Pension Benefit Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2012

Pension Benefit Plans and Other Postretirement Benefits

Pension Benefit Plans and Other Postretirement Benefits

9. Pension Benefit Plans and Other Postretirement Benefits

Pension Benefit Plans

        The Company has defined benefit pension plans covering a substantial number of employees located in the United States, the United Kingdom, the Netherlands, Canada and Australia, as well as many employees in Germany, France and Switzerland. Benefits generally are based on compensation for salaried employees and on length of service for hourly employees. The Company's policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements. The Company's defined benefit pension plans use a December 31 measurement date. The following tables relate to the Company's principal defined benefit pension plans.

        The changes in the pension benefit obligations for the year were as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Obligations at beginning of year	$	2,547		$	2,437		$	1,553		$	1,567
Change in benefit obligations:
Service cost		27			25			26			24
Interest cost		114			125			77			83
Actuarial (gain) loss, including the effect of change in discount rates		170			130			293			(37	)
Participant contributions								7			8
Benefit payments		(220	)		(172	)		(101	)		(87	)
Other		9			2						19
Foreign currency translation								56			(24	)
Net change in benefit obligations		100			110			358			(14	)
Obligations at end of year	$	2,647		$	2,547		$	1,911		$	1,553

        The changes in the fair value of the pension plans' assets for the year were as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Fair value at beginning of year	$	2,011		$	2,195		$	1,325		$	1,279
Change in fair value:
Actual gain (loss) on plan assets		275			(13	)		118			80
Benefit payments		(220	)		(172	)		(101	)		(87	)
Employer contributions		109			1			110			58
Participant contributions								7			8
Foreign currency translation								43			(25	)
Other								25			12
Net change in fair value of assets		164			(184	)		202			46
Fair value at end of year	$	2,175		$	2,011		$	1,527		$	1,325

        The funded status of the pension plans at year end was as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Plan assets at fair value	$	2,175		$	2,011		$	1,527		$	1,325
Projected benefit obligations		2,647			2,547			1,911			1,553
Plan assets less than projected benefit obligations		(472	)		(536	)		(384	)		(228	)
Items not yet recognized in pension expense:
Actuarial loss		1,461			1,478			534			312
Prior service cost (credit)		2			2			(9	)		(10	)
		1,463			1,480			525			302
Net amount recognized	$	991		$	944		$	141		$	74

        The net amount recognized is included in the Consolidated Balance Sheets at December 31, 2012 and 2011 as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Pension assets	$	—		$	—		$	—		$	116
Current pension liability, included with Other accrued liabilities		(3	)		(3	)		(7	)		(6	)
Pension benefits		(469	)		(533	)		(377	)		(338	)
Accumulated other comprehensive loss		1,463			1,480			525			302
Net amount recognized	$	991		$	944		$	141		$	74

        The following changes in plan assets and benefit obligations were recognized in accumulated other comprehensive income at December 31, 2012 and 2011 as follows (amounts are pretax):

	U.S.						Non-U.S.
	2012			2011			2012			2011
Current year actuarial (gain) loss	$	79		$	332		$	239		$	(28	)
Amortization of actuarial loss		(96	)		(83	)		(22	)		(24	)
Amortization of prior service credit											1
Loss due to settlement								(11	)
		(17	)		249			206			(51	)
Translation								17			5
	$	(17	)	$	249		$	223		$	(46	)

        The accumulated benefit obligation for all defined benefit pension plans was $4,298 million and $3,859 million at December 31, 2012 and 2011, respectively.

        The components of the net pension expense for the year were as follows:

	U.S.									Non-U.S.
	2012			2011			2010			2012			2011			2010
Service cost	$	27		$	25		$	25		$	26		$	24		$	21
Interest cost		114			125			131			77			83			79
Expected asset return		(183	)		(186	)		(190	)		(87	)		(86	)		(80	)
Curtailment (gain) loss																	(1	)
Amortization:
Actuarial loss		96			83			70			22			24			19
Prior service credit														(1	)		(1	)
Net amortization		96			83			70			22			23			18
Net expense	$	54		$	47		$	36		$	38		$	44		$	37

        The U.S. pension expense excludes $4 million of special termination benefits that were recorded in restructuring expense in 2012. The non-U.S. pension expense excludes $11 million of pension settlement costs that were recorded in restructuring expense in 2012.

        Amounts that will be amortized from accumulated other comprehensive income into net pension expense during 2013:

	U.S.		Non-U.S.
Amortization:
Actuarial loss	$	110	$	32
Prior service cost				(1	)
Net amortization	$	110	$	31

        The following information is for plans with projected and accumulated benefit obligations in excess of the fair value of plan assets at year end:

	Projected Benefit Obligation Exceeds the Fair Value of Plan Assets								Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets
	U.S.				Non-U.S.				U.S.				Non-U.S.
	2012		2011		2012		2011		2012		2011		2012		2011
Projected benefit obligations	$	2,647	$	2,547	$	1,911	$	1,157	$	2,647	$	2,547	$	1,172	$	1,157
Fair value of plan assets		2,175		2,011		1,527		837		2,175		2,011		858		837
Accumulated benefit obligation		2,569		2,457		1,729		1,065		2,569		2,457		1,090		1,065

        The weighted average assumptions used to determine benefit obligations were as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Discount rate		4.11	%		4.59	%		3.89	%		4.75	%
Rate of compensation increase		2.97	%		3.14	%		3.08	%		3.23	%

        The weighted average assumptions used to determine net periodic pension costs were as follows:

	U.S.									Non-U.S.
	2012			2011			2010			2012			2011			2010
Discount rate		4.59	%		5.24	%		5.84	%		4.75	%		5.28	%		5.64	%
Rate of compensation increase		3.14	%		4.50	%		5.00	%		3.23	%		3.49	%		3.54	%
Expected long-term rate of return on assets		8.00	%		8.00	%		8.00	%		6.24	%		6.44	%		6.78	%

        Future benefits are assumed to increase in a manner consistent with past experience of the plans, which, to the extent benefits are based on compensation, includes assumed salary increases as presented above. Amortization included in net pension expense is based on the average remaining service of employees.

        For 2012, the Company's weighted average expected long-term rate of return on assets was 8.00% for the U.S. plans and 6.24% for the non-U.S. plans. In developing this assumption, the Company evaluated input from its third party pension plan asset managers, including their review of asset class return expectations and long-term inflation assumptions. The Company also considered its historical 10-year average return (through December 31, 2011), which was in line with the expected long-term rate of return assumption for 2012.

        It is the Company's policy to invest pension plan assets in a diversified portfolio consisting of an array of asset classes within established target asset allocation ranges. The investment risk of the assets is limited by appropriate diversification both within and between asset classes. The assets for the U.S. plans are maintained in a group trust. The U.S. plans hold no individual assets other than the investment in the group trust. The assets of the group trust and the Company's non-U.S. plans are primarily invested in a broad mix of domestic and international equities, domestic and international bonds, and real estate, subject to the target asset allocation ranges. The assets are managed with a view to ensuring that sufficient liquidity will be available to meet expected cash flow requirements.

        The investment valuation policy of the Company is to value investments at fair value. All investments are valued at their respective net asset values. Equity securities for which market quotations are readily available are valued at the last reported sales price on their principal exchange on valuation date or official close for certain markets. Fixed income investments are valued by an independent pricing service. Investments in registered investment companies or collective pooled funds are valued at their respective net asset values. Short-term investments are stated at amortized cost, which approximates fair value. The fair value of real estate is determined by periodic appraisals.

        The Company's U.S. pension plan assets held in the group trust are classified as Level 2 assets in the fair value hierarchy. The total U.S. plan assets amounted to $2,175 million and $2,011 million as of December 31, 2012 and 2011, respectively, and consisted of approximately 72% equity securities and 28% debt securities. The following table sets forth by level, within the fair value hierarchy, the Company's non-U.S. pension plan assets at fair value as of December 31, 2012 and 2011:

	2012						2011
													Target Allocation
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Cash and cash equivalents	$	36	$	20	$	—	$	21	$	5	$	—
Equity securities		367		173				340		146				45 - 55	%
Debt securities		714		113		3		645		101		5		40 - 50	%
Real estate						15						11		0 - 10	%
Other		18		68				15		36				0 - 10	%
Total assets at fair value	$	1,135	$	374	$	18	$	1,021	$	288	$	16

        The following is a reconciliation of the Company's pension plan assets recorded at fair value using significant unobservable inputs (Level 3):

	2012		2011
Beginning balance	$	16	$	19
Net increase (decrease)		2		(3	)
Ending balance	$	18	$	16

        The net increase (decrease) in the fair value of the Company's Level 3 pension plan assets is primarily due to purchases and sales of unlisted real estate funds. The change in the fair value of Level 3 pension plan assets due to actual return on those assets was immaterial in 2012.

        In order to maintain minimum funding requirements, the Company is required to make contributions to its defined benefit pension plans of approximately $30 million in 2013.

        The following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:

Year(s)	U.S.		Non-U.S.
2013	$	179	$	84
2014		176		86
2015		175		90
2016		173		91
2017		173		91
2018 - 2022		847		460

        The Company also sponsors several defined contribution plans for all salaried and hourly U.S. employees. Participation is voluntary and participants' contributions are based on their compensation. The Company matches contributions of participants, up to various limits, in substantially all plans. Company contributions to these plans amounted to $7 million in 2012, $8 million in 2011, and $7 million in 2010.

Postretirement Benefits Other Than Pensions

        The Company provides certain retiree health care and life insurance benefits covering substantially all U.S. salaried and certain hourly employees, and substantially all employees in Canada. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. The Company uses a December 31 measurement date to measure its Postretirement Benefit Obligations.

        The changes in the postretirement benefit obligations for the year were as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Obligations at beginning of year	$	194		$	195		$	95		$	85
Change in benefit obligations:
Service cost		1			1			1			1
Interest cost		8			10			4			4
Actuarial (gain) loss, including the effect of changing discount rates		(6	)		4			3			11
Benefit payments		(16	)		(16	)		(3	)		(4	)
Foreign currency translation								2			(2	)
Net change in benefit obligations		(13	)		(1	)		7			10
Obligations at end of year	$	181		$	194		$	102		$	95

        The funded status of the postretirement benefit plans at year end was as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Postretirement benefit obligations	$	(181	)	$	(194	)	$	(102	)	$	(95	)
Items not yet recognized in net postretirement benefit cost:
Actuarial loss		36			49			5			2
Prior service credit		(8	)		(11	)
		28			38			5			2
Net amount recognized	$	(153	)	$	(156	)	$	(97	)	$	(93	)

        The net amount recognized is included in the Consolidated Balance Sheets at December 31, 2012 and 2011 as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Current nonpension postretirement benefit, included with Other accrued liabilities	$	(15	)	$	(16	)	$	(4	)	$	(4	)
Nonpension postretirement benefits		(166	)		(178	)		(98	)		(91	)
Accumulated other comprehensive loss		28			38			5			2
Net amount recognized	$	(153	)	$	(156	)	$	(97	)	$	(93	)

        The following changes in benefit obligations were recognized in accumulated other comprehensive income at December 31, 2012 and 2011 as follows (amounts are pretax):

	U.S.						Non-U.S.
	2012			2011			2012		2011
Current year actuarial (gain) loss	$	(6	)	$	4		$	3	$	12
Amortization of actuarial loss		(5	)		(5	)
Amortization of prior service credit		3			3
Other adjustments		(2	)
	$	(10	)	$	2		$	3	$	12

        The components of the net postretirement benefit cost for the year were as follows:

	U.S.									Non-U.S.
	2012			2011			2010			2012		2011		2010
Service cost	$	1		$	1		$	1		$	1	$	1	$	1
Interest cost		8			10			11			4		4		5
Amortization:
Actuarial loss		5			5			5
Prior service credit		(3	)		(3	)		(3	)
Net amortization		2			2			2			—		—		—
Net postretirement benefit cost	$	11		$	13		$	14		$	5	$	5	$	6

        Amounts that will be amortized from accumulated other comprehensive income into net postretirement benefit cost during 2013:

	U.S.			Non-U.S.
Amortization:
Actuarial loss	$	4		$	—
Prior service credit		(7	)
Net amortization	$	(3	)	$	—

        The weighted average discount rates used to determine the accumulated postretirement benefit obligation and net postretirement benefit cost were as follows:

	U.S.									Non-U.S.
	2012			2011			2010			2012			2011			2010
Accumulated post retirement benefit obligation		4.04	%		4.47	%		5.09	%		3.89	%		4.13	%		5.02	%
Net postretirement benefit cost		4.47	%		5.09	%		5.68	%		4.13	%		5.02	%		5.60	%

        The weighted average assumed health care cost trend rates at December 31 were as follows:

	U.S.						Non-U.S.
	2012			2011			2012			2011
Health care cost trend rate assumed for next year		8.00	%		8.00	%		6.00	%		7.00	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)		5.00	%		5.00	%		5.00	%		5.00	%
Year that the rate reaches the ultimate trend rate		2019			2019			2014			2014

        Assumed health care cost trend rates affect the amounts reported for the postretirement benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	U.S.					Non-U.S.
	1-Percentage-Point					1-Percentage-Point
	Increase		Decrease			Increase		Decrease
Effect on total of service and interest cost	$	—	$	—		$	1	$	(1	)
Effect on accumulated postretirement benefit obligations		5		(5	)		16		(13	)

        Amortization included in net postretirement benefit cost is based on the average remaining service of employees.

        The following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:

Year(s)	U.S.		Non-U.S.
2013	$	14	$	4
2014		14		4
2015		14		5
2016		13		5
2017		13		5
2018 - 2022		58		26

        Benefits provided by the Company for certain hourly retirees are determined by collective bargaining. Most other domestic hourly retirees receive health and life insurance benefits from a multi-employer trust established by collective bargaining. Payments to the trust as required by the bargaining agreements are based upon specified amounts per hour worked and were $6 million in 2012, $6 million in 2011, and $6 million in 2010. Postretirement health and life benefits for retirees of foreign subsidiaries are generally provided through the national health care programs of the countries in which the subsidiaries are located.