Retirement Benefit Plans

12 Months Ended

Dec. 31, 2011

Compensation and Retirement Disclosure [Abstract]

Retirement benefit plans

RETIREMENT BENEFIT PLANS

The Company sponsors various defined contribution savings plans, primarily in the U.S., that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan specified guidelines. Under specified conditions, the Company will make contributions to the plans and/or match a percentage of the employee contributions up to certain limits. Total expense related to the defined contribution plans was $18.9 million, $19.2 million and $16.6 million in the years ended December 31, 2011, 2010 and 2009, respectively.

The Company has a number of defined benefit pension plans and other post employment benefit plans covering eligible salaried and hourly employees and their dependents. The defined pension benefits provided are primarily based on (i) years of service and (ii) average compensation or a monthly retirement benefit amount. The Company provides defined benefit pension plans in the U.S., U.K., Germany, Japan, South Korea, Italy, France, Ireland, Monaco, Mexico and Sweden. The other post employment benefit plans, which provide medical and life insurance benefits, are unfunded plans. All pension and other post employment benefit plans in the U.S. have been closed to new employees since 1999. The measurement date for all plans is December 31.

On February 26, 2009, the Company's subsidiary, BorgWarner Diversified Transmission Products Inc. (“DTP”), entered into a Plant Shutdown Agreement with the United Auto Workers ("UAW") for its Muncie, Indiana automotive component plant (the “Muncie Plant”). Management subsequently wound-down production activity at the plant, with operations effectively ceased as of March 31, 2009.  As a result of the closure of the Muncie Plant, the Company recorded a curtailment gain of $41.9 million in the other post employment benefit plan during the first quarter of 2009. The Plant Shutdown Agreement also included a settlement of a portion of the UAW retiree health care obligation, which resulted in a settlement loss of $14.0 million during the first quarter of 2009. The combined pre-tax impact of these actions was a net gain of $27.9 million.

On March 24, 2010, the Company finalized its settlement agreement regarding the closure of the Muncie Plant with the Pension Benefit Guaranty Corporation in which the Company will make certain payments directly to the Muncie Plant's defined benefit pension plan (the “Plan”). On December 23, 2009, the Company made an initial cash contribution of $23 million for the 2009 Plan year, consistent with the settlement agreement. Also under the settlement agreement, the Company made a cash contribution to the Plan of $15 million during the year ended December 31, 2011. The Company will make a cash contribution to the Plan of $15 million in both 2012 and 2013, unless this contribution exceeds the maximum amounts deductible under the applicable U.S. tax regulations. The Company provided $35 million in the form of a surety bond and will waive a credit balance valued at $8 million in 2014. In the second quarter of 2011, the Company replaced the original surety bond with $35 million in letters of credit.

The following table summarizes the expenses for the Company's defined contribution and defined benefit pension plans and the other post employment defined benefit plans.

	Year Ended December 31,
(millions of dollars)	2011		2010		2009
Defined contribution expense	$	18.9	$	19.2	$	16.6
Defined benefit pension expense	17.5		19.8		33.1
Other post employment benefit expense	13.5		17.5		(48.4		)
Total	$	49.9	$	56.5	$	1.3

The following provides a rollforward of the plans’ benefit obligations, plan assets, funded status and recognition in the Consolidated Balance Sheets.

	Pension benefits												Other post
	Year Ended December 31,												employment benefits
	2011						2010						Year Ended December 31,
(millions of dollars)	US			Non-US			US			Non-US			2011			2010
Change in projected benefit obligation:
Projected benefit obligation, January 1	$	326.2		$	326.0		$	316.5		$	326.5		$	261.9		$	278.5
Service cost	—			9.1			—			7.4			0.7			0.8
Interest cost	16.1			17.8			17.5			17.6			11.8			14.5
Plan participants’ contributions	—			0.3			—			0.5			—			—
Plan amendments	—			(0.5		)	—			1.2			3.9			—
Actuarial (gain) loss	21.8			11.9			19.2			(0.4		)	(6.8		)	(7.2		)
Currency translation	—			(5.8		)	—			(12.2		)	—			—
Other	—			0.9			1.1			0.1			—			—
Benefits paid	(26.7		)	(15.4		)	(28.1		)	(14.7		)	(20.5		)	(24.7		)
Projected benefit obligation, December 31	$	337.4		$	344.3		$	326.2		$	326.0		$	251.0		$	261.9
Change in plan assets:
Fair value of plan assets, January 1	$	287.2		$	154.6		$	269.1		$	144.0
Actual return on plan assets	8.9			5.0			35.6			14.2
Employer contribution	21.0			16.0			10.6			14.5
Plan participants’ contribution	—			0.3			—			0.5
Currency translation	—			(0.7		)	—			(3.9		)
Other	—			(4.9		)	—			—
Benefits paid	(26.7		)	(15.4		)	(28.1		)	(14.7		)
Fair value of plan assets, December 31	$	290.4		$	154.9		$	287.2		$	154.6
Funded status	$	(47.0	)	$	(189.4	)	$	(39.0	)	$	(171.4	)	$	(251.0	)	$	(261.9	)
Amounts recognized in the Consolidated Balance Sheets consist of:
Non-current assets	$	—		$	0.5		$	—		$	0.5		$	—		$	—
Current liabilities	(0.1		)	(6.5		)	(0.1		)	(8.1		)	(24.3		)	(26.5		)
Non-current liabilities	(46.9		)	(183.4		)	(38.9		)	(163.8		)	(226.7		)	(235.4		)
Net amount recognized	$	(47.0	)	$	(189.4	)	$	(39.0	)	$	(171.4	)	$	(251.0	)	$	(261.9	)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss	$	172.8		$	54.4		$	145.7		$	37.4		$	106.3		$	120.0
Net prior service cost (credit)	(11.3		)	0.8			(12.1		)	1.4			(48.7		)	(59.5		)
Net amount recognized*	$	161.5		$	55.2		$	133.6		$	38.8		$	57.6		$	60.5
Total accumulated benefit obligation for all plans	$	337.4		$	327.9		$	326.2		$	316.8

________________

* AOCI shown above does not include our equity investee, NSK-Warner. NSK-Warner had an AOCI loss of $6.9 million and $6.1 million at December 31, 2011 and 2010, respectively.

The funded status of pension plans with accumulated benefit obligations in excess of plan assets at December 31 is as follows:

	December 31,
(millions of dollars)	2011			2010
Accumulated benefit obligation	$	(656.9	)	$	(634.9	)
Plan assets	435.5			432.2
Deficiency	$	(221.4	)	$	(202.7	)
Pension deficiency by country:
United States	$	(47.0	)	$	(39.0	)
United Kingdom	(13.4		)	(7.5		)
Germany	(128.7		)	(128.0		)
Other	(32.3		)	(28.2		)
Total pension deficiency	$	(221.4	)	$	(202.7	)

The weighted average asset allocations of the Company’s funded pension plans and target allocations by asset category are as follows:

	December 31,				Target Allocation
	2011		2010
U.S. Plans:
Real estate and other	11	%	11	%	5%-15%
Fixed income securities	54	%	40	%	45%-65%
Equity securities	35	%	49	%	25%-45%
	100	%	100	%
Non-U.S. Plans:
Real estate and other	8	%	9	%	5%-10%
Fixed income securities	41	%	36	%	35%-45%
Equity securities	51	%	55	%	50%-60%
	100	%	100	%

The Company's investment strategy is to maintain actual asset weightings within a preset range of target allocations. The Company believes these ranges represent an appropriate risk profile for the planned benefit payments of the plans based on the timing of the estimated benefit payments. Within each asset category, separate portfolios are maintained for additional diversification. Investment managers are retained within each asset category to manage each portfolio against its benchmark. Each investment manager has appropriate investment guidelines. In addition, the entire portfolio is evaluated against a relevant peer group. The defined benefit pension plans did not hold any Company securities as investments as of December 31, 2011 and 2010. A portion of pension assets are invested in common and comingled trusts.

The Company expects to contribute a total of $30 million to $40 million into its defined benefit pension plans during 2012, including $15 million related to the Company's settlement agreement with the PBGC discussed above. Of the $30 million to $40 million in projected 2012 contributions, $21.5 million are contractually obligated, while the remaining payments are discretionary.

Refer to Note 9, “Fair Value Measurements," for more detail surrounding the fair value of each major category of plan assets as well as the inputs and valuation techniques used to develop the fair value measurements of the plans' assets at December 31, 2011 and 2010.

See the table below for a breakout net periodic benefit cost between U.S. and non-U.S. pension plans:

	Pension benefits																		Other post employment benefits
	Year Ended December 31,
	2011						2010						2009						Year Ended December 31,
(millions of dollars)	US			Non-US			US			Non-US			US			Non-US			2011			2010			2009
Service cost	$	—		$	9.1		$	—		$	7.4		$	0.3		$	9.9		$	0.7		$	0.8		$	0.8
Interest cost	16.1			17.8			17.5			17.6			20.7			16.5			11.8			14.5			18.6
Expected return on plan assets	(20.8		)	(11.2		)	(19.7		)	(9.7		)	(16.2		)	(9.6		)	—			—			—
Settlements, curtailments and other	—			(0.1		)	—			—			3.3			0.6			—			—			(61.9		)	*
Amortization of unrecognized prior service benefit	(0.7		)	—			(0.7		)	—			(0.5		)	—			(6.9		)	(6.9		)	(13.2		)
Amortization of unrecognized loss	6.5			0.8			6.6			0.8			7.3			0.8			7.9			9.1			7.3
Net periodic benefit cost (benefit)	$	1.1		$	16.4		$	3.7		$	16.1		$	14.9		$	18.2		$	13.5		$	17.5		$	(48.4	)

________________

*In the year ended December 31, 2009, the other post employment benefits settlement/curtailment of $61.9 million, in the table above, was offset by a $34.0 million cost to settle, resulting in a net pre-tax gain of $27.9 million. Excluding the $61.9 million settlement/curtailment gain, the Company's 2009 other post employment benefit expense was $13.5 million.

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $9.3 million. The estimated net loss and prior service credit for the other post employment plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $6.9 million and $(6.4) million, respectively.

The Company's weighted-average assumptions used to determine the benefit obligations for its defined benefit pension and other post employment plans as of December 31, 2011 and 2010 were as follows:

	December 31,
percent	2011	2010
U.S. pension plans:
Discount rate	4.42	5.17
Rate of compensation increase	N/A	3.50
U.S. other post employment plans:
Discount rate	4.25	4.75
Rate of compensation increase	N/A	N/A
Non-U.S. pension plans:
Discount rate	5.13	5.37
Rate of compensation increase	2.78	2.80

The Company’s weighted-average assumptions used to determine the net periodic benefit cost (benefit) for its defined benefit pension and other post employment benefit plans for the years ended December 31, 2011, 2010 and 2009 were as follows:

	Year Ended December 31,
percent	2011	2010	2009
U.S. pension plans:
Discount rate	5.17	5.75	7.09
Rate of compensation increase	N/A	3.50	3.50
Expected return on plan assets	7.50	7.50	7.50
U.S. other post employment plans:
Discount rate	4.75	5.50	7.00
Rate of compensation increase	N/A	N/A	N/A
Expected return on plan assets	N/A	N/A	N/A
Non-U.S. pension plans:
Discount rate	5.37	5.47	5.72
Rate of compensation increase	2.80	2.75	2.77
Expected return on plan assets	7.07	7.12	7.10

The Company's approach to establishing the discount rate is based upon the market yields of high-quality corporate bonds, with appropriate consideration of each plan's defined benefit payment terms and duration of the liabilities. The discount rate assumption is typically rounded up or down to the nearest 25 basis points for each plan.

The Company determines its expected return on plan asset assumptions by evaluating estimates of future market returns and the plans' asset allocation. The Company also considers the impact of active management of the plans' invested assets.

The estimated future benefit payments for the pension and other post employment benefits are as follows:

	Pension benefits				Other post employment benefits
(millions of dollars)					w/o Medicare Part D reimbursements		with Medicare Part D reimbursements
Year	U.S.		Non-U.S.
2012	$	25.1	$	14.6	$	25.8	$	24.9
2013	25.1		16.0		25.0		24.1
2014	24.6		17.2		24.2		23.4
2015	23.7		19.3		23.5		22.6
2016	23.6		18.5		22.5		21.7
2017-2021	110.5		103.7		99.7		96.1

The weighted-average rate of increase in the per capita cost of covered health care benefits is projected to be 7.10% in 2012 for pre-65 and post-65 participants, decreasing to 5.0% by the year 2019. A one-percentage point change in the assumed health care cost trend would have the following effects:

	One Percentage Point
(millions of dollars)	Increase		Decrease
Effect on other post employment benefit obligation	$	18.3	$	(16.1	)
Effect on total service and interest cost components	$	0.8	$	(0.7	)