14. EMPLOYEE BENEFIT PLANS

We have defined benefit and defined contribution pension plans that cover employees in a number of countries. Almost all of the plans provide defined benefits based on years of service and career average salary. We also sponsor postretirement and post-employment benefit plans in certain countries. The postretirement plans provide medical and life insurance benefits to retirees who meet minimum age and service requirements, and in the case of non-bargaining employees, who commenced employment prior to April 1, 2007. The medical plans are contributory and non-contributory with certain participants’ contributions adjusted annually; the life insurance plans are non-contributory. The accounting for the postretirement plans anticipates future cost-sharing and changes to the plans. The postretirement plans include a cap on our share of costs for recent and future retirees. The post-employment plans provide salary continuation, disability-related benefits, severance pay and continuation of health costs during the period after employment but before retirement.

We used a measurement date of December 31 in 2012, 2011, and 2010 for all our pension and postretirement benefit plans.


	Pension Plans									Postretirement Plans
	2012			2011			2010			2012			2011			2010
Net periodic costs:
Service cost	$	6.0		$	5.1		$	5.8		$	1.1		$	1.0		$	1.2
Interest cost		41.5			42.3			41.7			8.4			11.9			11.5
Expected return on plan assets		(49.3	)		(48.1	)		(44.7	)		(2.1	)		(2.9	)		(3.6	)
Net amortization		27.2			20.8			17.8			0.2			(5.7	)		(10.0	)
Curtailment/Settlement		0.7			1.3			0.8			0.0			(1.1	)		0.0

Net periodic expense (credit)	$	26.1		$	21.4		$	21.4		$	7.6		$	3.2		$	(0.9	)

Weighted-average assumptions used to determine net periodic costs, during the year
Discount rate		4.7	%		5.4	%		5.8	%		4.3	%		5.0	%		5.4	%
Expected return on plan assets		6.6	%		7.2	%		7.3	%		6.75	%		7.0	%		7.25	%
Rate of compensation increase		2.5%-4.5	%		2.5%-4.5	%		2.5%-10	%		—			—			—
Weighted-average assumptions used to determine benefit obligations, end of the year
Discount rate		4.0	%		4.7	%		5.4	%		3.5	%		4.3	%		5.0	%
Rate of compensation increase	2.5%-4	.5	%		2.5%-4.5	%		2.5%-10	%		—			—			—

The expected rate of return on U.S. plan assets was determined by examining the annualized rates of return over various five and ten year periods for the major U.S. stock and bond indexes and the estimated long-term asset mix of the plan assets of 30%-50% stocks and 50%-70% long-term bonds, including cash equivalents (“fixed income securities”). Since the long-term average annualized return is approximately 8%-10% for stocks and 5%-7% for fixed income securities, the expected long-term weighted average return was estimated to be 6.75% and 7.25% for the U.S. pension plans in 2012 and 2011, respectively. This return was based on an assumed allocation of U.S. pension assets of 40% stocks and 60% in fixed income securities for 2012 and 50% stocks and 50% fixed income securities for 2011. Expected long-term investment returns for U.S. investments were 9.0% for stocks and 5.25% for fixed income securities in 2012 and 8.5% for stocks and 6.0% for fixed income securities in 2011. For U.S. and non-U.S. postretirement plans, assets are only held in the U.S. The expected rate of return on postretirement assets was 7.0% in both 2012 and 2011, based on an assumed asset allocation of 50% stocks and 50% fixed income securities in 2012 and 50% stocks and 50% fixed income securities in 2011.

The investment strategy for our worldwide benefit plan assets is to maintain broadly-diversified portfolios of stocks, bonds and money market instruments that, along with periodic plan contributions, provide the necessary liquidity for ongoing benefit obligations.

The expected return on non-U.S. plan assets is also based on the historical rates of return of the various asset classes in each country and the corresponding asset mix. For our two largest non-U.S. pension plans, the assumed weighted average rate of return was 5.6% in 2012. The 2012 return was based on assumed weighted average rates of return of 8.3% for stocks and 4.5% for fixed income securities and an assumed weighted average asset allocation of 32% stocks and 68% fixed income securities.


	Pension Plans									Postretirement Plans
	2012			2011			2010			2012			2011			2010
Change in benefit obligation:
Benefit obligation at January 1,	$	864.6		$	797.3		$	731.3		$	219.9		$	233.8		$	212.7
Service cost		6.0			5.1			5.8			1.1			1.0			1.2
Interest cost		41.5			42.3			41.7			8.4			11.9			11.5
Amendments⁽²⁾		0.0			2.2			—			1.5			(34.7	)		—
Translation difference		5.2			(1.4	)		(1.1	)		0.2			(0.1	)		0.2
Actuarial (gains) losses		104.4			62.3			56.2			(12.0	)		28.5			29.6
Participant contributions		0.2			0.1			0.1			3.5			4.2			4.2
Benefits paid		(41.0	)		(38.8	)		(34.6	)		(20.2	)		(24.3	)		(25.6	)
Acquisitions/Divestitures		42.9			—			—			—			—			—
Curtailments/settlements⁽¹⁾		(7.2	)		(4.5	)		(2.1	)		(1.6	)		(0.4	)		—

Benefit obligation at December 31,	$	1,016.6		$	864.6		$	797.3		$	200.8		$	219.9		$	233.8

Accumulated benefit obligation at December 31,	$	1,005.1		$	853.1		$	783.1			—			—			—
Change in plan assets:
Fair value of plan assets at January 1,	$	765.7		$	677.2		$	562.0		$	28.8		$	37.7		$	44.6
Actual return on plan assets		95.4			72.7			76.9			2.8			0.2			1.4
Company contributions		37.8			55.7			75.5			13.5			11.0			13.1
Participant contributions		0.2			0.1			0.1			3.5			4.2			4.2
Translation difference		5.1			(1.1	)		(0.6	)		—			—			—
Acquisitions/Divestitures		42.7			—			—			—			—			—
Curtailments/settlements⁽¹⁾		(0.9	)		(0.1	)		(2.1	)		—			—			—
Benefits paid		(41.0	)		(38.8	)		(34.6	)		(20.2	)		(24.3	)		(25.6	)

Fair value of plan assets at December 31,	$	905.0		$	765.7		$	677.2		$	28.4		$	28.8		$	37.7

(1)

Represents various curtailments and settlements. During 2012 we had a curtailment loss of $0.7 associated primarily with the pending sale of Coating Resins, which is included in earnings from operations of discontinued business, net of tax in the Consolidated Statements of Income. During the first quarter of 2011, we had a curtailment gain of $1.0 resulting from the sale of the Building Block Chemicals segment, which is included in gain on sale of discontinued operations, net of tax, in the consolidated Statements of Income.

(2)

Significant amendments were made to our U.S. postretirement medical plan in 2011. Major amendments include changes to the prescription drug benefit plan for Medicare-eligible retirees, in which benefits are to be delivered through an Employer Group Waiver Plan (“EGWP”) and commercial wrap plan instead of through an individually designed commercial plan only. Changes were also made to other retiree medical programs with respect to cost sharing elements, such as participant premiums.

Certain prior year amounts included within the postretirement change in plan assets table above have been reclassified to conform to the current year presentation. The postretirement plan benefit obligation includes Medicare Part D subsidies received that reduce company contributions. The amounts received for 2012, 2011, and 2010 were $0.7, $1.2, and $2.1, respectively.


	Pension Plans									Postretirement Plans
	2012			2011			2010			2012			2011			2010
Funded status, end of year:
Fair value of plan assets	$	905.0		$	765.7		$	677.2		$	28.4		$	28.8		$	37.7
Benefit obligations		(1,016.6	)		(864.6	)		(797.3	)		(200.8	)		(219.9	)		(233.8	)

Funded status	$	(111.6	)	$	(98.9	)	$	(120.1	)	$	(172.4	)	$	(191.1	)	$	(196.1	)

Amounts recognized in the consolidated balance sheets consist of:
Noncurrent assets	$	3.6		$	—		$	0.2		$	—		$	—		$	—
Current liabilities		(2.1	)		(2.2	)		(2.1	)		(10.0	)		(10.9	)		(12.2	)
Noncurrent liabilities		(113.1	)		(96.7	)		(118.2	)		(162.4	)		(180.2	)		(183.9	)

Total amounts recognized	$	(111.6	)	$	(98.9	)	$	(120.1	)	$	(172.4	)	$	(191.1	)	$	(196.1	)

Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial losses	$	305.3		$	279.8		$	265.9		$	65.4		$	84.2		$	58.2
Prior service (credits)/costs		1.6			2.6			0.5			(29.3	)		(35.2	)		(11.2	)
Transition obligations		—			—			—			—			—			—

Total	$	306.9		$	282.4		$	266.4		$	36.1		$	49.0		$	47.0

Changes in accumulated other comprehensive income (AOCI) consist of:
AOCI, beginning of year	$	282.4		$	266.4		$	260.9		$	49.0		$	47.0		$	7.5
Current year actuarial (gains)/losses		58.6			37.7			24.1			(12.6	)		30.3			29.6
Current year prior service costs/(credits)		0.1			2.2			—			1.5			(34.7	)		(0.1	)
Curtailments/settlements		(7.0	)		(3.1	)		(0.8	)		(1.6	)		0.7			—
Amortization:
Amortization of actuarial gains/(losses)		(26.8	)		(20.8	)		(17.7	)		(4.5	)		(3.9	)		(0.6	)
Amortization of prior service (costs)/credits		(0.4	)		—			(0.1	)		4.3			9.6			10.6

AOCI, end of year	$	306.9		$	282.4		$	266.4		$	36.1		$	49.0		$	47.0

Estimated amortization to be recognized in accumulated other comprehensive income in 2013 consist of:
Net actuarial losses	$	33.9								$	5.0
Prior service costs/(credits)		0.1									(3.8	)

Total	$	34.0								$	1.2

The assumed rate of future increases in the per capita cost of healthcare benefits (healthcare cost trend rate) is initially 7.5% in 2013, decreasing to an ultimate trend rate of 5.0% in 2017. The healthcare cost trend rate has a significant effect on the reported amounts of accumulated postretirement benefit obligation (“APBO”) and related expense.

A 1.0% change in assumed healthcare cost trend rates would have the following effect:


	2012					2011
	1% Increase		1% Decrease			1% Increase		1% Decrease
Approximate effect on the total of service and interest cost components of other postretirement benefit costs	$	0.6	$	(0.6	)	$	0.8	$	(0.8	)
Approximate effect on accumulated postretirement benefit obligation	$	13.4	$	(12.1	)	$	14.7	$	(13.5	)

The following information is presented for those plans with an accumulated benefit obligation in excess of plan assets:


	U.S. Plans						Non-U.S. Plans						Total
December 31,	2012			2011			2012			2011			2012			2011
Projected benefit obligation	$	(860.8	)	$	(767.9	)	$	(75.6	)	$	(38.1	)	$	(936.4	)	$	(806.0	)
Accumulated benefit obligation	$	(854.9	)	$	(759.9	)	$	(70.2	)	$	(36.8	)	$	(925.1	)	$	(796.7	)
Fair value of plan assets	$	762.2		$	677.4		$	59.1		$	29.0		$	821.3		$	706.4

The asset allocation for our U.S. and non-U.S. pension plans and postretirement plans at the end of 2012 and 2011, and the target allocation for 2013, by asset category, are as follows:


	U.S. Pension Plans
	Target Allocation			Percentage of Plan Assets at Year End
Asset Category	2013			2012			2011
Equity Securities		30	%		24	%		27	%
Fixed Income		70	%		76	%		73	%

Total		100	%		100	%		100	%


	Non-U.S. Pension Plans
	Target Allocation			Percentage of Plan Assets at Year End
Asset Category	2013			2012			2011
Equity Securities		30	%		45	%		30	%
Fixed Income		59	%		44	%		56	%
Cash and other		11	%		11	%		14	%

Total		100	%		100	%		100	%


	Postretirement Plans
	Target Allocation			Percentage of Plan Assets at Year End
Asset Category	2013			2012			2011
Equity Securities		40	%		40	%		52	%
Fixed Income		60	%		60	%		48	%

Total		100	%		100	%		100	%

The total fair value of U.S. pension and postretirement plan assets was $790.6 and $706.2 at December 31, 2012 and 2011, respectively. We have invested certain U.S. pension assets directly in our common, and use a combination of active and passive stock and bond managers to invest all other assets of the pension and postretirement plans. The managers are selected based on an analysis of, among other things, their historical investment results, frequency of management turnover, cost structure, and assets under management. Assets are periodically reallocated among the investment managers to maintain the appropriate asset mix and occasionally transferred to new or existing managers in the event that a manager is terminated.

Our overall investment strategy is to achieve a mix of approximately 95% of investments for long-term growth and 5% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations for U.S. pension plan assets are 30% equity securities and 70% corporate bonds and U.S. Treasury securities. The target allocations for postretirement plan assets are 40% equity securities and 60% corporate bonds and U.S. Treasury securities. Equity securities primarily include investments in large-cap, mid-cap and small-cap companies primarily located in the United States. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities, and U.S. Treasuries. In order to reduce the volatility of our pension plan assets relative to pension liabilities, over the past two and a half years we have gradually implemented a liability-driven investment strategy for our U.S., U.K. and Canadian defined benefit pension plans. As part of the strategy, we have transitioned some of our equity allocation to longer-term fixed income assets.

The target allocations for non-U.S. plan assets are 30-50% equity securities, 50-70% corporate bonds and U.S. Treasury securities, and 0-15% to all other types of investments. Equity securities primarily include a broadly diversified portfolio of common stocks of publicly traded companies that are primarily non-U.S. Fixed income securities include corporate bonds, mortgage-backed securities and government bonds. Other types of investments include insurance assets and investments in hedge funds that follow several different strategies.

The fair values of our Level 1 pension assets are determined based on quoted market prices in active markets for identical assets. The fair values of our Level 2 pension assets are based on the net asset values of the funds, which are based on quoted market prices of the underlying investments. Our Level 3 assets include an insurance contract and a real estate fund. The fair values of the insurance contract held by one of our non-U.S. plans are based on the contractual terms of the arrangement with the insurance company. The fair value of the real estate fund is based on the net asset value of shares held at year end.

The fair values of the pension assets at December 31, 2012 and 2011, by asset category, are as follows:


	Fair Value Measurements at December 31, 2012
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	12.3	$	12.3	$	0.0	$	0.0
Equity securities:
- Company stock		81.5		81.5		0.0		0.0
- U.S. equity funds⁽¹⁾		114.5		103.7		10.8		0.0
- International equity funds⁽²⁾		53.4		0.0		53.4		0.0
Fixed income funds⁽³⁾		632.8		214.9		417.9		0.0
Real estate fund		1.6		0.0		0.0		1.6
Insurance assets		8.9		0.0		0.0		8.9

Total	$	905.0	$	412.4	$	482.1	$	10.5


	Fair Value Measurements at December 31, 2011
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	42.9	$	42.9	$	0.0	$	0.0
Equity securities:
- Company stock		52.9		52.9		0.0		0.0
- U.S. equity funds⁽¹⁾		133.5		128.2		5.3		0.0
- International equity funds⁽²⁾		21.2		0.0		21.2		0.0
Fixed income funds⁽³⁾		505.3		200.2		305.1		0.0
Real estate fund		2.2		0.0		0.0		2.2
Insurance assets		7.7		0.0		0.0		7.7

Total	$	765.7	$	424.2	$	331.6	$	9.9

(1)	Funds which invest in a diversified portfolio of publicly traded U.S. common stocks of large-cap, medium-cap, and small-cap companies. There are no restrictions on these investments.

(2)	Funds which invest in a diversified portfolio of publicly traded common stock of non-U.S. companies, primarily in Europe. There are no restrictions on these investments.

(3)	Funds which invest in a diversified portfolio of publicly traded government bonds and corporate bonds, approximately 38% and 62%, respectively, as of December 31, 2012, and approximately 38% and 62%, respectively, as of December 31, 2011. There are no restrictions on these investments.

Fair value measurements of plan assets at December 31, 2012, using significant unobservable inputs (Level 3), are as follows:


	Total			Insurance Assets		Real Estate Fund
Balance, beginning of year	$	9.9		$	7.7	$	2.2
Actual return on assets:
Assets held at end of year		0.4			0.3		0.1
Assets sold during the year		0.0			0.0		0.0
Purchases, sales and settlements		(0.6	)		0.1		(0.7	)
Transfers in/(out)		0.8			0.8		0.0

Balance, end of year	$	10.5		$	8.9	$	1.6

The fair values of the postretirement plan assets at December 31, 2012 and 2011, by asset category, are as follows:


	Fair Value Measurements at December 31, 2012
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	3.7	$	3.7	$	—	$	—
Equity funds⁽¹⁾		11.5		11.5		—		—
Fixed income funds⁽²⁾		13.2		13.2		—		—

Total	$	28.4	$	28.4	$	—	$	—


	Fair Value Measurements at December 31, 2011
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	0.8	$	0.8	$	—	$	—
Equity funds⁽¹⁾		14.9		14.9		—		—
Fixed income funds⁽²⁾		13.1		13.1		—		—

Total	$	28.8	$	28.8	$	—	$	—

(1)	Investments in publicly traded funds: 100% invested in an S&P 500 index fund as of December 31, 2012, and 79% invested in an S&P 500 index fund and 21% invested in international index fund for Europe and Asia as of December 31, 2011.

(2)	A publicly traded mutual fund that invests in a diversified portfolio of investment grade fixed income securities, with government, corporate and mortgage securities. The fund has a dollar weighted maturity between 3 and 10 years.

The following table reflects expected 2013 cash flows for the pension and postretirement benefit plans:


Expected Employer Contributions	Pension Plans		Postretirement Plans
U.S. Plans	$	51.8	$	10.0
Non-U.S. Plans	$	5.6	$	0.2

The following table reflects total benefits expected to be paid from the U.S. plans and the non-U.S. plans and/or our assets:


	U.S. Plans				Non-U.S. Plans
Expected Benefit Payments	Pension Plans		Postretirement Plans		Pension Plans		Postretirement Plans
2013		38.7		14.9		5.4		0.2
2014		40.4		15.1		5.2		0.2
2015		42.1		15.1		6.0		0.2
2016		43.7		15.1		5.7		0.3
2017		44.3		14.9		6.0		0.3
2018-2022		248.9		67.6		36.9		1.7

We also sponsor various defined contribution retirement plans in a number of countries, consisting primarily of savings, profit growth and profit sharing plans. Contributions to the savings plans are based on matching a percentage of employees’ contributions. Contributions to the profit growth and profit sharing plans are generally based on our financial performance.

Amounts expensed related to these plans are as follows:


Years ended December 31,	2012		2011		2010
U.S.
Savings Plan	$	19.6	$	20.5	$	21.3
Non-U.S.
Others	$	2.9	$	2.4	$	2.2

In addition to defined benefit pension and defined contribution retirement plans, we sponsor immaterial post-employment plans in a number of countries. Those plans, in certain circumstances, provide salary continuation, disability related benefits, severance pay and continuation of health care coverage during the period after employment but before retirement.

Certain of our benefit plans provide for enhanced benefits in the event of a “change of control” as defined in the plans.