Retirement Benefit Plans

12 Months Ended

Dec. 31, 2012

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 $24.8 million, $18.9 million and $19.2 million in the years ended December 31, 2012, 2011 and 2010, respectively.

The Company has a number of defined benefit pension plans and other postretirement 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 France, Germany, Ireland, Italy, Japan, Mexico, Monaco, South Korea, Sweden, U.K. and U.S. The other postretirement benefit plans, which provide medical and life insurance benefits, are unfunded plans. All pension and other postretirement 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. The Plant Shutdown Agreement included terms allowing for lump sum payment of the pension obligation for certain participants if funding of the plan exceeded a defined level. In accordance with these terms, in December 2012, the Company settled a portion of the pension obligation resulting in a non-cash loss of $5.7 million, which was recorded in other (income) expense within the Consolidated Statement of Operations.

On March 24, 2010, the Company finalized its settlement agreement regarding the closure of the Muncie Plant with the Pension Benefit Guaranty Corporation ("PBGC") in which the Company agreed to make certain payments directly to the Muncie Plant's defined benefit pension plan (the “Plan”). In accordance with the settlement agreement, the Company made an initial cash contribution of $23 million for the 2009 Plan year and a cash contribution of $15 million in the year ended December 31, 2011. During the fourth quarter of 2012, the Company received notification from the PBGC that the terms of the settlement have been suspended pending review of the Company's financial strength under the PBGC's revised enforcement policy pilot program announced on November 2, 2012. The evaluation was confirmed in January 2013 and as a result the Company currently does not have any obligations as described in the original agreement.

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

	Year Ended December 31,
(millions of dollars)	2012		2011		2010
Defined contribution expense	$	24.8	$	18.9	$	19.2
Defined benefit pension expense	27.3		17.5		19.8
Other postretirement benefit expense	11.1		13.5		17.5
Total	$	63.2	$	49.9	$	56.5

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

	Pension benefits												Other post-
	Year Ended December 31,												retirement benefits
	2012						2011						Year Ended December 31,
(millions of dollars)	US			Non-US			US			Non-US			2012			2011
Change in projected benefit obligation:
Projected benefit obligation, January 1	$	337.4		$	344.3		$	326.2		$	326.0		$	251.0		$	261.9
Service cost	—			9.1			—			9.1			0.5			0.7
Interest cost	14.3			17.2			16.1			17.8			10.1			11.8
Plan participants’ contributions	—			0.5			—			0.3			—			—
Plan amendments	—			—			—			(0.5		)	(0.3		)	3.9
Actuarial (gain) loss	15.5			84.1			21.8			11.9			(20.7		)	(6.8		)
Currency translation	—			11.3			—			(5.8		)	—			—
Other	—			(4.5		)	—			0.9			—			—
Benefits paid	(37.1		)	(14.4		)	(26.7		)	(15.4		)	(20.1		)	(20.5		)
Projected benefit obligation, December 31	$	330.1		$	447.6		$	337.4		$	344.3		$	220.5		$	251.0
Change in plan assets:
Fair value of plan assets, January 1	$	290.4		$	154.9		$	287.2		$	154.6
Actual return on plan assets	29.4			15.0			8.9			5.0
Employer contribution	—			18.0			21.0			16.0
Plan participants’ contribution	—			0.5			—			0.3
Currency translation	—			6.0			—			(0.7		)
Other	—			(2.1		)	—			(4.9		)
Benefits paid	(37.1		)	(14.4		)	(26.7		)	(15.4		)
Fair value of plan assets, December 31	$	282.7		$	177.9		$	290.4		$	154.9
Funded status	$	(47.4	)	$	(269.7	)	$	(47.0	)	$	(189.4	)	$	(220.5	)	$	(251.0	)
Amounts in the Consolidated Balance Sheets consist of:
Non-current assets	$	—		$	—		$	—		$	0.5		$	—		$	—
Current liabilities	(0.1		)	(7.0		)	(0.1		)	(6.5		)	(20.8		)	(24.3		)
Non-current liabilities	(47.3		)	(262.7		)	(46.9		)	(183.4		)	(199.7		)	(226.7		)
Net amount	$	(47.4	)	$	(269.7	)	$	(47.0	)	$	(189.4	)	$	(220.5	)	$	(251.0	)
Amounts in accumulated other comprehensive loss consist of:
Net actuarial loss	$	163.8		$	135.1		$	172.8		$	54.4		$	78.7		$	106.3
Net prior service cost (credit)	(10.5		)	0.5			(11.3		)	0.8			(42.6		)	(48.7		)
Net amount*	$	153.3		$	135.6		$	161.5		$	55.2		$	36.1		$	57.6
Total accumulated benefit obligation for all plans	$	330.1		$	430.2		$	337.4		$	327.9

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* AOCI shown above does not include our equity investee, NSK-Warner. NSK-Warner had an AOCI loss of $7.9 million and $6.9 million at December 31, 2012 and 2011, 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)	2012			2011
Accumulated benefit obligation	$	(757.7	)	$	(656.9	)
Plan assets	458.0			435.5
Deficiency	$	(299.7	)	$	(221.4	)
Pension deficiency by country:
United States	$	(47.4	)	$	(47.0	)
United Kingdom	(22.4		)	(13.4		)
Germany	(192.4		)	(128.7		)
Other	(37.5		)	(32.3		)
Total pension deficiency	$	(299.7	)	$	(221.4	)

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
	2012		2011
U.S. Plans:
Real estate and other	9	%	11	%	5%-15%
Fixed income securities	56	%	54	%	45%-65%
Equity securities	35	%	35	%	25%-45%
	100	%	100	%
Non-U.S. Plans:
Real estate and other	6	%	8	%	2% - 8%
Fixed income securities	38	%	41	%	37% - 43%
Equity securities	56	%	51	%	52% - 58%
	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, 2012 and 2011. A portion of pension assets are invested in common and comingled trusts.

The Company expects to contribute a total of $15 million to $25 million into its defined benefit pension plans during 2013. Of the $15 million to $25 million in projected 2013 contributions, $7.1 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, 2012 and 2011.

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

	Pension benefits																		Other postretirement benefits
	Year Ended December 31,
	2012						2011						2010						Year Ended December 31,
(millions of dollars)	US			Non-US			US			Non-US			US			Non-US			2012			2011			2010
Service cost	$	—		$	9.1		$	—		$	9.1		$	—		$	7.4		$	0.5		$	0.7		$	0.8
Interest cost	14.3			17.2			16.1			17.8			17.5			17.6			10.1			11.8			14.5
Expected return on plan assets	(18.8		)	(9.3		)	(20.8		)	(11.2		)	(19.7		)	(9.7		)	—			—			—
Settlements, curtailments and other	5.7			0.5			—			(0.1		)	—			—			—			—			—
Amortization of unrecognized prior service benefit	(0.7		)	—			(0.7		)	—			(0.7		)	—			(6.4		)	(6.9		)	(6.9		)
Amortization of unrecognized loss	8.1			1.2			6.5			0.8			6.6			0.8			6.9			7.9			9.1
Net periodic benefit cost	$	8.6		$	18.7		$	1.1		$	16.4		$	3.7		$	16.1		$	11.1		$	13.5		$	17.5

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 $13.5 million. The estimated net loss and prior service credit for the other postretirement plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $4.9 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 postretirement plans as of December 31, 2012 and 2011 were as follows:

	December 31,
(percent)	2012	2011
U.S. pension plans:
Discount rate	3.67	4.42
Rate of compensation increase	N/A	N/A
U.S. other postretirement plans:
Discount rate	3.25	4.25
Rate of compensation increase	N/A	N/A
Non-U.S. pension plans:
Discount rate	3.86	5.13
Rate of compensation increase	2.72	2.78

The Company’s weighted-average assumptions used to determine the net periodic benefit cost for its defined benefit pension and other postretirement benefit plans for the years ended December 31, 2012, 2011 and 2010 were as follows:

	Year Ended December 31,
(percent)	2012	2011	2010
U.S. pension plans:
Discount rate	4.42	5.17	5.75
Rate of compensation increase	N/A	N/A	3.50
Expected return on plan assets	6.75	7.50	7.50
U.S. other postretirement plans:
Discount rate	4.25	4.75	5.50
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	5.13	5.37	5.47
Rate of compensation increase	2.78	2.80	2.75
Expected return on plan assets	6.49	7.07	7.12

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 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 postretirement benefits are as follows:

	Pension benefits				Other postretirement benefits
(millions of dollars)					w/o Medicare Part D reimbursements		with Medicare Part D reimbursements
Year	U.S.		Non-U.S.
2013	$	24.9	$	15.7	$	21.9	$	21.1
2014	24.2		18.0		21.3		20.5
2015	23.4		19.8		20.6		19.8
2016	22.9		18.8		19.9		19.1
2017	22.3		20.1		19.3		18.5
2018-2022	105.4		110.1		82.1		78.8

The weighted-average rate of increase in the per capita cost of covered health care benefits is projected to be 7.50% in 2013 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 postretirement benefit obligation	$	16.2	$	(14.3	)
Effect on total service and interest cost components	$	0.5	$	(0.5	)