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PENSION AND OTHER POSTRETIREMENT BENEFITS
 12 Months Ended
Dec. 31, 2012
Pension and Other Post Retirements Disclosure Paragraph Details [Abstract]  
Pension and Other Postretirement Benefits

Note 23. Pension and Other Postretirement Benefits

 

We sponsor both funded and unfunded U.S. and non-U.S. defined benefit pension plans covering the majority of our employees and retirees. Pension benefits for substantially all U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit pension plans. U.S. defined benefit pension plans comprise 76 percent of our projected benefit obligation. All non-union hourly and salaried employees joining Honeywell for the first time after December 31, 2012, are not eligible to participate in Honeywell's U.S. defined benefit pension plans. Non-U.S. employees, who are not U.S. citizens, are covered by various retirement benefit arrangements, some of which are considered to be defined benefit pension plans for accounting purposes. Non-U.S. defined benefit pension plans comprise 24 percent of our projected benefit obligation.

We also sponsor postretirement benefit plans that provide health care benefits and life insurance coverage to eligible retirees. Our retiree medical plans mainly cover U.S. employees who retire with pension eligibility for prescription drug, hospital, professional and other medical services. Most of the U.S. retiree medical plans require deductibles and copayments, and virtually all are integrated with Medicare. Retiree contributions are generally required based on coverage type, plan and Medicare eligibility. All non-union hourly and salaried employees joining Honeywell after January 1, 2000 are not eligible to participate in our retiree medical and life insurance plans. Less than 5 percent of Honeywell's U.S. employees are eligible for a retiree medical subsidy from the Company; and this subsidy is limited to a fixed-dollar amount. In addition, more than half of Honeywell's current retirees either have no Company subsidy or have a fixed-dollar subsidy amount. This significantly limits our exposure to the impact of future health care cost increases. The retiree medical and life insurance plans are not funded. Claims and expenses are paid from our operating cash flow.

In 2011, in connection with new collective bargaining agreements reached with several of its union groups, Honeywell amended its U.S. retiree medical plans eliminating the subsidy for those union employees resulted in curtailment gains totaling $167 million. The curtailment gains represented the recognition in net periodic postretirement benefit cost of prior service credits attributable to the future years of service of the union groups for which future accrual of benefits was eliminated.

 

In 2010, Honeywell amended its U.S. retiree medical plan to no longer offer certain post-age-65 retirees Honeywell group coverage and facilitate their purchase of an individual plan in the Medicare marketplace. This plan amendment reduced the accumulated postretirement benefit obligation by $137 million which will be recognized as part of net periodic postretirement benefit cost over the average future service period to full eligibility of the remaining active union employees still eligible for a retiree medical subsidy. Also in 2010, in connection with a new collective bargaining agreement reached with one of its union groups, Honeywell amended its U.S. retiree medical plan eliminating the subsidy for those union employees who retire after February 1, 2013. This plan amendment reduced the accumulated postretirement benefit obligation by $39 million which will be recognized as part of net periodic postretirement benefit cost over the average future service period to full eligibility of the remaining active union employees still eligible for a retiree medical subsidy. This plan amendment also resulted in a curtailment gain of $37 million in 2010 which represented the recognition in net periodic postretirement benefit cost of prior service credits attributable to the future years of service of the union group for which future accrual of benefits was eliminated.

 

The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with our significant pension and other postretirement benefit plans at December 31, 2012 and 2011.

  Pension Benefits
  U.S. Plans Non-U.S. Plans
  2012 2011 2012 2011
Change in benefit obligation:           
 Benefit obligation at beginning of year $ 15,600 $ 14,990 $ 4,648 $ 4,373
 Service cost   256   232   48   59
 Interest cost   738   761   221   239
 Plan amendments   -   5   -   -
 Actuarial losses  1,493   566   372   171
 Divestitures  -   (26)   -   -
 Benefits paid  (970)   (952)   (188)   (189)
 Settlements and curtailments  -   -   (16)   (25)
 Other  -   24   187   20
 Benefit obligation at end of year  17,117   15,600   5,272   4,648
Change in plan assets:           
 Fair value of plan assets at beginning of year  12,836   12,181   3,958   3,939
 Actual return on plan assets  1,654   (41)   336   87
 Company contributions  825   1,681   271   124
 Divestitures  -   (33)   -   -
 Benefits paid  (970)   (952)   (188)   (189)
 Settlements and curtailments  -   -   (16)   (25)
 Other  -   -   166   22
 Fair value of plan assets at end of year  14,345   12,836   4,527   3,958
Funded status of plans$ (2,772) $ (2,764) $ (745) $ (690)
Amounts recognized in Consolidated Balance            
Sheet consist of:           
 Prepaid pension benefit cost(1)$ - $ - $ 87 $ 84
 Accrued pension liability(2)  (2,772)   (2,764)   (832)   (774)
Net amount recognized $ (2,772) $ (2,764) $ (745) $ (690)
             
(1) Included in Other Assets on Consolidated Balance Sheet
(2) Included in Other Liabilities - Non-Current on Consolidated Balance Sheet

   Other Postretirement Benefits 
   2012 2011 
 Change in benefit obligation:      
  Benefit obligation at beginning of year $ 1,534 $ 1,628 
  Service cost   1   1 
  Interest cost   53   69 
  Plan amendments   (1)   (22) 
  Actuarial losses   34   6 
  Benefits paid   (144)   (138) 
  Settlements and curtailments   -   (10) 
  Benefit obligation at end of year   1,477   1,534 
 Change in plan assets:      
  Fair value of plan assets at beginning of year   -   - 
  Actual return on plan assets   -   - 
  Company contributions   -   - 
  Benefits paid   -   - 
  Fair value of plan assets at end of year   -   - 
 Funded status of plans $ (1,477) $ (1,534) 
         
 Amounts recognized in Consolidated Balance Sheet consist of:      
  Accrued liabilities   (167)   (167) 
  Postretirement benefit obligations other than pensions(1)  (1,310)   (1,367) 
 Net amount recognized $ (1,477) $ (1,534) 
         
 (1) Excludes Non-U.S. plans of $55 and $50 million in 2012 and 2011, respectively.  

Amounts recognized in Accumulated Other Comprehensive (Income) Loss associated with our significant pension and other postretirement benefit plans at December 31, 2012 and 2011 are as follows.

  Pension Benefits 
  U.S. Plans Non-U.S. Plans 
  2012 2011 2012 2011 
 Transition obligation $ - $ - $ 5 $ 7 
 Prior service cost (credit)   120   148   (16)   (17) 
 Net actuarial loss   1,712   1,559   530   430 
 Net amount recognized$ 1,832 $ 1,707 $ 519 $ 420 

  Other Postretirement Benefits 
  2012 2011 
 Prior service (credit) $ (48) $ (67) 
 Net actuarial loss   391   391 
 Net amount recognized$ 343 $ 324 

The components of net periodic benefit cost and other amounts recognized in other comprehensive (income) loss for our significant plans for the years ended December 31, 2012, 2011, and 2010 include the following components:

   Pension Benefits
   U.S. Plans Non-U.S. Plans
Net Periodic Benefit Cost201220112010 201220112010
Service cost $ 256$ 232$ 221 $ 48$ 59$ 51
Interest cost   738  761  768   221  239  228
Expected return on plan assets  (1,020)  (1,014)  (902)   (291)  (284)  (248)
Amortization of transition             
 obligation  -  -  -   2  2  1
Amortization of prior service             
 cost (credit)  28  33  32   (2)  (2)  (1)
Recognition of actuarial losses  707  1,568  182   250  234  289
Settlements and curtailments  -  24  -   2  1  4
Net periodic benefit cost$ 709$ 1,604$ 301 $ 230$ 249$ 324
                
Other Changes in Plan Assets and             
Benefits Obligations Recognized inU.S. Plans Non-U.S. Plans
Other Comprehensive (Income) Loss201220112010 201220112010
Actuarial (gains)/losses$ 859$ 1,628$ 325 $ 327$ 368$ (20)
Prior service cost (credit)  -  5  117   -  -  -
Transition obligation             
 recognized during year  -  -  -   (2)  (2)  (1)
Prior service (cost) credit             
 recognized during year  (28)  (33)  (32)   2  2  1
Actuarial losses recognized             
 during year  (707)  (1,568)  (182)   (250)  (234)  (289)
Foreign exchange translation             
 adjustments  -  -  -   23  (11)  (17)
 Total recognized in other             
  comprehensive (income) loss$ 124$ 32$ 228 $ 100$ 123$ (326)
 Total recognized in net periodic             
  benefit cost and other             
  comprehensive (income) loss$ 833$ 1,636$ 529 $ 330$ 372$ (2)

The estimated prior service cost for pension benefits that will be amortized from accumulated other comprehensive (income) loss into net periodic benefit cost in 2013 are expected to be $23 million and $(2) million for U.S. and Non-U.S. benefit plans, respectively.

   Other Postretirement Benefits
   Years Ended December 31,
Net Periodic Benefit Cost  2012 2011 2010
Service cost  $ 1 $ 1 $ 2
Interest cost    53   69   81
Amortization of prior service (credit)    (14)   (34)   (44)
Recognition of actuarial losses   34   38   34
Settlements and curtailments   (6)   (167)   (47)
Net periodic benefit (income) cost $ 68 $ (93) $ 26
           
   Years Ended December 31,
Other Changes in Plan Assets and Benefits Obligations  2012 2011 2010
Recognized in Other Comprehensive (Income) Loss         
Actuarial losses $ 34 $ 6 $ 160
Prior service (credit)   (1)   (21)   (176)
Prior service credit recognized during year   14   34   44
Actuarial losses recognized during year   (34)   (38)   (34)
Settlements and curtailments   6   167   47
Total recognized in other comprehensive loss (income) $ 19 $ 148 $ 41
Total recognized in net periodic benefit cost and other         
 comprehensive loss (income) $ 87 $ 55 $ 67

The estimated net loss and prior service (credit) for other postretirement benefits that will be amortized from accumulated other comprehensive (income) loss into net periodic benefit cost in 2013 are expected to be $41 and $(13) million, respectively.

Major actuarial assumptions used in determining the benefit obligations and net periodic benefit cost for our significant benefit plans are presented in the following table.

 

 Pension Benefits 
 U.S. Plans Non-U.S. Plans 
 2012 2011 2010 2012 2011 2010 
Actuarial assumptions used to determine             
benefit obligations as of December 31:            
Discount rate 4.06% 4.89% 5.25% 4.29% 4.84% 5.40%
Expected annual rate of            
compensation increase 4.50% 4.50% 4.50% 3.55% 3.67% 3.79%
             
Actuarial assumptions used to determine            
net periodic benefit cost for years            
ended December 31:            
Discount rate 4.89% 5.25% 5.75% 4.84% 5.40% 5.71%
Expected rate of return            
on plan assets 8.00% 8.00% 9.00% 7.03% 7.06% 7.51%
Expected annual rate of            
compensation increase 4.50% 4.50% 4.50% 3.67% 3.79% 3.87%

    Other Postretirement Benefits 
    2012  2011  2010 
Actuarial assumptions used to determine benefit          
 obligations as of December 31:         
  Discount rate   3.40%  4.00%  4.70%
            
Actuarial assumptions used to determine net periodic         
 benefit cost for years ended December 31:         
  Discount rate  4.00%  4.70%  5.25%

The discount rate for our U.S. pension and other postretirement benefits plans reflects the current rate at which the associated liabilities could be settled at the measurement date of December 31. To determine discount rates for our U.S. pension and other postretirement benefit plans, we use a modeling process that involves matching the expected cash outflows of our benefit plans to a yield curve constructed from a portfolio of high quality, fixed-income debt instruments. We use the average yield of this hypothetical portfolio as a discount rate benchmark. The discount rate used to determine the other postretirement benefit obligation is lower principally due to a shorter expected duration of other postretirement plan obligations as compared to pension plan obligations.

Our expected rate of return on U.S. plan assets is a long-term rate based on historical plan asset returns over varying long-term periods combined with current market conditions and broad asset mix considerations. We will use an expected rate of return on U.S. plan assets of 7.75 percent for 2013 down from 8 percent for 2012 due to lower future expected market returns. We review the expected rate of return on an annual basis and revise it as appropriate.

For non-U.S. benefit plans, none of which was individually material, assumptions reflect economic assumptions applicable to each country.

Pension Benefits

Included in the aggregate data in the tables above are the amounts applicable to our pension plans with accumulated benefit obligations exceeding the fair value of plan assets. Amounts related to such plans were as follows:

 

   December 31, 
   U.S. Plans Non-U.S. Plans 
   2012 2011 2012 2011 
 Projected benefit obligation  $17,117 $15,600 $4,670 $4,141 
 Accumulated benefit obligation  $16,288 $14,845 $4,426 $3,912 
 Fair value of plan assets  $14,345 $12,836 $3,837 $3,367 

Accumulated benefit obligation for our U.S. defined benefit pension plans were $16.3 and $14.8 billion and our Non-U.S. defined benefit plans were $5.0 and $4.4 billion at December 31, 2012 and 2011, respectively.

Our asset investment strategy for our U.S. pension plans focuses on maintaining a diversified portfolio using various asset classes in order to achieve our long-term investment objectives on a risk adjusted basis. Our actual invested positions in various securities change over time based on short and longer-term investment opportunities. To achieve our objectives, we have established long-term target allocations as follows: 60-70 percent equity securities, 10-20 percent fixed income securities and cash, 5-15 percent real estate investments, and 10-20 percent other types of investments. Equity securities include publicly-traded stock of companies located both inside and outside the United States. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities, and U.S. Treasuries. Real estate investments include direct investments in commercial properties and investments in real estate funds. Other types of investments include investments in private equity and hedge funds that follow several different strategies. We review our assets on a regular basis to ensure that we are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations.

Our non-U.S. pension assets are typically managed by decentralized fiduciary committees with the Honeywell Corporate Investments group providing standard funding and investment guidance. Local regulations, local funding rules, and local financial and tax considerations are part of the funding and investment allocation process in each country. While our non-U.S. investment policies are different for each country, the long-term investment objectives are generally the same as those for the U.S. pension assets.

The fair values of both our U.S. and non-U.S. pension plans assets at December 31, 2012 and 2011 by asset category are as follows:

  U.S. Plans 
  December 31, 2012 
    Total Level 1 Level 2 Level 3 
Common stock/preferred stock:         
 Honeywell common stock$ 1,182$ 1,182$ -$ - 
 U.S. large cap stocks  2,903  2,903  -  - 
 U.S. mid cap stocks  731  731  -  - 
 U.S. small cap stocks  261  261  -  - 
 International stocks  2,203  2,073  130  - 
 Real estate investment trusts  44  44  -  - 
Fixed income investments:         
 Short term investments  1,139  1,139  -  - 
 Government securities  266  -  266  - 
 Corporate bonds  2,728  -  2,728  - 
 Mortgage/Asset-backed securities  654  -  654  - 
 Insurance contracts  6  -  6  - 
Investments in private funds:         
 Private funds  1,100  -  -  1,100 
 Hedge funds  52  -  -  52 
 Real estate funds  254  -  -  254 
Direct investments:         
 Direct private investments  227  -  -  227 
 Real estate properties  595  -  -  595 
  $ 14,345$ 8,333$ 3,784$ 2,228 

  U.S. Plans 
  December 31, 2011 
    Total Level 1 Level 2 Level 3 
Common stock/preferred stock:         
 Honeywell common stock$ 1,012$ 1,012$ -$ - 
 U.S. large cap stocks  2,697  2,416  281  - 
 U.S. mid cap stocks  1,087  1,087  -  - 
 U.S. small cap stocks  272  272  -  - 
 International stocks  2,010  1,993  17  - 
 Real estate investment trusts  32  32  -  - 
Fixed income investments:         
 Short term investments  941  941  -  - 
 Government securities  291  -  291  - 
 Corporate bonds  1,984  -  1,984  - 
 Mortgage/Asset-backed securities  435  -  435  - 
 Insurance contracts  6  -  6  - 
Investments in private funds:         
 Private funds  1,039  -  -  1,039 
 Hedge funds  60  -  -  60 
 Real estate funds  256  -  -  256 
Direct investments:         
 Direct private investments  161  -  -  161 
 Real estate properties  553  -  -  553 
  $ 12,836$ 7,753$ 3,014$ 2,069 

  Non-U.S. Plans 
  December 31, 2012 
    Total Level 1 Level 2 Level 3 
Common stock/preferred stock:         
 U.S. companies$ 366$ 316$ 50$ - 
 Non-U.S. companies  1,605  176  1,429  - 
Fixed income investments:         
 Short-term investments  104  104  -  - 
 Government securities  1,321  -  1,321  - 
 Corporate bonds  571  -  571  - 
 Mortgage/Asset-backed securities  8  -  8  - 
 Insurance contracts  203  -  203  - 
Investments in private funds:         
 Private funds  136  -  -  136 
 Hedge funds  56  -  -  56 
 Real estate funds  157  -  -  157 
  $ 4,527$ 596$ 3,582$ 349 

  Non-U.S. Plans 
  December 31, 2011 
    Total Level 1 Level 2 Level 3 
Common stock/preferred stock:         
 U.S. companies$ 371$ 249$ 122$ - 
 Non-U.S. companies  1,343  233  1,110  - 
Fixed income investments:         
 Short-term investments  78  78  -  - 
 Government securities  1,175  -  1,175  - 
 Corporate bonds  463  -  463  - 
 Mortgage/Asset-backed securities  5  -  5  - 
 Insurance contracts  197  -  197  - 
Investments in private funds:         
 Private funds  112  -  -  112 
 Hedge funds  54  -  -  54 
 Real estate funds  160  -  -  160 
  $ 3,958$ 560$ 3,072$ 326 

The following tables summarize changes in the fair value of Level 3 assets for the years ended December 31, 2012 and 2011:

 

   U.S. Plans
      Direct         
    Private Private Hedge Real Estate Real Estate
    Funds Investments Funds Funds Properties
Balance at December 31, 2010 $ 1,053 $ 167 $ 77 $ 214 $ 494
Actual return on plan assets:               
 Relating to assets still held               
  at year-end   (9)   4   (7)   26   41
 Relating to assets sold                
  during the year   -   8   4   -   -
Purchases   163   31   13   48   19
Sales and settlements   (168)   (49)   (27)   (32)   (1)
                  
Balance at December 31, 2011   1,039   161   60   256   553
Actual return on plan assets:               
 Relating to assets still held               
  at year-end   44   12   11   16   29
 Relating to assets sold                
  during the year   (1)   6   1   (1)   -
Purchases   147   65   4   31   41
Sales and settlements   (129)   (17)   (24)   (48)   (28)
Balance at December 31, 2012 $ 1,100 $ 227 $ 52 $ 254 $ 595
                  
       Non-U.S. Plans   
                 
       Private Hedge Real Estate   
       Funds Funds Funds   
Balance at December 31, 2010 $ 89 $ 55 $ 169   
Actual return on plan assets:            
 Relating to assets still held            
  at year-end   2   (1)   7   
 Relating to assets sold             
  during the year   3   -   2   
Purchases   13   -   -   
Sales and settlements   5   -   (18)   
                  
Balance at December 31, 2011   112   54   160   
Actual return on plan assets:            
 Relating to assets still held            
  at year-end   3   2   8   
 Relating to assets sold             
  during the year   3   -   -   
Purchases   21   -   21   
Sales and settlements   (3)   -   (32)   
Balance at December 31, 2012 $ 136 $ 56 $ 157   

Our U.S. pension assets at December 31, 2012 and 2011 include $1,241 and $976 million, respectively, in notional derivative exposure primarily related to outstanding equity futures contracts. Our non-U.S. pension assets at December 31, 2012 include $55 million in notional derivative exposure primarily related to outstanding equity futures contracts. The Company enters into futures contracts to gain exposure to certain markets.

Common stocks, preferred stocks, real estate investment trusts, and short-term investments are valued at the closing price reported in the active market in which the individual securities are traded. Corporate bonds, mortgages, asset-backed securities, and government securities are valued either by using pricing models, bids provided by brokers or dealers, quoted prices of securities with similar characteristics or discounted cash flows and as such include adjustments for certain risks that may not be observable such as credit and liquidity risks. Certain securities are held in commingled funds which are valued using net asset values provided by the administrators of the funds. Investments in private equity, debt, real estate and hedge funds and direct private investments are valued at estimated fair value based on quarterly financial information received from the investment advisor and/or general partner. Investments in real estate properties are valued on a quarterly basis using the income approach. Valuation estimates are periodically supplemented by third party appraisals.

Our general funding policy for qualified pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. In 2012, 2011 and 2010, we were not required to make contributions to our U.S. pension plans, however, we made voluntary contributions of $792, $1,650 and $1,000 million, respectively, primarily to improve the funded status of our plans. These contributions do not reflect benefits paid directly from Company assets. In 2013, we expect to make cash contributions of approximately $150 million ($113 million was made in January 2013) to our non-U.S. defined benefit pension plans to satisfy regulatory funding standards. We do not have any required contributions for our U.S. defined benefit pension plans in 2013.

Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:

 

   U.S. Plans  Non-U.S. Plans 
 2013$ 1,043 $ 196 
 2014  1,045   200 
 2015  1,087   205 
 2016  1,075   210 
 2017  1,071   215 
 2018-2022  5,448   1,162 

Other Postretirement Benefits

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) provides subsidies for employers that sponsor postretirement health care plans that provide prescription drug coverage that is at least actuarially equivalent to that offered by Medicare Part D. The March 2010 enactment of the Patient Protection and Affordable Care Act, including modifications made in the Health Care and Education Reconciliation Act of 2010 resulted in a one-time, non-cash charge of $13 million related to income taxes in the first quarter of 2010. The charge results from a change in the tax treatment of the Medicare Part D program.

   December 31,  
   2012 2011  
 Assumed health care cost trend rate:       
  Health care cost trend rate assumed for next year   7.00%  7.50% 
  Rate that the cost trend rate gradually declines to   5.00%  5.00% 
  Year that the rate reaches the rate it is assumed to remain at  2019  2017  

The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:

 

   1 percentage point 
   Increase Decrease 
 Effect on total of service and interest cost components  $5 $(3) 
 Effect on postretirement benefit obligation  $158 $(82) 

Benefit payments reflecting expected future service, as appropriate, are expected to be paid as follows:

   Without Impact of Net of 
   Medicare SubsidyMedicare Subsidy 
 2013 $160   $149  
 2014  150    139  
 2015  141    131  
 2016  133    122  
 2017  124    114  
 2018-2022  505    456  

Employee Savings Plans

We sponsor employee savings plans under which we match, in the form of our common stock, savings plan contributions for certain eligible employees. Shares issued under the stock match plans were 2.4, 2.6, and 2.4 million at a cost of $144, $138 and $105 million in 2012, 2011, and 2010, respectively.