for certain of our underfunded plans, obtain from the IRS certain changes to or a waiver of the requirements in how the applicable plan calculates its funding levels, or reduce pension benefits to a level where the requirements are met then we could be required to make additional contributions to the pension plan. If any of our multi-employer pension plans enters critical status and our contributions are not sufficient to satisfy any rehabilitation plan schedule, the Pension Protection Act could require us to make additional surcharge contributions to the multi-employer pension plan in the amount of five to ten percent of the existing contributions required by our labor agreement for the remaining term of the labor agreement.

If we fail to make our required contributions to a multi-employer plan under a funding improvement or rehabilitation plan or if the benchmarks that an applicable funding improvement plan provides are not met by the end of a prescribed period, the IRS could impose an excise tax on us with respect to the plan. Such an excise tax would then be assessed to the plan's contributing employers, including the Company. These excise taxes are not contributed to the deficient funds, but rather are deposited in the United States general treasury funds. The Company does not believe that the temporary cessation of certain of its contributions to applicable multi-employer pension funds beginning in the third quarter of 2009 and continuing through May 2011 will give rise to these excise taxes as the underlying employer contributions were not required for that period.

A requirement to materially increase contributions beyond our contractually agreed rate or the imposition of an excise tax on us could have a material adverse impact on the financial results and liquidity of YRC Worldwide.

Executive Supplemental Retirement Benefits

We maintain individual benefit arrangements for a limited number of former senior executives that are accounted for in accordance with FASB ASC Topic 710. The unfunded obligation is actuarially determined using a discount rate of 8.25%, a lump sum rate based on the Moody's bond rate and the RP-2000 mortality table projected to 2012. At December 31, 2012 and 2011, we have accrued $2.6 million and $13.2 million, respectively, for these benefits. The balance at December 31, 2012 is classified in “Pension and postretirement liabilities” in the accompanying balance sheets. The related expense for these arrangements was $0.2 million, $0.2 million and $2.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

401(k) Savings Plans

We sponsor the YRC Worldwide Inc. 401(k) Plan, which is a defined contribution plan primarily for employees that our collective bargaining agreements do not cover. The plan permits participants to make contributions to the plan and permits the employer of participants to make contributions on behalf of the participants. There were no employer contributions in 2012, 2011 or 2010. Our employees covered under collective bargaining agreements may also participate in union-sponsored 401(k) plans.

Performance Incentive Awards

YRC Worldwide and its operating subsidiaries each provide annual performance incentive awards and more frequent sales incentive awards to certain non-union employees, which are based primarily on actual operating results achieved compared to targeted operating results or sales targets and are paid in cash. Operating (loss) income in 2012, 2011, and 2010 included performance and sales incentive expense for non-union employees of $12.3 million, $13.9 million, and $14.6 million, respectively. We generally pay annual performance incentive awards in the first quarter of the following year and sales performance incentive awards on a monthly basis.

Other

We provide a performance based incentive plan to key management personnel that provides the opportunity annually to earn cash and equity awards to further compensate certain levels of management and our Board of Directors. The equity awards are more fully described in the "Stock Compensation Plans" footnote to our consolidated financial statements. During the years ended December 31, 2012, 2011 and 2010, compensation expense related to these awards was $3.8 million, $0.6 million and $6.0 million, respectively.